Energy demand management
Encyclopedia
Energy demand management, also known as demand side management (DSM), is the modification of consumer demand for energy
through various methods such as financial incentives and education. Usually, the goal of demand side management is to encourage the consumer to use less energy during peak
hours, or to move the time of energy use to off-peak times such as nighttime and weekends. Peak demand management does not necessarily decrease total energy consumption
, but could be expected to reduce the need for investments in networks and/or power
plants.
The term DSM was coined during the time of the 1973 energy crisis and 1979 energy crisis
.
Various market failures rule out an ideal result. One is that suppliers' costs do not include all damages and risks of their activities. External costs are incurred by others directly or by damage to the environment, and are known as externalities. Theoretically the best approach would be to add external costs to the direct costs of the supplier as a tax (internalisation of external costs). Another possibility (referred to as the second-best approach
in the theory of taxation) is to intervene on the demand side by some kind of rebate
.
Energy demand management activities should bring the demand and supply closer to a perceived optimum.
Governments of many countries mandated performance of various programs for demand management after the 1973 energy crisis. An early example is the National Energy Conservation Policy Act
of 1978 in the U.S.
, preceded by similar actions in California
and Wisconsin
in 1975.
and taxation). Energy demand management implies actions that influence demand for energy. DSM is originally adopted in energy, today DSM is applied widely to utility including water and gas as well.
Reducing energy demand is contrary to what both energy suppliers and governments have been doing during most of the modern industrial history. Whereas real prices of various energy forms have been decreasing during most of the industrial era, due to economies of scale
and technology, the expectation for the future is the opposite. Previously, it was not unreasonable to promote energy use as more copious and cheaper energy sources could be anticipated in the future or the supplier had installed excess capacity that would be made more profitable by increased consumption.
In centrally planned economies
subsidizing energy was one of the main economic development tools. Subsidies to the energy supply industry are still common in some countries.
Contrary to the historical situation, energy prices and availability are expected to deteriorate. Governments and other public actors, if not the energy suppliers themselves, are tending to employ energy demand measures that will increase the efficiency of energy consumption.
In 2007, Toronto Hydro, the monopoly energy distributor of Ontario, had over 40,000 people signed up to have remote devices attached to air conditioners which energy companies use to offset spikes in demand. Spokeswoman Tanya Bruckmueller says that this program can reduce demand by 40 megawatts during emergency situations.
One of the main goals of demand side management is to be able to charge the consumer based on the true price of the utilities at that time. If consumers could be charged less for using electricity during off-peak hours, and more during peak hours, then supply and demand would theoretically encourage the consumer to use less electricity during peak hours, thus achieving the main goal of demand side management.
Another problem of DSM is privacy: The consumers have to provide some information about their usage of electricity to their electricity company.
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
through various methods such as financial incentives and education. Usually, the goal of demand side management is to encourage the consumer to use less energy during peak
Peak demand
Peak demand is used to refer to a historically high point in the sales record of a particular product. In terms of energy use, peak demand describes a period of strong consumer demand.- Peak load :...
hours, or to move the time of energy use to off-peak times such as nighttime and weekends. Peak demand management does not necessarily decrease total energy consumption
Domestic Energy Consumption
Domestic energy consumption is the amount of energy that is spent on the different appliances used within housing. The amount of energy used per household varies widely depending on the standard of living of the country, climate, and the age and type of residence...
, but could be expected to reduce the need for investments in networks and/or power
Electricity generation
Electricity generation is the process of generating electric energy from other forms of energy.The fundamental principles of electricity generation were discovered during the 1820s and early 1830s by the British scientist Michael Faraday...
plants.
The term DSM was coined during the time of the 1973 energy crisis and 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
.
How it works
Electricity use can vary dramatically on short and medium time frames, and the pricing system may not reflect the instantaneous cost as additional higher-cost ("peaking") sources are brought on-line. In addition, the capacity or willingness of electricity consumers to adjust to prices by altering demand (elasticity of demand) may be low, particularly over short time frames. In many markets, consumers (particularly retail customers) do not face real-time pricing at all, but pay rates based on average annual costs or other constructed prices.Various market failures rule out an ideal result. One is that suppliers' costs do not include all damages and risks of their activities. External costs are incurred by others directly or by damage to the environment, and are known as externalities. Theoretically the best approach would be to add external costs to the direct costs of the supplier as a tax (internalisation of external costs). Another possibility (referred to as the second-best approach
Theory of the Second Best
In welfare economics, the theory of the second best concerns what happens when one or more optimality conditions cannot be satisfied. Canadian economist Richard Lipsey and Australian economist Kelvin Lancaster showed in a 1956 paper that if one optimality condition in an economic model cannot be...
in the theory of taxation) is to intervene on the demand side by some kind of rebate
Rebate (marketing)
A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is a type of sales promotion marketers use primarily as incentives or supplements to product sales. The mail-in rebate is the most common...
