According to the United Nation Development Programme, access to modern low-cost energy systems in developing countries is important in the realization of the globally agreed developmental goals, as well as the Millennium Development Goals, and sustainable development, which would assist in the reduction of poverty and to improve the conditions and quality of life for the greater part of the world’s population. Planners have suggested hybrid energy system for the electrification of rural areas worldwide. This study investigates the techno-economic and environmental effect of applying demand side management (DSM) activities to rural loads before design and sizing of hybrid energy systems for such community. Iporin a rural area in Ibadan, Nigeria which is endowed with an average daily solar radiation of 3.84 kWh/m2/day was taken as a case study. The total daily consumption which was initially estimated as 297 kWh/day after the application of DSM techniques dropped to 130 kWh/day representing a decrease of 56.80 %. Hybrid Optimization Model for Electric Renewables software was used for simulation and optimization purpose. Parameters such as DSM index, net present cost, and emission level were used in determining the effect of the DSM technique. Overall, the DSM activities proved to be more economical and environmental friendly.