As data centers are consuming massive amount of energy, improving the energy efficiency of cloud computing has emerged as a focus of research. However, it is challenging to reduce energy consumption while maintaining system performance without increasing the risk of Service Level Agreement violations. Most of the existing consolidation approaches for virtual machines (VMs) consider system performance and Quality of Service (QoS) metrics as constraints, which usually results in large scheduling overhead and impossibility to achieve effective improvement in energy efficiency without sacrificing some system performance and cloud service quality. In this article, we first define the metrics of peak power efficiency and optimal utilization for heterogeneous physical machines (PMs). Then we propose Peak Efficiency Aware Scheduling (PEAS), a novel strategy of VM placement and reallocation for achieving dual improvement in performance and energy conservation from the perspective of server clusters. PEAS allocates and reallocates VMs in an on-line manner and always attempts to maintain PMs working in their peak power efficiency via VM consolidation. Extensive experiments on Cloudsim show that PEAS outperforms several energy-aware consolidation algorithms with regard to energy consumption, system performance as well as multiple QoS metrics.