.
Energy demand management activities should bring the demand and supply closer to a perceived optimum.
Governments of many countries mandated performance of various programs for demand management after the 1973 energy crisis. An early example is the National Energy Conservation Policy Act
National Energy Conservation Policy Act
The National Energy Conservation Policy Act of 1978 is a United States statute which was enacted as part of the National Energy Act....
of 1978 in the U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, preceded by similar actions in California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
and Wisconsin
Wisconsin
Wisconsin is a U.S. state located in the north-central United States and is part of the Midwest. It is bordered by Minnesota to the west, Iowa to the southwest, Illinois to the south, Lake Michigan to the east, Michigan to the northeast, and Lake Superior to the north. Wisconsin's capital is...
in 1975.
Logical foundations
Demand for any commodity can be modified by actions of market players and government (regulationRegulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
and taxation). Energy demand management implies actions that influence demand for energy. DSM is originally adopted in energy, today DSM is applied widely to utility including water and gas as well.
Reducing energy demand is contrary to what both energy suppliers and governments have been doing during most of the modern industrial history. Whereas real prices of various energy forms have been decreasing during most of the industrial era, due to economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
and technology, the expectation for the future is the opposite. Previously, it was not unreasonable to promote energy use as more copious and cheaper energy sources could be anticipated in the future or the supplier had installed excess capacity that would be made more profitable by increased consumption.
In centrally planned economies
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
subsidizing energy was one of the main economic development tools. Subsidies to the energy supply industry are still common in some countries.
Contrary to the historical situation, energy prices and availability are expected to deteriorate. Governments and other public actors, if not the energy suppliers themselves, are tending to employ energy demand measures that will increase the efficiency of energy consumption.
Examples
The government of the state of Queensland, Australia plans to have devices fitted onto certain household appliances such as air conditioners, pool pumps, and hot water systems. These devices would allow energy companies to remotely cycle the use of these items during peak hours. Their plan also includes improving the efficiency of energy-using items, encouraging the use of oil instead of electricity, and giving financial incentives to consumers who use electricity during off-peak hours, when it is less expensive for energy companies to produce.In 2007, Toronto Hydro, the monopoly energy distributor of Ontario, had over 40,000 people signed up to have remote devices attached to air conditioners which energy companies use to offset spikes in demand. Spokeswoman Tanya Bruckmueller says that this program can reduce demand by 40 megawatts during emergency situations.
Problems with DSM
Some people argue that demand-side management has been ineffective because it has often resulted in higher utility costs for consumers and less profit for utilities.One of the main goals of demand side management is to be able to charge the consumer based on the true price of the utilities at that time. If consumers could be charged less for using electricity during off-peak hours, and more during peak hours, then supply and demand would theoretically encourage the consumer to use less electricity during peak hours, thus achieving the main goal of demand side management.
Another problem of DSM is privacy: The consumers have to provide some information about their usage of electricity to their electricity company.
See also
- Alternative fuelAlternative fuelAlternative fuels, known as non-conventional or advanced fuels, are any materials or substances that can be used as fuels, other than conventional fuels...
- Battery-to-grid
- Dynamic demand (electric power)Dynamic demand (electric power)Dynamic Demand is the name of a semi-passive technology for adjusting load demands on an electrical power grid. The concept is that by monitoring the frequency of the power grid, as well as their own...
- Demand responseDemand responseIn electricity grids, demand response is similar to dynamic demand mechanisms to manage customer consumption of electricity in response to supply conditions, for example, having electricity customers reduce their consumption at critical times or in response to market prices...
- Energy conservationEnergy conservationEnergy conservation refers to efforts made to reduce energy consumption. Energy conservation can be achieved through increased efficient energy use, in conjunction with decreased energy consumption and/or reduced consumption from conventional energy sources...
- Energy intensityEnergy intensity]Energy intensity is a measure of the energy efficiency of a nation's economy. It is calculated as units of energy per unit of GDP.* High energy intensities indicate a high price or cost of converting energy into GDP....
- Grid energy storageGrid energy storageGrid energy storage refers to the methods used to store electricity on a large scale within an electrical power grid. Electrical energy is stored during times when production exceeds consumption and the stores are used at times when consumption exceeds production...
- Load profileLoad profileIn electrical engineering, a load profile is a graph of the variation in the electrical load versus time. A load profile will vary according to customer type , temperature and holiday seasons....
- Load managementLoad managementLoad management is the process of balancing the supply of electricity on the network with the electrical load by adjusting or controlling the load rather than the power station output...
- Time of Use
External links
- Demand-Side Management Programme IEAInternational Energy AgencyThe International Energy Agency is a Paris-based autonomous intergovernmental organization established in the framework of the Organisation for Economic Co-operation and Development in 1974 in the wake of the 1973 oil crisis...
- Energy subsidies in the European Union: A brief overview
- Managing Energy Demand seminar Bern, nov 4 2009