Demand-side management (DSM) and demand response (DR) programs often sound like something every household can easily join: install a smart thermostat, change a few habits, call it a virtual power plant. But thereâs a quiet ceiling we are rarely talking about: the intersection of tenancy, housing conditions, Section 8 assistance, and DSMâDR programs.
Across the US, millions of low-income renters do not entirely control the space they live in. In fact, according to Kevin Adler and Donald Burnes in their book When We Walk By (North Atlantic Books, 2023), nearly three out of four people are one paycheck away from being unhoused. The way most landlordâtenant relationships, rent control, and Section 8 utility allowances are structured often makes it irrational for anyone in that system to invest in demand-side technologyâeven as the grid needs relief from growing commercial demand like data centers. This isnât just an energy or utility problem. Itâs also a housing, finance, relational poverty, and community health problem.
The Split Incentive Problem (And How Your Renters Are Losing)
In most rental housing, incentives are misaligned. Owners control the building shell and equipmentâwindows, insulation, HVAC systems, water heaters, and appliances. Tenants pay the utility bills. As a result of this relationship, tenants can live as unwilling participants to drafts, uncomfortable temperatures in poorly insulated units, and recipients of high utility billsâbut have limited authority to replace or upgrade anything major. It is not unlikely to see open oven doors as sources of heat, no matter how dangerous. Thatâs the classic âsplit incentive.â When the landlord considers adding insulation, upgrading HVAC, or buying DR-ready devices, the financial benefits (lower monthly bills) flow to the tenant, not the owner. The owner sees a capital expense and maybe a nicer listing, but not a clear payback.
Now layer in rent control or rent stabilization: landlords canât easily raise rents to reflect the value of an upgraded, efficient unit. In some cases, this goes directly against the ethos of the housing assistance policies: the national model energy codes should be used, in new construction, provided they do not negatively affect housing affordability. Cost-recovery processes, when they exist, are often capped, slow, and complex. Even where energy-efficient decisions would help the grid and tenants, the rational business move is often to do the minimum required, not the maximum possible. Thatâs the ceiling for DSM enrollment thatâs rarely acknowledged. Money, more than US$23.1B, has been poured into projects to incentivize customers, even without calculating for rebates, without detailing the maximum achievable result. The reality is, the metrics representing the actual impact of DSM programs are likely overestimated, due to factors such as selection bias (Loughran, David S., and Jonathan Kulick. "Demand-Side Management and Energy Efficiency in the United States.")
How Section 8 and Utility Allowances Cap DSM Benefits
Add another layer: Housing Choice Vouchers (Section 8) and similar programs. At a high level, households pay roughly 30% of their income toward rent plus utilities. When tenants pay utilities directly, Public Housing Authorities (PHAs) set a utility allowance meant to cover âtypicalâ energy costs for that unit type in that area. PHAs operate under fixed budgets; changes in rent or allowances affect how many households they can serve.
Hereâs where DSM and housing policy collide: those allowances are usually based on historical consumption, PHAs are not focused on tracking energy efficiency, and when an upgrade actually lowers a householdâs bill, the utility allowance may be recalculated downward at recertification.
The result can be a loseâlose-lose from the utility to the owner to the tenant:
A landlord invests.
The tenantâs usage (and bill) goes down.
The allowance gets cut.
The tenantâs net benefit is small or delayed.
The landlord still doesnât capture the value.
The utility does not achieve the desired goals
Weâve seen similar dynamics with community solar: if bill credits are treated as extra income or as a reason to cut allowances, the benefit disappears on paper even if the kilowatt-hours are cheaper and cleaner. Itâs easy to see why renters and voucher holders often remain invisible in DSM portfolios. The rules for housing assistance werenât written with DSM, DR, or grid flexibility in mind, and the required investments rarely come without strings attached.
The 12-Month Payback Trap
On the utility side, weâve layered on another constraint: short payback expectations. In many DSM portfolios, measures are judged by whether they pay back in 12 to 24 months and fit neatly into a regulatory cycle or pilot window. This math can work for certain technologies and some homeownersâbut it breaks down in rental and assisted housing.
The measures that matter most thereâdeep weatherization, major HVAC replacements, advanced controls and DR-ready systemsâoften have simple payback periods measured in years, sometimes a decade or more. For a homeowner who expects to stay 10 to 15 years, that can still be reasonable. For a landlord juggling turnover, constrained rent, and thin marginsânot so much. For a voucher tenant who might have to move because of work, health, or family needsâdefinitely not.
When we apply a 12-month payback lens across the board, weâre effectively continuing the selection bias: investment in deep DSM makes sense to people who were likely to already invest , if their life fits a stable, homeowner-style pattern or the building owner is willing to do long-term capital planning for your benefit. Thatâs not reality for a huge share of the people we say we want to serve and assist.
A Case Example: The Retail Worker in a Row Home
To make this concrete, imagine an hourly employee at a large retail chain. Her schedule is variable, she rents a small, older row home with no recent upgrades or smart devices, and she pays the utility bills herself. Her monthly electric and gas costs can easily average around $200.
The DSM program is available; in fact, she can have a free smart thermostat, optional enrollment in DR events, and bill credits for peak load reduction. Hereâs what she is up against:
Her schedule and comfort needs line up with peak hours. She needs heating or cooling when sheâs home, sleeping, getting ready for work, or getting kids ready for schoolâwindows that often overlap with system peaks.
