It’s always nice to live in a well-lit and well-heated place, but if your home doesn’t use energy efficiently it can cost you a lot of money. Here’s what many people don’t understand, though: in many cases, your rates for energy use may not be fixed. Instead, it’s quite likely that the rates you’re charged for utilities vary depending on the time at which you’re using them. If this is news to you though, don’t be alarmed—you’re about to get some very useful money-saving advice.

Understanding the Terms—Peak Demand and Response:

In order to better understand why your energy rates might be different at different times, it’s crucial that you understand a few key terms. Two of the most important are “peak demand”, and “demand response”.

“Peak demand” refers to the times of day and year with the highest demand for power. Utility companies often struggle to produce the required amount of energy to satisfy this level of demand, so they come up with strategies to reduce it. These strategies are called “demand response”—a spectrum of techniques aimed at curbing the amount of power used during peak periods, which therefore helps prevent power outages due to overloading and reduces operating costs for providers.

One common method of demand response is called a time based rate program. There are a variety of different kinds of time based rate programs, each of which involve their own specific criteria for determining changes to rates for certain block. However, the general idea behind each of these programs is the same: the price homeowners pay for their power is higher or lower at certain times. This provides homeowners with an incentive to monitor the way their homes use energy, then upgrade their infrastructure or adjust their habits accordingly to avoid overuse during high-cost periods.

How is this Useful?

There are considerable long term benefits to making these kinds of adjustments. The American Council for an Energy Efficient Economy estimates that regional increases in energy efficiency actually help to reduce peak demands. According to their research, each 1% reduction in electric sales for a given utility results in the median peak demand for that utility being reduced by 0.66%. For homeowners, the implications of a statistic like this are considerable.

Let’s say for the sake of argument that everybody in your area suddenly starts taking measures to make their homes more energy efficient. As a result, peak demand times for your region are reduced. Since power companies are no longer struggling to meet peak demand production levels, they no longer need to implement demand response procedures—one of which is higher pricing during peak hours.

Basically, the more energy efficient you make your home, the less likely your power company is to charge you unreasonable rates when you need power the most.

So, does it actually work that way? The short answer is yes. It depends on the region of course, but in a recent study conducted by the US Department of Energy’s EIA, only 10 out of 25 of the utilities measured used more than half of their demand responses when faced with average peak demand savings of 10%.

While the study offers no conclusive evidence on why some companies employ demand response in spite of peak demand savings while others appear not to, a useful theory can be interpolated from the results: communities that make their homes more energy efficient may well see lower rates during peak hours.

Making you home energy efficient is more than just a way to reduce your power bills in the short term. Under the right circumstances, you could also be making it easier for your utility company to offer you friendlier rates in the future.

At any rate, getting responsible about your electricity usage can only be a good thing. Stay friendly towards the planet and your wallet, and find out how you can monitor your energy consumption more accurately as soon as possible.