Demand Response and Peak Load Management

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Demand Response and Peak Load Management

Demand response refers to strategies employed by utilities that use time-based financial incentives to modify consumer electricity consumption during periods of peak demand, power scarcity, grid congestion or an anticipated grid outage.[1] The cost of electricity from the consumer’s perspective usually reflects the average cost to generate electricity throughout the day or year. Reducing peak demand reduces the cost of electricity by reducing the need for additional generation capacity and avoiding the construction and maintenance costs associated with “peakers” or standby energy plants. Utility companies often charge flat rates for energy consumption. These flat rates do not factor in the different costs of supplying energy during different times or usage levels. Energy usage peaks from air conditioner use on hot days and when people come home from work between the hours of 2 pm and 7 pm. Figure 1 illustrates the results of shifting energy use away from peak hours.[2]

    Figure 1 – Shifting Demand (Source: MIT).

    Figure 1 – Shifting Demand (Source: MIT).

    Increased peak demand strains the electric system, increases emissions, and adds to energy costs. In a demand response program, homeowners manage the amount and timing of energy consumption to maximize energy efficiency and reduce energy costs by shedding loads or shifting activities to off-peak hours, which often coincide with lower energy prices or incentive payments. Demand response may include interrupting demand for a short period or adjusting demand levels by shedding or shifting loads or storing energy. For example, homeowners can manually adjust or automatically set smart thermostats to cycle off during periods of peak demand and to cycle back on during off-peak hours, potentially lowering energy use and electricity bills. Advances in smart grid infrastructure including smart metering technologies have expanded the range of available demand response programs and dynamic price offerings.[3]

    Demand response programs often utilize dynamic pricing models such as time-of-use pricing, real-time pricing, variable peak pricing, critical peak pricing, critical time rebates or peak time rebates.[4] Smart metering and energy management systems provide detailed consumption and cost information, often in easy to ready visual displays that allow homeowners to make informed decisions concerning overall energy usage and energy use patterns at various time intervals. Demand response enabled devices such as smart thermostats and smart water heaters can signal consumers to adjust electricity consumption manually or allow utilities or aggregators to automatically turn off air-conditioning units or water heaters to avoid peak load issues (see Smart Sensors and Controls, and Smart Meters). Demand response programs can also signal residences with on-site renewable energy generation and storage capabilities to use, store, or sell renewable energy back to the grid and encourage electric vehicle charging during off-peak, low-cost hours or charging back to the grid during periods of peak demand (see Alternative Transportation, Energy Storage and Backup Power Generation). Additionally, utilities can notify demand response participants of a potential grid failure, and incentivize participants to reduce energy use, switch to on-site generation, backup power or a combination of these load management strategies.

    How to Incorporate a Demand Response Program or Peak Load Management?

    Check with your local utility to find out about available demand response programs, eligibility requirements, and offerings in your building’s service area. Smart energy management systems and smart metering technologies provide the data and two-way communication necessary for participation in many demand response programs (see Smart Metering). Other demand response enable devices may include lighting controls, appliances, air conditioning units, and water heaters (see Smart Sensors and Controls).

    Peak load management strategies may include:

    • Activating, or turning on equipment sequentially, rather than all at once.[5]
    • “Coasting” the last hours of operation – turning down or off systems (such as temperature control, ventilation) while maintaining adequate levels of comfort.[6]
    • Load shedding or switching loads such as running the dishwasher or washing machine during off-peak hours.[7]
    • Load shifting or moving consumption to off-peak periods, such as pre-heating water heaters to a higher temperature and then allowing the temperature to fall naturally during a load reduction.
    • Load-displacement or offsetting peak demand with on-site generation such as renewable sources and battery energy storage.
    • Demand flexibility or communication and control technologies that allow significant loads to continuously respond to changing renewable supply levels, particularly wind and solar, and other market signals.[8]


    Atlantic City Electric offers a demand response program for their residential customers called Energy Wise Rewards. Participants in the program have a device installed on their central air conditioning units, which allows for remote turn-off by utilities during peak periods during the summer months. Jersey Central Power and Light (JCP&L) has a similar program called EasyGreen. PSE&G ran a pilot program called MyPower in 2006 and 2007, but as of this writing, there is no comprehensive residential demand management program available.[9]


    Demand Response programs supported by smart grid and smart metering infrastructure provide multiple benefits to utilities, energy consumers, and the grid. By accounting for the real-time cost, availability, and source of electricity, and reducing peak consumption, demand response programs:

    • Encourage energy conservation and reduce overall energy consumption eliminating the need for building new or maintaining older, less-efficient standby energy plants, passing savings onto ratepayers in the form of reduced electrical bills or incentive payments.[10]
    • Reduce strain on the grid and increases grid reliability by reducing grid congestion, better balancing of supply and demand, and decreasing supply interruptions and losses.[11]
    • Facilitate the use and integration of cleaner energy sources[12] by adjusting demand to match intermittent wind and solar supplies.
    • Promote energy storage technologies, such as Vehicle-to-Grid (see Energy Storage and Backup Power Generation) that can shift load consumption to optimal times or provide backup power to the grid like a generator and support distributed renewables generation.


    Establishing a demand response program and offering dynamic pricing to reduce peak demand may be cheaper and faster for a utility than building a peaker plant to meet increased demand. Demand response programs can encourage customers to modify their consumption behavior and reduce electric bills. Smart home and demand response enabling technologies, including smart energy management systems and smart metering are becoming more user-friendly, cost-competitive and widespread in the marketplace. As distributed energy resource capacity, including battery storage, grows so does the ability to shift loads and take advantage of potential cost savings and incentives offered by demand response and dynamic pricing programs.


    Demand response reduces stress on the electricity grid during times of prolonged disaster or shifts in weather. Demand response programs enable utility programs to reduce electricity demand, especially at times of system peak and increase grid reliability by avoiding system outages. Demand response programs also increase resiliency by supporting the smart grid, which aims to diversify and strengthen the electric grid through better energy management and the integration of cleaner energy sources such as wind and solar as well as electric vehicle charging and energy storage.


    [1] Connected Devices Alliance. “Intelligent Efficiency – A Case Study of Barriers and Solutions – Smart Homes.” March 2018. (accessed September 10, 2018).

    [2] Applied Energy Journal  “Demand Side Management in a Day-Ahead Wholesale Market: A Comparison of Industrial & Social Welfare Approaches” (MIT)  (accessed  April 19, 2018).

    [3] Smart grids are electricity supply networks that use digital communications technology to detect and react to changes in energy supply and demand and manage the transport of electricity from generation sources to end users.

    [4] Smart Electric Power Alliance. 2017. “2017 Utility Demand Response Market Snapshot.” (accessed September 12, 2018).

    [5] BOMA International. “30 Ways to Save Energy – for little or no cost.” (accessed April 19, 2018).

    [6] Ibid.

    [7] Energy Exchange. Peak Shaving. (accessed May 22, 2018).

    [8] Rocky Mountain Institute (RMI). “Demand Flexibility: The Key to Enabling a Low-Cost, Low-Carbon Grid.” Insight Brief. Feb 2018. (accessed May 22, 2018).

    [9] Electric Energy Online. PSE&G’s MyPower Pricing Pilot Program Wins National Recognition. (accessed October 26, 2010).

    [10] ACEEE. “Demand response programs can reduce utilities’ peak demand an average of 10%, complementing savings from energy efficiency programs” (accessed April 19, 2018).

    [11] US DOE. “Benefits of Demand Response in Electricity Markets and Recommendations for Achieving Them.” >  (accessed April 19, 2018).