Part 1 in a series focused on the strategies and trends that electric utility companies are adopting, as well as the challenges they face in a rapidly changing, regulatory environment.

As temperatures rise in the summer months, so does cooling demand. Heat waves across the U.S. typically cause spikes in usage that force electric utility companies to increase capacity. Just when we thought adapting to rising global temperatures posed enough of a challenge, utilities now face uncertainties caused by the coronavirus pandemic. While electricity demand was significantly lower than normal these past few months due to industry shutdowns, businesses have begun to reopen. This is occurring as millions of Americans are still working from home or are unemployed, running their air conditioners on warm sunny days. Experts warn this extended overlap could strain the grid from coast to coast and cause blackouts as the health crisis drags on.

Reducing electricity consumption reduces the need for building new power plants, which reduces building and infrastructure costs. It is usually cheaper for utility companies to pay customers to manage their electricity demand and usage than it is to build new generation and transmission lines. By incentivizing customers to use less energy, utility companies can better manage their operations now and plan for the power needs of the future, all while complying with evolving state government policies.

There are a variety of grid-level energy demand management programs that utility companies offer to their customers. This article examines the proactive solutions that utility companies offer in response to the changing demands being placed on the grid.

Building portfolios of energy-saving programs

For utility companies, energy management programs are less expensive and faster to implement than other new energy resources. A growing number of electric utility companies are taking steps to encourage demand-side management (DSM) by offering demand response (DR), energy efficiency (EE), and distributed energy resource (DER) programs. These strategies are often mentioned in conjunction with one another and have similarities that can lead to confusion in determining which programs best suit each customer’s needs.

Customers can participate in individual programs or sometimes combine them to achieve greater consumption and costs savings. To better understand what may be asked of your facility, the requirements, and perceptible changes in occupant comfort, the differences between these solutions are explained below.

Demand-side management is the modification of electric consumption designed to achieve a balance between energy production and demand. DSM is an integrated approach that requires customers to play a central role in supporting grid operations through a variety of demand-reduction measures. DSM passively and continuously reduces the electricity load through planning, implementing, and monitoring of a group of actions. Demand response, energy efficiency, and distributed energy resources are separate categories of programs offered under demand-side management.

It is now an accepted fact that power companies’ systems are most efficient when electric load fluctuations are kept to a minimum. Therefore, utilities encourage end-users to do their part through demand response by reducing or shifting electricity usage (load) during peak periods in exchange for financial incentives. DR is often implemented in response to a shift in market electric prices or when the power grid is in jeopardy of overload.

An important distinction of demand response is that it is an active and temporary measure aimed at reducing stress on the grid. According to a 2017 report issued by the American Council for an Energy-Efficient Economy (ACEEE) that examined data from 28 utilities, DR programs generate average peak demand savings of 10%.1 While DR is the most mature DSM program, many businesses still don’t realize they can earn revenue for reducing their energy use during times of peak demand on the grid.

DR at a glance:

  • Enrollment can be complex and programs vary widely with differences in incentives/rebates, participation processes, defined minimum amounts of load to shed, and measurement/verification requirements
  • Typically ideal for large and/or multi-site companies
  • Changes in occupant comfort may be noticeable
  • Can involve financial penalties for non-compliance
  • IoT-based technologies can now automate the process

Energy efficiency programs are gaining traction due to a number of factors. Now more than ever, customers are focused on reducing operating costs to stay competitive while also meeting sustainability goals. Mandates by state regulators are also key drivers.

EE programs provide incentives to commercial and industrial customers for reducing energy usage. Common projects that are often eligible for EE incentives include LED retrofits, installing smart thermostats, installing electric vehicle charging stations, and HVAC equipment upgrades. According to the U.S. Department of Energy, the number of plug and process load (PPL)-related utility incentives has grown tremendously in the past few years.2 A Plug Load Efficiency Utility Incentives List updated by the U.S. Department of Energy in March revealed over 125 utility companies are actively sponsoring PPL rebate/incentive programs.3

Comprehensive commercial programs also include initiatives targeted at specific types of businesses. For example, a supermarket can take advantage of savings realized by retrofitting its refrigeration systems. Commercial energy usage, particularly HVAC, represents a largely untapped energy savings opportunity across a broad spectrum of building types.

EE at a glance:

  • More utilities are offering incentives for plug and play process load solutions
  • Incentive amounts for the commercial and industrial sector are typically greater than those in residential programs due to the higher energy savings potential
  • Commercial retrofit programs typically focus on widely used types of equipment including building automation systems (BAS), water heaters, lighting, HVAC systems, and envelope improvements (windows, roofing systems, and insulation)
  • The right investments can improve occupant comfort

Keeping up with ways to modernize the grid is both exciting and challenging. Distributed energy resources (DERs) represent a small but growing mix of physical and virtual assets that are deployed across the grid, usually behind the meter, that can be aggregated to provide services and value. No longer a one-way power-flow, DERs provide community-generated electricity through two-way power flows using local distribution lines combined with smart meters and data services. According to findings in a recent West Monroe Energy & Utilities report published by Smart Energy International, 92% of utilities have integrated grid systems with DERs.4

DER is a decentralized approach that is gaining momentum due to a convergence of factors that include responses to climate change, customer desire to improve resilience and reliability, state policies, and a shift toward increased integration of clean energy. Common examples of DERs are rooftop solar panels, wind turbines, biomass generators, battery storage, fuel cells, electric vehicles (EV) and EV chargers. DERs also comprises new technologies such as smart meters and data services.

DER at a glance:

  • Utilities see DER as an opportunity to add power and value to the grid
  • The grid’s future will be more diverse and decentralized
  • Customers have a desire for self-supplied energy
  • DER technologies are expected to contribute 65,000 MW to the U.S. grid by 20245

Preparing for the future
As utility companies assess changes in energy demand and evolving customer expectations, noticeable transitions are occurring that indicate a preference for more long-term solutions. Encycle is examining these shifts which you can read about in our next article in this series focused on current trends in the utility sector. Stay tuned!

1 Nadel, Steven. “Demand Response Programs Can Reduce Utilities’ Peak Demand an Average of 10%, Complementing Savings from Energy Efficiency Programs.” ACEEE, ACEEE, 10 Feb. 2017,
2 More Utilities Are Offering Incentives for Plug and Process Load Solutions | Better Buildings Initiative, U.S. Department of Energy,
3 “Updated Plug Load Efficiency Utility Incentives List – As of 3/31/2020.” U.S. Department of Energy Better Buildings, 31 Mar. 2020.
4 Nhede, Nicholas, et al. “Thins to Know about Utilities and-Distributed Energy Resources.” Smart Energy International, 31 Jan. 2019,
5 United States, Congress, Staff Report – Docket No. AD18-10-000. “Distributed Energy Resources:
Technical Considerations for the Bulk Power System.” Jan. 2018.

Contributing author: Chris Hensley, Executive Vice President of Sales and Marketing, Encycle Corporation

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