Electricity demand and supply both fluctuate throughout a day or season. Some fluctuations are predicted, such as a peak in demand in certain hours, while others are unpredicted.
Historically, the balancing of this effect was performed by increasing or decreasing the output of power plants. This often requires large investments in capital-intensive facilities (generators, frequency regulators etc) that are not used on a constant basis. That means generation capacity that goes mostly wasted.
Electricity users (demand side) now can change their patterns of use according to incentives offered by utilities. The rollout of smart meters means consumers too can provide this balancing flexibility, not only power plants. For instance, smart meters could tell at what times of day energy can be saved by shifting or reducing energy use at the end user side.
Demand-side response (DSR) refers to “changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electrcity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardised” (DOE, 2006)
As utilities advance towards managing the grid as an integrated network comprising of two-way communication elements, smart meter data is increasingly important to understand system behavior as a unique entity. Utilities can benefit in numerous ways by adopting DSR technologies and processes.
For more details, have a look here.