Energy Demand management may also name as demand side management (DSM). It is the alteration of consumers demand for energy during different methods such as economic incentives and education. Generally, the aim of demand side management is to persuade the consumers to use smaller amount energy during peak hours, or to move the time of energy use to off-peak times such as night time and weekends. Peak demand management does not essentially decrease total energy utilization, but could be anticipated to trim down the need for investments in networks and/or power plants.

Electrical energy use can differ dramatically on short and medium time frames, and the pricing system may not reveal the instantaneous cost as additional higher-cost ("peaking") sources are brought on-line. In addition, the capacity or compliance of electricity consumers are to adjust to prices by varying demand (elasticity of demand) may possibly be low, particularly over short time frames. In many of the markets, consumers (mostly retail customers) does not face real time pricing at all, but they pay rates based on average annual costs or other constructed prices.

Various market failures rule out a best result. One is that supplier’s costs do not comprise all damages and risks of their actions. External costs are incurred by others directly or by damage to the environment, and are known as externalities. In theory the best approach would be to add the external costs to direct costs of the suppliers as a tax (internalization of external costs). The second-best approach in the theory of taxation is to interfere on the demand side by some kind of rebate.

Energy demand management activities should bring the demand and supply closer to a perceived optimum.

Governments of various countries mandated performance of diverse programs for demand management after the energy crisis. An early example is the National Energy Conservation Policy Act of 1978 in the U.S., preceded by similar actions in California and Wisconsin in 1975.

Energy Efficient: This task can be achieved by using low power. It includes a permanent reduction of demand by means of more efficient load exhaustive application such as refrigerators, geyser, air conditioners etc.

Demand Response: To reduce, flatten or shift demand we need to use any reactive method. Previously, demand response programs have listening carefully on peak demand reduction to put off the high cost of constructing generation capacity. On the other hand, demand response programs are now being looked to help out with changing the net load shape as well, load minus solar and wind power generation, to help with integration of variable renewable energy. Demand response include all deliberate modifications to consumption patterns of energy of end user consumers that are intended to alter the timing, level of instantaneous demand, or the entire energy electricity consumption. Demand response refers to a wide range of actions which can be taken at the consumer side of the energy meter in response to particular conditions within the electricity system.

Dynamic Demand: Advance or delay appliance operating cycles by a few seconds to increase the diversity factor of the set of loads. The idea is that by monitoring the power factor of the power grid, as well as their own control parameters, individual, intermittent loads would switch on or off at optimal moments to balance the overall system load with generation, reducing critical power mismatches. As this switching would only advance or delay the appliance operating cycle by a few seconds, it would be unnoticeable to the end user. This kind of dynamic demand control system is often used for air conditioners.