Peak demand reduction capacity

Written and checked by the Energy Merchants desk · Reviewed 3 October 2026

Peak demand reduction capacity is the amount of demand, in kilowatts (kW), that an activity can take off the grid at the times of highest stress. It is the quantity that the NSW Peak Demand Reduction Scheme (PDRS) measures, and Peak Reduction Certificates (PRCs) are created from it. See PDRS definition.

The word capacity is the point. It is not the energy a battery stores, which is in kilowatt-hours. It is the power it can deliver, or the load it can drop, when the network needs relief. A 5 kW battery that can discharge during the evening peak provides up to 5 kW of capacity in principle, and the scheme rules decide how much of that counts.

Why kilowatts and not kilowatt-hours

The grid is built to meet its busiest half-hour of the year. Cutting that peak defers expensive network upgrades. So the PDRS rewards the reliable reduction at peak, and not how much energy someone saves overall. That is the difference from the Energy Savings Scheme, which counts energy. See ESS definition.

In practice

Installers meet the idea in the NSW battery VPP incentive. The incentive recognises that a battery connected to an approved virtual power plant can be dispatched at peak, so it provides capacity. The conversion from battery size to certificates follows the scheme’s rules and values, which have changed over time, so confirm the current activity definition on the official PDRS page before quoting a figure.

Other eligible activities include efficient cooling and smart controls that reduce load when called on. Customers often wonder why a small, well-controlled load can earn something: the controllability is what makes the capacity reliable.

For the battery side of a NSW job, the main federal discount is separate. See the Cheaper Home Batteries Program installer guide.

Common confusion

Capacity in kW is not capacity in kWh. A battery’s usable capacity, which sets STCs, is energy. Peak demand reduction capacity is power. See usable capacity. Mixing the two is the commonest error in quotes.

It is also not a measure of your customer’s overall bill saving. A household can reduce peak demand and still pay roughly the same overall.

See PRC definition, battery STCs and the glossary.