Abstract The Home Energy Management System (HEMS) is an important part of the smart grid that enables the residential customers to execute demand response programs autonomously. This study presents the outcome of a new system architecture and control algorithm that can use both battery storage and manage the temperature of thermal appliances. The proposed algorithm receives the price information from the utility company in advance and purchases the electricity at off-peak hours and utilizes the battery as well as manages the temperature of the thermal appliances during peak hours. The proposed algorithm assures that the power consumption of the electrical appliances is always less than certain level. The proposed house is supported by the battery system and Photovoltaic system as to increase the green index by utilizing alternative energy resource. The amount of the power that can be drained from the battery is limited by the algorithm to remain more during a day. The simulation results indicate that the proposed system is able to reduce the electricity price up to 20% a day without sacrificing the user’s comfort.