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Grid-Edge DERMS
Customer Engagement
Demand Forecasting
BYOD
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Incentive Processing
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C&I
Between AI and data centers pushing increases in electric demand, supply chain and tariffs confounding infrastructure upgrades, and increasingly erratic weather patterns, utilities are stressed more than ever to keep up. A cursory glance at the news for the electric utility sector paints a picture of an industry in turmoil, leading to rising energy market costs and concerns over transmission planning. Fortunately, demand flexibility programs like virtual power plants, demand response, and EV charging have proven effective at enhancing grid resiliency while lowering operational costs, providing welcome relief to utility operators. Those programs succeed as more customers enroll and participate. So what’s the secret to scaling your demand flexiblity programs? A strong incentive program!
Why Demand Flexibility Initiatives Matter
In December 2025, the International Energy Agency (IEA) released a report that found that global electricity demand is set to add around 1000 TWh each year until 2035; fortunately, demand flexibility efforts can improve system efficiency up to 30%, while lowering operational costs and enhancing grid resiliency. In fact, residential demand response programs in the U.S. alone had 10.3 million enrolled customers in 2022, collectively yielding one TWh of capacity. Likewise, virtual power plants, which are 40-60% more cost-effective to deploy than other power generation plants, can scale to meet over 20% of U.S. peak demand by 2030.
Common Types of Incentives
Put simply, incentives grab and sustain interest, and drive enrollment and participation. A study by the Incentive Research Foundation (IRF) found that businesses with strong incentive programs range from 25-44% more effective than businesses without. Demand flexibility programs thrive with incentives, which can vary broadly based on the needs of an organization.
Across the board, incentives are useful in:
- Boosting enrollment – The right incentives help bolster customer enrollment and participation in demand flexibility programs.
- Preventing customer churn – Incentives play a critical role in minimizing customer churn, as customers leave your demand flexibility initiatives or neglect to participate.
- Driving event outcomes – With a robust incentive program, customers are more likely to engage and participate during demand flexibility grid events.
Incentive processing tools support these objectives by lowering operational necessities from often small internal teams. Now, let’s take a look at the most common types of incentives, and when they may be ideal to employ.
Enrollment Incentives
Perhaps the most common type of demand flexibility incentive, enrollment incentives are designed to attract customers to enroll in demand flexibility programs. As such, this type of incentive is ideal for increasing the enrollment and participation numbers needed to scale your demand flexibility initiatives. Customers become eligible for enrollment incentives upon successful enrollment into demand flexibility initiatives.
Retention Incentives
As the name implies, retention incentives are designed to maintain and foster customer participation in demand flexibility events. These incentives don’t require participation in events, making them optimal for OEMs that have limitations in providing real-time event participation data. Retention incentives are usually released as long as customers stay in the program until the end of the season or stay till the end of the year.
Participation Incentives
Participation incentives build on the ideas of enrollment incentives by gamifying active and sustained participation through demand flexibility grid events. This incentive type can be measured by the number of events a device participated in. A fixed-participation model pays users a flat rate (e.g., $5/month) regardless of their exact energy savings. This approach is perfect for devices where performance is hard to quantify or heavily influenced by human behavior.
For example, if a user overrides their water heater because they are uncomfortable, a performance-based model would deny them payment, causing frustration. Fixed payments, however, offer a predictable reward that keeps users motivated to participate, occasional opt-outs aren’t associated with a total loss of payment.
Performance Incentives
Performance incentives are based on the measurable contributions of enrolled devices in demand flexibility programs. With performance incentives, payments are tied directly to the impact: the more energy you save, the more you earn. This “pay-per-kWh” model is perfect for high-energy devices like home batteries. Instead of a small flat fee, homeowners can earn significantly more by fully participating in peak demand events, giving more control over how much homeowners can earn. To improve the predictability of program results, implementing minimum participation requirements clearly defines the expected level of engagement for participating customers.
Custom Incentives
Because utilities differ in operational strategies, some demand flexibility program managers may opt for custom incentives. Custom incentives are a flexible option designed to fit the needs of individual utilities and, as such, are defined on a case-by-case basis. In this case, customer engagement is crucial in communicating the specific needs determined to meet the basic requirements for incentives.
Types of Demand Flexibility Program Incentives & Why They Matter: Conclusion
As it stands, investor-owned (IOU) utilities, which provide around 57% of all domestic electricity in the U.S., are projected to spend nearly $1.1 trillion in infrastructure alone between now and 2029. With that in mind, demand flexibility programs are crucial in shifting load to off-peak periods of usage during grid events, which minimizes operational costs while enhancing grid resiliency. Demand flexibility programs thrive as they scale to include an array of devices and offer broad load shifting opportunities. That starts with educating customers on the benefits of demand flexibility programs, while fostering customer enrollment and participation. Incentives are a valuable way to build that rapport, while creating a smarter, more energy-minded customer.
Learn More About How Digital Incentive Processing Can Help Your Operation.
