Increased interest is recently demonstrated in the promotion of distributed generation based on renewable energy sources (RES). Contrariwise, owed to RES intermittency, most remote areas rely on oil-fired power generation. To facilitate further penetration of RES, the concept of demand side management (DSM) has lately emerged. To this end, a new DSM algorithm is currently developed. Peak shaving and load shifting are applied, considering implementation levels that the residential sector may comply with. Finally, a small-medium scale island grid is used as case study, with our results indicating that the appropriate level of DSM application may yield considerable benefits.