The increasing peak-valley differences

air conditioners and renewable energy sources bring new challenges to the smart grid in China. Demand response(DR)is regarded as one of the most important solutions to the above problems. A new round of electricity market reform is being carried out in China

which provides a good opportunity for developing DR. Under this background

this paper analyzes the development of DR in different electricity market environments. A business model and a market framework of DR

which suit to China's national conditions

are put forward. There are two stages: in the first stage

an ancillary service market which contains DR and is relatively separate with the energy market should be developed; in the second stage

an ancillary service market which contains DR and is collaboratively optimized with the electricity market should be developed. Moreover

product types

price clearing methods

assessment methods and settlement methods of DR are analyzed separately in the two stages. With the development of electricity market in China

DR will play more important role to the stability and economy of the power system.