It’s all About Timing – How Buildings Optimize Their Electricity Consumption and Save Costs With Demand Side Management

In a world where the demand for energy is constantly increasing and fossil resources are no longer a sustainable option, it is crucial to transition to renewable energy sources and utilize them as efficiently as possible. The building sector plays a central role in this transition, as it consumes large amounts of energy while also serving as a flexible resource for optimizing grid stability and energy supply. Moreover, through fully automated and grid-interactive control of their electricity consumption, also known as demand side management (DSM), buildings become true energy management hubs and a key component of the energy transition.

Renewable Energies on the Rise

European and national climate protection goals require a fundamental restructuring of the energy supply in Germany. To achieve the energy and climate targets set by the federal government, the German Renewable Energy Sources Act stipulates that 80.0 percent of our gross electricity consumption must be covered by renewable sources by 2030. To be able to provide the necessary amounts of renewable electricity, the law sets ambitious expansion targets. For example, the installed photovoltaic capacity is expected to triple by 2030, and the capacity of onshore wind turbines is to be doubled. These efforts are already bearing fruit. In its latest background paper, the German Environment Agency 's "Working Group on RenewableEnergy Statistics" (AGEE-Stat) reports that in 2023, for the first time more than half of total gross electricity consumption in Germany was covered by renewable energies, with a share of 51.8 percent. In 2022, the share was 46.2 percent. According to AGEE-Stat, the share of heat from renewable energies has also continued to rise. A notable increase is seen in the use of heat from electrically powered heat pumps.

Controlling Electricity Demand Through Demand Side Management

Traditionally, our electricity supply system has been based on the principle of adjusting the supply side to meet demand (load-oriented power generation). The term "load" refers to the electrical power required at a given time to supply all consumers. However, the integration of renewable energies means that depending on weather conditions, time of day, and season, surpluses or deficits on the supply side can occur. During sunny and windy conditions, electricity production is high, whereas at night and when there is no wind, electricity production decreases accordingly. However, households, businesses, and industries require a reliable and affordable electricity supply at all times – and demand is increasing, notleast due to the growing electrification of the transport and heating sectors. This is only possible if the power grid remains stable and is not overloaded or undersupplied – in other words, if exactly as much electricity is fed into the grid as is consumed.

To coordinate generation and consumption in line with demand, our electricity grid must become "smarter" and, above all, "more digital". The method of demand side management (DSM) is considered a promising and indispensable approach for the future. The term "demand side" refers to the consumer side, including households, businesses, and public institutions that utilize electricity provided by the supplier. The principle is to no longer consider these entities as passive consumers but to actively involve them in the energy system and its management. By strategically reducing or increasing electricity consumption from heating, ventilation, and air conditioning systems based on market signals and through intelligent energy storage, consumers can actively help regulate the required balance between supply and demand.

The Importance of Building Flexibility is Increasing

This paradigm shift is crucial for the building sector, as the German government has legally anchored the energy transition for heating and hot water with the recent amendment to the Buildings Energy Act (GEG). From 2045 onwards, buildings in Germany may only be heated using renewable energies. And the potential is significant: according to the latest figures from the German Energy Agency's (dena) Building Report 2024, around 33 percent of Germany's total final energy consumption in 2022 was used for space heating and hot water in buildings alone. By way of comparison, the building-related heat consumption was even higher than the final energy consumption of the transport sector, which accounts for around 29 percent of the total consumption in Germany. To ensure the success of the "heat transition", demand side management will play a key role in sustainable energy supply in the future.

With its Law to Restart the Digitization of the Energy Transition, the Federal Ministry for Economic Affairs and Climate Action (BMWK) therefore also obliges all electricity suppliers to offer dynamic electricity tariffs – also known as “flexible electricity tariffs” – from 2025 onwards. Consumers can thus deliberately draw electricity when it is particularly cheap and has a low carbon footprint during periods of high renewable energy generation. Using intelligent metering systems, known as "smart meters", consumers can analyze their own consumption behavior for this purpose. The metering point operators are legally obliged to gradually equip the connected consumption points with smart meters by 2030 according to a specified rollout schedule. For buildings with an annual electricity consumption of over 6 000 kilowatt hours or a photovoltaic system with more than seven kilowatts of installed capacity, the installation of smart metering systems is already mandatory from 2025 onwards.

Demand Side Management as the New Competitive Edge for Buildings

For commercial properties in particular, the facts described above present three specific use cases for demand side management:

Utilizing dynamic electricity tariffs: A major advantage of demand side management is the optimization of the energy price, i.e., the cost per kilowatthour (kWh) actually consumed, through the use of dynamic electricity tariffs. In contrast to conventional tariffs, where the electricity price remains constant, dynamic electricity tariffs vary depending on supply and demand. This makes it possible to purchase electricity at lower prices when demand is particularly low or even to receive money for consuming electricity when there is a surplus in the grid. With the help of heat pumps or refrigeration machines, the surplus electricity can then be converted into thermal energy and introduced into the building, for example, stored in the building structure, so that the energy does not have to be provided from electricity at times of high demand or low supply. Especially in buildings with high energy requirements, this can lead to significant savings.

Optimizing demand charges: Demand side management allows buildings to strategically reduce their electricity consumption during periods of high demand, a practice known as "peak shaving". This avoids having to pay higher demand charges to the grid operator. The demand charge refers to the costs a grid operator charges for providing the electricity connection. It is usually levied as a monthly fee and depends on the maximum power (measured in kilowatts, kW) a building uses within a given period. For example, if a commercial building is pre-cooled by a few degrees before a high-consumption event, the air conditioning system does not need to run at full capacity during the event, significantly lowering operational costs.

Maximizing the building's own power supply: As so-called "prosumers", buildings not only consume energy but can also generate (e.g., via in-house photovoltaic systems) and store it (e.g., in battery storage systems or, as described above, in the building's structure). This means that the self-generated electricity can be used directly on site and consumed as required. If more self-generated electricity is available than is currently required, the surplus electricity can be fed into the public grid and thus generate additional income. Through digital platforms, buildings can even become part of "virtual power plant," which aggregate and market the surplus electricity from many small producers.

The goal in all three cases is to generate savings without compromising the operational reliability and comfort within the building. Thus, the flexibility potential of buildings becomes a central competitive factor concerning cost efficiency, supply security, and sustainability. The diagram below illustrates this process in the building:

The Cloud Platform as a Key Technology for Demand Side Management

The aforementioned use cases demonstrate that professional demand side management in buildings offers many advantages. To fully exploit these potentials, the use of advanced IoT technologies is essential. Cloud platforms for digital operational optimization provide an efficient tool to meet these demands in both new and existing buildings:

Using open interfaces, the software enables seamless integration of data from various sources such as sensors, meters, and building automation systems. Automated analyses allow this data to be efficiently processed and utilized to understand energy consumption patterns in the building and to develop strategies for optimizing energy flows. Predictive control dynamically adjusts power consumption to the grid conditions, using energy only when necessary due to weather and room usage, and when energy costs are favorable.

Moreover, cloud platforms are designed with high scalability to support a large number of buildings within a portfolio in demand side management. Specialized providers offer owners comprehensive support with property-specific potential analysis, estimation of investment costs and energy yields, and planning assistance based on real operational data and building physics metadata. Through the dynamic networking of individual systems, an intelligently run building is created that fully meets the flexibility requirements of future energy systems.