China has achieved remarkable economic growth over the last decade. To fuel the growth, China added a total of 455 gigawatts of new generation capacity between 2006 and 2011, which is an increase of 76%in five years. Even so, this capacity does not meet the growing demand for electricity, and most of China's industrial sector is facing the worst power shortages since 2004. The Chinese government has been managing the capacity shortfall through direct load control programs. While such mandatory programs have spared China from electricity outages, it does so at a high cost to the industrial sector.The load control program has significantly affected business operations and economic outputs, while failing to trigger greater energy efficiency improvement. Instead, it has led to a proliferation of diesel generators used by industrial facilities when electricity is not delivered, increasing diesel use and associated air pollution.
Internationally, there is a growing trend in employing market-based approaches through demand response (DR) to effectively manage electricity supply and demand particularly during the peak power use. China can significantly benefit by localizing international experiences in DR. Such international experiences, when integrated in the ongoing pilot demand-side management (DSM) programs in China,can provide greater flexibility to electricity customers and help China identify a potential solution in addressing the peak load issues. After the discussion of why China needs a new approach to meet its peak demand, this paper highlights international experience in adopting enabling policies to promote DR and in employing practical DR strategies geared toward the industrial sector. Through these experiences, we provide recommendations for how to integrate DR in China's DSM programs.