A smart thermostat only goes so far. Even if it trims 10% off heating and cooling, an estimate that many consider overly ambitious without replacement of any major appliances, that might be $15 to $20 per monthâhelpful but not transformational in a drafty home with old equipment.
Her landlord still has no business case for deeper upgrades as long as the unit meets code. The installation of these devices is not usually free, and opening up the walls of many older rental homes may produce additional unexpected costs from cloth wires to compatibility with existing HVAC systems that can be much higher than the device savings.
Program metrics may show her as âeligible but not fully participating.â The DR platform may see her thermostat as a controllable resourceâeven if her ability to curtail is minimal without sacrificing sleep, health, or safety. So, she ends up paying high bills in an inefficient home, with limited ability to respond to price signals or DR events, and only marginal benefit from DSM tech. Clearly, this was not the intended outcome that produces a host of shared-incentives for the utility.
This isnât about a ânon-compliant customerâ Nor is it about a utility who is failing to try and engage to help. Itâs the predictable result of misaligned incentives and rulesâand it limits the very programs that are often a source of pride for utilities.
DSM Is Essential â But Not Sufficient
None of this is an argument against having an established DSM or DR program. We need these programs for reliability, decarbonization, and affordability. The point is: DSM on its own is not enough, especially for renters and households in assisted housing. If we want to chip away at the invisible ceiling, we need utilities to add additional pillars around the tech.
1. Arrearage Forgiveness and Debt Management
You can hand someone a smart thermostat, but if they are already in arrears, dodging disconnection notices, or carrying a backlog of unpaid bills, their reality isnât âHow do I optimize my time-of-use rate?â Itâs âHow do I keep the lights on this month?â
Arrearage forgiveness and structured debt management can tie forgiveness to regular payments, give households a cleaner slate so savings arenât immediately swallowed by old debt, and turn DSM from âone more program to be suspicious ofâ into a pathway out of ongoing crisis. Itâs not only an equity move; itâs a risk-management strategy. Customers who are stable, current, and engaged are easier to serveâand more likely to participate in DR when they can.
2. Work with your Community Peers to Align Housing Policy and DSM
Pilots and side recommendations are not enough. We need utilities to advocate and become a partner for codified rules that align housing policy and DSM, especially around Section 8 and similar programs on existing properties, as well as new: utility allowances should not automatically claw back DSM or community solar savings in financially vulnerable households; PHAs and housing finance agencies should recognize the need for efficient, DSM-ready units in their policies by enforcing adherence to that outcome when scoring/inspecting; and landlords who participate in deep retrofits should have clear, predictable pathways to recover part of their cost without displacing tenants or undermining affordability.
If we are going to talk about âdemand flexibilityâ at the grid level, we need comparable flexibility across the housing and assistance systems that govern where people actually live.
3. Make Financing Work:Â Match Real Payback Periods
We also need to retire the idea that âgoodâ measures always pay back in a year or two. In rentals and assisted housing, utilities should lean on tools like on-bill financing or tariffed on-bill programs (where upgrade costs are recovered on the utility bill and obligations are tied to the meter, not a specific tenant), longer repayment horizons that match the savings curve of deep upgrades, and layered funding that stacks DSM/DR incentives with housing and federal dollars. When we align the timeline of financing with the timeline of savings, deep upgrades stop looking like âwhy botherâ and start looking like infrastructure.
The Reality of Community Health and DSM
When households cannot keep homes at safe temperatures, live with chronic stress over shutoffs, or choose between paying the utility bill and buying food or medicine, it shows up in respiratory illness, cardiovascular strain, mental health, and overall resilience. One may argue that this issue becomes a continuous loop for utilities and customers: once health conditions appear in a household, utilities also feel it in accumulated past due debt and write-offs, which subsequently translates to debt that needs to be recovered again in a rate case. Affordable, reliable utility service is a health determinant. DSM that reaches renters and low-income households is both an energy and reliability strategy, an affordability benefit, and a public health intervention.
This is an invitation for utilities and their regulator /utility commissions /legislative officials to stop making unintentional assumptions that the âcustomerâ owns the building; to design DSM and DR portfolios that explicitly name and address split incentives, rent control, and voucher mechanics; and to pair DSM with arrearage relief and realistic financingâespecially in neighborhoods with high energy burden.
For those working in technology, itâs a call to build the data plumbing that lets utilities, housing agencies, and community organizations safely see where high energy burden, arrears, and assisted housing overlap, and to design systems that support on-bill investment models and can handle the nuances of utility allowances and program eligibility.
For public health and community policy, itâs a reminder that utility affordability and housing stability are upstream drivers of health outcomes, and that aligning grid-resiliency programs with housing policy and health initiatives is not âscope creepââitâs how we get durable, community-level outcomes.
Weâre asking DSM programs to do big things for the grid and forecasting enrollment to keep rising. If they donât, we face the unenviable task of seeing additional capacity needs translating to higher bills for the exact same customers, utilities in a cycle of outstanding debt and recovery, and systems like public health and housing that are already burdened bearing additional demands. If we want programs to do big things for peopleâespecially renters and voucher holdersâwe will have to rewrite some of the underlying rules. Otherwise, for people like the retail worker in our case study, DSM will remain what it too often is today: a great idea that never quite makes it through the front door.