Myth‑busting energy efficiency & demand response – fastest‑moving subsegments to watch

Executive summary

Many founders assume that energy efficiency and demand response (DR) are mature, low‑margin businesses best left to utilities.
This view overlooks how quickly the landscape is shifting. Electricity demand from data centres, electric vehicles and electrified heating is surging, creating urgent need for flexible resources.
At the same time, advanced sensors, software platforms and business models are turning efficiency and DR into dynamic marketplaces with reliable revenue streams.
This guide unpacks five common myths, highlights results from large programmes, and outlines emerging subsegments for entrepreneurs.
Across the United States and Canada, utilities are enrolling hundreds of thousands of customers and managing hundreds of megawatts of flexible load.
The fastest movers are those who combine deep efficiency expertise, intuitive digital experiences and creative financing to bring these solutions to scale.

Why it matters

North American electricity demand is poised to grow rapidly this decade.
New AI‑driven data centres, widespread EV charging, heat pump installations and onshore manufacturing are straining grid capacity.
Industry observers predict that electricity demand could double by 2028 in some regions if nothing changes.
Building new generation and transmission takes years and billions of dollars; reducing consumption and shifting it in time are far cheaper.
Energy‑efficiency upgrades save customers money for decades and often pay back within a few years.
Demand response allows utilities to avoid peak‑time purchases from expensive peaker plants and reduces greenhouse‑gas emissions.
For founders, this means that energy efficiency and DR are not just compliance requirements but growing markets with room for innovation.

Myth vs. reality

Myth 1: Demand response only works for heavy industry

Reality: Residential and small commercial customers are providing gigawatts of flexible capacity through smart thermostats, water heaters, heat pumps and batteries.
In Minnesota and North Dakota, Minnkota Power Cooperative controls devices for 55 000 customers – about 40 % of its customer base – shifting 350 MW of demand during winter peaks.
California’s Demand Side Grid Support programme has enrolled over 265 000 participants and assembled 515 MW of dispatchable capacity including a 200 MW battery‑based virtual power plant.
These examples show that scalable demand response is not limited to industrial factories – it thrives in homes, small businesses and municipalities when paired with simple enrolment and clear incentives.

Myth 2: Energy efficiency is too expensive and takes decades to pay back

Reality: Many efficiency measures pay back in as little as one to three years, and even more complex projects generally recoup their cost in three to seven years.
Simple upgrades like LED lighting, smart motor controls and insulation are among the cheapest ways to cut consumption.
Heat pumps, though initially costlier than gas furnaces, deliver three to four units of heat for every unit of electricity and can be financed through on‑bill loans or leasing.
In China, combining a heat pump with rooftop solar typically yields a six‑year payback.
With rising energy prices and generous rebates from federal and state programmes, the cost gap continues to narrow – making energy efficiency a strategic investment, not a sunk cost.

Myth 3: Virtual power plants are hype and can’t deliver reliable capacity

Reality: Virtual power plants (VPPs) are already providing reliable peak‑shaving services and saving customers money.
Green Mountain Power’s battery‑based VPP in Vermont saved customers around US$3 million in a single hour during a June 2025 peak event and now provides over 75 MW of dispatchable capacity through 5 035 participating households.
Southern California Edison’s Power Flex pilot expanded from 5 MW in 2020 to 25 MW by 2025, with plans to keep scaling.
In Ontario, the IESO Peak Perks programme enrolled over 125 000 smart devices and achieved a 133 MW load shed during its first event.
These programmes prove that aggregations of small loads can deliver megawatts of reliable capacity on par with small peaker plants – a critical resource in the face of rising demand.

Myth 4: Customers won’t tolerate having their devices controlled

Reality: High participation and satisfaction rates show that customers are willing to cede limited control when benefits are clear.
Minnkota participants enjoy off‑peak electricity rates roughly half of the standard tariff.
Rocky Mountain Power’s Cool Keeper programme counts over 100 000 customers and boasts a 98 % satisfaction rate.
Arizona Public Service’s Cool Rewards programme combines a US$30 rebate with an US$85 pre‑enrolment incentive, successfully attracting 97 500 thermostats and providing over 160 MW of flexible load.
Programmes with clear opt‑out options, minimal intrusiveness and tangible compensation can build trust and drive adoption.

Myth 5: Efficiency and DR are only for utilities, not startups

Reality: Startups are driving innovation across the value chain.
EnergyHub’s experience redesigning a utility enrolment portal boosted click‑through rates by 70 % and added over 1 000 devices per month, demonstrating the value of user‑experience expertise.
Software platforms that aggregate and optimise DERs, financing models that package upgrades as a service, and analytics companies that identify efficiency opportunities for commercial real estate all have strong growth potential.
Regulators are experimenting with regulatory sandboxes that allow innovators to test new business models under limited exemptions.
Far from being closed ecosystems, energy efficiency and DR offer fertile ground for founders to build scalable companies.

What’s working

Practical examples illustrate how the myths fall apart:

• Large co‑operative DR programmes. Minnkota Power Cooperative shows how rural utilities can integrate heat pumps, water heaters and EV chargers into a flexible resource providing one‑third of winter peak load.

• Statewide programmes with batteries. California’s DSGS programme connects hundreds of thousands of customers and leverages a 200 MW battery VPP to respond to heatwaves.

