Peak energy demand refers to periods when energy demand is substantially higher than average energy supply. This typically happens between 4 PM and 8PM on weekdays, while businesses are still open and at the same time people are returning home from work (turning on their lights, HVAC equipment, and other appliances).
During extreme weather events (such as a polar vortex or a heat wave) energy demand far outstrips energy supply, and around hours of peak energy demand, homeowners can face power outages or blackouts.
Energy providers manage supply and demand in a couple of different ways:
Time of use rates are a way for energy companies to discourage energy use during peak hours by penalizing homeowners by charging higher rates per kWh.
Demand response (or demand management) is a way for energy companies to discourage energy use by rewarding homeowners with bill credits for reduction in energy use. During one demand response event to customers with ecobee smart thermostats, for example, Milton Hydro saw a 57% reduction in energy use. Customers have to opt-in to a utility’s demand response program. Individual demand response events can be optional or mandatory — if a demand response event is mandatory, that means a customer cannot override it.
Both of these methods are preferable to building new power plants (and increasing maximum supply capacity) because building new infrastructure increases overall costs for homeowners, even though the new power plants run at peak capacity only a few times a year (e.g. during extreme weather).