Demand Side Management


Introduction -

The term demand-side management is the result of a logical evolution of planning processes used by utilities in the late 1980s. “Demand side management is the planning, implementation, and monitoring of those utility activities designed to influence customer use of electricity in ways that will produce desired changes in the utility's load shape, i.e., changes in the time pattern and magnitude of a utility's load. Utility programs falling under the umbrella of demand-side management include: load management, new uses, strategic conservation, electrification, customer generation, and adjustments in market share”.

Components of Energy Planning embraced by Demand Side Management -

1. Demand-side management will influence customer use. Any program intended to influence the customer's use of energy is considered demand-side management.

2. Demand-side management must achieve selected objectives. To constitute a “desired load shape change,” the program must further the achievement of selected objectives, i.e., it must result in reductions in average rates, improvements in customer satisfaction, achievement of reliability targets, etc.

3. Demand-side management will be evaluated against non-demand-side management alternatives. The concept also requires that selected demand-side management programs further these objectives to at least as great an extent as non-demand-side management alternatives, such as generating units, purchased power or supply-side storage devices. In other words, it requires that demand-side management alternatives be compared to supply-side alternatives. It is at this stage of evaluation that demand-side management becomes part of the integrated resource planning process.

4. Demand-side management identifies how customers will respond. Demand-side management is pragmatically oriented. Thus, demand-side management encompasses a process that identifies how customers will respond not how they should respond.

5. Demand-side management value is influenced by load shape. This implies an evaluation process that examines the value of programs according to how they influence costs and benefits throughout the day.

Demand Side Management and Integrated Resource Planning -

Elements of Demand Side Management Planning Framework -

Five main elements of demand side management are:

1. Set objectives. The first step in demand-side management planning is to establish overall organizational objectives. These strategic objectives are quite broad and generally include examples, such as reducing energy needs, reducing dependence on foreign imports, improving cash flow, increasing earnings, or improving customer and employee relations. The second level of the formal planning process is to operationalize broad objectives to guide policymakers to specific actions. Postponing the need for new construction through a demand-side management program may reduce investment needs and stabilize the financial future of an energy company, or a utility and its state or country. Specific operational objectives are established on the basis of the conditions of the existing energy system— its system configuration, cash reserves, operating environment, and competition. Once designated, operational objectives are translated into desired demand-pattern changes or load-shape changes that can be used to characterize the potential impact of alternative demand-side management programs. Although there is an infinite combination of load-shape-changing possibilities, six have been illustrated to show the range of possibilities, namely peak clipping, valley filling, load shifting, strategic conservation, strategic load growth, and flexible load shape. These six are not mutually exclusive, and may frequently be employed in combinations.

(i) Peak Clipping - Or the reduction of the system peak loads, embodies one of the classic forms of load management. Peak clipping is generally considered as the reduction of peak load by using direct load control. Direct load control is most commonly practiced by direct utility control of either service to customer facilities or of customers' appliances. While many utilities consider this as means to reduce peaking capacity or capacity purchases and consider control only during the most probable days of system peak, direct load control can be used to reduce operating cost and dependence on critical fuels by economic dispatch.

(ii) Valley Filling - Is the second classic form of load management and applies to both gas and electric systems. Valley filling encompasses building off-peak loads. This may be particularly desirable where the long-run incremental cost is less than the average price of energy. Adding properly priced off-peak load under those circumstances decreases the average price. Valley filling can be accomplished in several ways, one of the most popular of which is new thermal energy storage (water heating and/or space heating) that displaces loads served by fossil fuels.

(iii) Load Shifting - Is the last classic form of load management and also applies to both gas and electric systems. This involves shifting load from on-peak to off-peak periods. Popular applications include use of storage water heating, storage space heating, coolness storage, and customer load shifts. The load shift from storage devices involves displacing what would have been conventional appliances.

(iv) Strategic Conservation - Is the load shape change that results from programs directed at end use consumption. Not normally considered load management, the change reflects a modification of the load shape involving a reduction in consumption as well as a change in the pattern of use. In employing energy conservation, the planner must consider what conservation actions would occur naturally and then evaluate the cost-effectiveness of possible intended programs to accelerate or stimulate those actions. Examples include weatherization and appliance efficiency improvement.

(v) Strategic Load Growth - Is the load shape change that refers to a general increase in sales beyond the valley filling described previously. Load growth may involve increased market share of loads that are or can be, served by competing fuels, as well as economic development. Load growth may include electrification. Electrification is the term being employed to describe the new emerging electric technologies surrounding electric vehicles, industrial process heating, and automation. These have a potential for increasing the electric energy intensity of the industrial sector. This rise in intensity may be motivated by reduction in the use of fossil fuels and raw materials resulting in improved overall productivity.

(vi) Flexible Load Shape - Is a concept related to electric system reliability, a planning constraint. Load shape can be flexible - if customers are presented with options as to the variations in quality of service that they are willing to allow in exchange for various incentives. The program involved can be variations of interruptible or curtail able load; concepts of pooled integrated energy management systems; or individual customer load control devices offering service constraints.

2. Identify alternatives. The second step is to identify alternatives. The first dimension of this step involves identifying the appropriate end uses whose peak load and energy consumption characteristics generally match the requirements of the load-shape objectives established in the previous step. The extent to which load pattern modification can be accommodated by a given end use is one factor used to select an end use for demand-side management. The second dimension of demand-side management alternatives involves choosing appropriate technology alternatives for each target end use.

3. Evaluate and select programs. The third step balances customer considerations, supplier considerations, and cost-benefit analyses to identify the most viable demand-side management alternatives to pursue. Although customers and suppliers act independently to change the pattern of demand, the concept of demand-side management implies a supplier/customer relationship that produces mutually beneficial results.

