Utility Demand-Response Programs: How they work, and how they save you money

April 21, 2020 - 9 minutes read

When most homeowners think about ways to start saving energy, they tend to first focus on upgrading their home, appliances and HVAC systems. This makes sense: cumulatively, these improvements can drastically cut down on your high utility bills. Yet, many homeowners are unaware of another highly effective way to conserve energy and save money: demand-response programs. Nationwide, many utility companies are now offering incentives to homeowners who help them reduce energy usage during times of peak demand.

In this article, we’ll review how you can establish a baseline measurement of your home’s energy use, why you should enroll in a demand-response program, and where to go next from there.

Start by knowing how much you’re using

The first step to conserving energy is knowing when and how much your home is using. The good news is that today’s homeowners have more tools available to them than ever before. CURB’s home energy monitoring system, for example, helps you take direct control of your home’s energy use. CURB plugs directly into your breaker panel, giving you real-time data on your energy consumption and production.

Homeowners are able to recognize unusual patterns of your energy use and discover probable issues with appliances. In addition, its mobile apps allow you to receive personalized notifications and alerts regarding your energy usage right on your watch or phone, even when you’re not home.

Once you’ve used CURB to discover your baseline energy use, it’s time to start saving. You’ll want to check with your utility company to see if they offer a demand-response program.


What is demand

Utility companies generally experience the highest demand for electricity between 3-7 p.m. on weekdays, which corresponds with the time that most homeowners return home from work, watch television, cook dinner, and run their air conditioner or heater. These “peak hours” put stress on the entire system and make the business of generating electricity more expensive — a cost that gets passed through to consumers in the form of higher rates. In a perfect world, if demand was more evenly distributed throughout the day, utilities would be able to lower costs and reduce the risk of inconvenient outages.

How do these programs work?

To flatten this demand curve, many utility companies have embraced real-time demand-response programs. These initiatives go by many names — ”peak hour pricing,” “rush hour rewards,” etc. — but all operate on the same principle: incentivizing homeowners to use more of their electricity during off-peak hours instead of during peak-risk hours.

Typically, it works like this: the utility company splits the cost of electricity into off-peak and on-peak rates. Once enrolled, the homeowner’s off-peak rate is lower than the average cost of electricity, while their on-peak rate is higher. Assuming you reduce your energy use during peak hours (even if your total consumption stays the same) you’ll see savings on your electric bill fall.

Use smart thermostats to take your savings even further

In general, time-of-use savings programs are not new. However, in recent years, smart internet-connected thermostats have opened up a whole new world of possibilities for demand-response savings. Many utility companies partner with thermostat manufacturers and offer automated savings programs to households above and beyond differentiated on/off peak rate structures.

Of all the electricity used in the average American home, nearly half of it is used on cooling and heating. For utility companies, air conditioners, heat pumps, and furnaces drive peak hours energy consumption in the summer and winter. During “energy-saving events” when demand is expected to be at its highest — such as on a particularly hot summer day — the utility company takes direct control of your home’s thermostat. In the hours preceding the “event” before peak hits, the utility sets the thermostat to start cooling your home. Then, when the event starts, your home should be cool enough to “coast” through the late afternoon without needing to run at length, reducing demand during peak hours.

Not only does this process directly save homeowners money, but utility companies heavily incentivize such programs by offering partial or full rebates on the cost of smart thermostats. They may also provide further incentives in the form of lower energy rates or cash-back offers.

How much money does a demand-response program save?

According to data collected by the U.S. Energy Information Administration, these programs have reduced annual energy use during peak hours by 10-15 thousand megawatts over the past few years. That’s the equivalent of supplying power to 10,000 to 15,000 additional homes. Compared to other initiatives — such as rebates and incentives designed to encourage homeowners to invest in energy-efficiency upgrades — demand-response programs are far less expensive to run. Of course, being able to pass on cost savings is only an added benefit for utilities. The primary purpose of these programs is to lower strain on their systems caused by excessive demand.

So, what about consumers? The exact amount of money saved depends on a number of factors, including the utility company and the specifics of its program, the original cost of electricity, the nature of the incentives, and where you live in the United States. A home in Texas, for example, is going to have different cooling and heating needs than one in New York. As a result, the programs offered in Houston are likely to be different than those in New York City. A Consumer Reports study found that one particular utility company in New York offered an incentive structure that essentially paid for the smart thermostat and then some.

You’re just getting started!

Whether enrolling in your utility’s demand-response program is your first step toward energy savings or just your latest, there’s so much more you can do to make your home more efficient and affordable. To get even more ideas for saving energy, check out the infographic below.

CURB: Energy Management Made Easy

CURB provides a simple and convenient way to monitor and manage all of your home’s energy consumption. The system provides you with real-time data on your home’s energy production and consumption down to each major appliance and zone (or room) in the home. You can easily see which appliances are consuming electricity in the home even when you’re away. Armed with that otherwise invisible information, you can control and automate appliances to ensure electricity is consumed most efficiently.

Along with real-time energy usage feedback, CURB provides ongoing and dynamic opportunities to continue to save money. You can receive notifications, for example, when you’re starting to drift above your energy budget. You can automatically and remotely control appliances to ensure that you stay within your energy goals. All-in-all, CURB provides a rich set of real-time audit tools to save you money and help you stay ahead of your electricity bill.

Lauren Anderson is the home energy writer at Wagner Mechical, a professional heating, air conditioning, electrical and plumbing company servicing Albuquerque and Santa Fe, NM since 1928.