• High satisfaction rates. Rocky Mountain Power’s Cool Keeper and APS’s Cool Rewards demonstrate that customers can be delighted by demand response when properly compensated.

• Efficiency and payback. Independent analyses show that simple efficiency upgrades pay back in one to three years and more complex systems in three to seven years, making them attractive investments for building owners.

• Heat pump adoption. Air‑source heat pumps deliver 3–4 units of heat per unit of electricity and are selling at scale in China, Australia and New Zealand.
  Their efficiency makes them excellent candidates for DR programmes that pre‑heat or pre‑cool homes during off‑peak periods.

What isn’t working

For all the progress, several challenges persist:

• Financing and equity. Low‑income households, renters and small businesses often lack the capital or credit to invest in efficiency upgrades.
  Rebates and tax incentives are helpful but often require up‑front payments and paperwork.
  Creative financing (on‑bill financing, pay‑as‑you‑save models) and partnerships with community organisations are needed.

• Regulatory inertia. Many utilities still earn a return on capital investments in generation and wires.
  Without performance‑based regulation or value‑of‑load‑reduction tariffs, demand‑side investments compete poorly for utility budget.
  Regulators should adopt frameworks that reward avoided costs and accelerate pilot evaluation.

• Data fragmentation. Effective VPPs require seamless integration of devices, sensors and customer data.
  Legacy systems and proprietary protocols slow integration.
  Standardising communications and requiring open APIs will allow innovators to scale more rapidly.

• Customer awareness. Many consumers and small business owners simply do not know that DR and efficiency programmes exist.
  Marketing and outreach remain underfunded relative to technical development.
  Startups that prioritise user education and trust building can capture market share.

A quick framework for founders

Founders exploring energy efficiency and demand response can use the following framework to identify promising subsegments:

1. Identify critical pain points. Where are grids constrained? Which sectors are facing high energy costs or regulatory pressure to decarbonise? Data centres, refrigerated warehouses and electrified fleets all have unique flexibility needs.

2. Quantify potential value. Estimate the size of the flexible load or efficiency gain and the available incentives.
   Programmes like California’s DSGS pay up to US$2/kWh.
   Efficiency upgrades can offer double‑digit returns with payback under seven years.

3. Map the regulatory landscape. Understand interconnection rules, tariff structures and pilot opportunities.
   Engage with utilities and regulators early, and monitor pilot sandboxes that allow experimentation.

4. Leverage user‑centric design. Simplify onboarding and communication to remove friction.
   EnergyHub’s redesign proves the impact of good UX – a 70 % increase in enrolment clicks.

5. Build partnerships. Work with device manufacturers, installers and community groups to align incentives and reach customers.
   Consider bundling efficiency and DR services into one offering to maximise customer value.

Fast‑moving subsegments to watch

These areas show significant growth potential in North America:

• Residential VPP aggregators – Companies that aggregate smart thermostats, heat pumps and batteries into a single platform are signing contracts with utilities across multiple states.

• Managed EV charging – With EV adoption accelerating, chargers that can shift or curtail charging sessions will become critical. Early pilots integrate with grid signals and promise lucrative revenue streams.

• Commercial building analytics – Startups using AI to optimise HVAC and lighting in commercial buildings are capturing 10–30 % energy savings. When integrated with DR, they provide dispatchable load reduction.

• Industrial process optimisation – Manufacturers are deploying sensors and AI to reduce energy use in motors, pumps and compressed air systems. Payback periods of 1–4 years are common, and many facilities are willing to share savings with service providers.

• Community energy programmes – Municipal utilities and cooperatives are exploring programmes that combine rooftop solar, battery storage, efficiency upgrades and DR into packages for residents, creating new business models for local energy resilience.

Next steps checklist

1. Start with data. Analyse load curves, peak events and participation rates to identify where flexibility will yield the biggest value.
2. Engage customers early. Run focus groups to understand concerns and design incentives accordingly; emphasise choice and comfort.
3. Pilot with a clear path to scale. Define success metrics and expansion triggers before launching a pilot. Avoid indefinite programmes without roadmaps.
4. Secure financing. Leverage rebates, tax credits and innovative financing structures (on‑bill financing, leasing). Offer subscription models that remove upfront cost.
5. Invest in technology. Choose open, interoperable hardware and software that can integrate new devices and programmes easily.
6. Partner with utilities. Align your value proposition with utility needs – avoided costs, reliability, regulatory compliance. Seek win‑win contracts.
7. Stay agile. Monitor evolving regulation, technology trends and customer preferences. Adjust your offering as the market matures.

Sources

• Minnkota Power Cooperative. (2025). Demand Response Programme Overview. Minnkota Power Cooperative.
• California Energy Commission. (2025). Demand Side Grid Support Programme Report. California Energy Commission.
• Green Mountain Power. (2025). Virtual Power Plant Programme Results. Green Mountain Power.
• Southern California Edison. (2025). Power Flex Pilot Evaluation Report. Southern California Edison.
• Rocky Mountain Power. (2025). Cool Keeper Programme Performance Summary. Rocky Mountain Power.
• Arizona Public Service. (2025). Cool Rewards Programme Results. Arizona Public Service.
• EnergyHub. (2025). Utility Enrolment Optimisation Case Study. EnergyHub.
• REN21. (2024). Renewables 2024 Global Status Report: Heat Pumps Market Trends. REN21 Secretariat.