4. Implement programs. As a first step, a high level, demand-side management project team should be created with representation from the various departments and organizations, and with the overall control and responsibility for the implementation process. When limited information is available on prior demand-side management program experiences, a pilot experiment may precede the program. Pilot experiments can be a useful interim step toward making a decision to undertake a major program. Pilot experiments may be limited either to a subregion or to a sample of consumers throughout an area. If the pilot experiment proves cost-effective, then initiate the full scale program.

5. Monitor programs. The fifth step is to monitor the programs. The ultimate goal of the monitoring process is to identify deviations from expected performance and to improve both existing and planned demand-side management programs. Monitoring and evaluation processes can also serve as a primary source of information on customer behaviour and system impacts, foster advanced planning and organization within a demand-side management program, and provide management with the means of examining demand-side management programs.

Implementation Methods-

Among the most important dimension in the characterization of demand-side alternatives is the selection of the appropriate market implementation methods.

The categories include:

1. Customer education. Many energy suppliers and governments have relied on some form of customer education to promote general customer awareness of programs. Brochures, bill inserts, information packets, clearinghouses, educational curricula, and direct mailings are widely used.

2. Direct customer contact. Direct customer contact techniques refer to face-to-face communication between the customer and an energy supplier or government representative to encourage greater customer acceptance of programs. Direct customer contact can be accomplished through energy audits, specific program services (e.g., equipment servicing), store fronts where information and devices are displayed, workshops, exhibits, onsite inspection, etc. A major advantage of these methods is that they help in obtaining feedback from the consumer, thus providing an opportunity to identify and respond to major customer concerns. They also enable more personalized marketing, and can be useful in communicating interest in and concern for controlling energy costs.

3. Trade ally cooperation. Trade ally cooperation and support can contribute significantly to the success of many demand-side management programs. A trade ally is defined as any organization that can influence the transactions between the supplier and its customers or between implementers and consumers. Key trade ally groups include home builders and contractors, local chapters of professional societies, technology/product trade groups, trade associations, and associations representing wholesalers and retailers of appliances and energy consuming devices. Depending on the type of trade ally organization, a wide range of services are performed, including development of standards and procedures, technology transfer, training, certification, marketing/sales, installation, maintenance, and repair.

4. Advertising and promotion. Energy suppliers and government energy entities have used a variety of advertising and promotional techniques. Advertising media applicable to demand-side management programs include radio, television, magazines, newspapers, outdoor advertising, and point-of-purchase advertising. Promotion usually includes activities to support advertising, such as press releases, personal selling, displays, demonstrations, coupons, and contest/awards.

5. Alternative pricing. Pricing as a market-influencing factor generally performs three functions: (1) transfers to producers and consumers information regarding the cost or value of products and services being provided, (2) provides incentives to use the most efficient production and consumption methods, and (3) determines who can afford how much of a product. These three functions are closely interrelated. Alternative Pricing structures include time-of-use rates, inverted rates, seasonal rates, variable service levels, promotional rates, off-peak rates, etc.

6. Direct incentives. Direct incentives are used to increase short-term market penetration of a cost control/customer option by reducing the net cash outlay required for equipment purchase or by reducing the payback period (i.e., increasing the rate of return) to make the investment more attractive. Direct incentives include cash grants, rebates, buyback programs, billing credits, and low-interest or no-interest loans. One additional type of direct incentive is the offer of free, or very heavily, subsidized, equipment installation or maintenance in exchange for participation.

The selection of the individual market implementation method or mix of methods depends on a number of factors, including:

* Prior experience with similar programs

* Existing market penetration

* The receptivity of policy makers and regulatory authorities

* The estimated program benefits and costs to suppliers and customers

* Stage of buyer readiness

* Barriers to implementation

The objective of the market implementation methods is to influence the marketplace and to change customer behaviour. Customer response is the actual load shape change that results from customer action, combined with the characteristics of the devices and systems being used.

Conclusions -

The power industry is faced with staggering capital requirements for new plants, significant fluctuations in demand and energy growth rates, declining financial performance and political or regulatory and consumer concern about rising prices. Although demand-side management is not a cure-all for these difficulties, it does provide additional alternatives. These demand-side alternatives are equally appropriate for consideration by utilities, energy suppliers, energy-service suppliers, and government entities. Implementation of demand-side measures not only benefits the implementing organization by influencing load characteristics, delaying the need for new energy resources, and in general improving resource value, but it also provides benefits to customers such as reduced energy bills and improved performance from new technological options. In addition, society as a whole receives economic, environmental, and national security benefits. For example, because demand-side management programs can postpone the need for new power plants, the costs and emissions associated with fossil-fuelled electricity generation are avoided.

Demand-side management programs also tend generate more jobs and expenditures within the regions where the programs are implemented, boosting local economies. Moreover, demand-side management programs can help reduce a country's dependence on foreign oil imports, improving national security. Demand-side management alternatives, particularly those focused on energy conservation and efficiency, will continue to hold an important role in resources planning, and will be a critical element in the pursuit of a sustainable energy future.


§ Gellings, C. W. 1984-1988. Demand-Side Management, Vols. 1-5. EPRI, Palo Alto, CA.

§ EPRI (Electric Power Research Institute) 1993. Principles and Practice of Demand-Side Management. EPRI, Palo Alto, CA.

§ Gellings, C. W. and Chamberlin, J. H. 1993. Demand-Side Management: Concepts and Methods. 2nd Ed. The Fairmont Press.

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