Demand Side Management

Introduction

“Electricity supply industry is one of cost-based administered pricing in retail markets with average rates that often ignore highly variable supply-side costs, i.e., wholesale electricity costs. Demand Side Management (DSM) is customer response” (Violette, 2007, p. 2). The changing use of energy in response to market factors including controlled by the conservation of energy, demand response defined by the prices and/or production costs, and load management which involves the demand shifting from high price to low price periods. It is realized that efficient markets require the appropriate interaction of demand and supply. In an inelastic demand the supply-side will set prices (Violette, 2007).

Demand Side Management (DSM) is defined as the cooperative activities between the power company and its customers (sometimes with the assistance of third parties such as various trade allies and energy services companies). The main objective of such cooperation is to implement programs for increasing the efficiency of energy use, with resulting monetary gains to the customer, utility and society as a whole (Hirst, 1994).

DSM was put under focus during the 1980's to mid 1990's after the oil embargo. The latter caused a sharp increase in energy prices and caused governments and electric utilities to look for ways to reduce energy demand so that the overall energy bill is reduced. This results in higher interests in Energy Efficiency (EE) and the associated incentive policies, and in the restructuring of wholesale and retail markets to meet the move to the competitive market.

Another stimulus was triggered after the year 2000, which was caused by the sharp increase of energy costs (oil and gas), cost volatility causing price spikes, power system constraints, and environmental uncertainties (Koomey & Krause, 1997). As such EE and Deregulation (DR) can be viewed as hedges against a wide range of risks.

It is seen that linking wholesale and retail markets through appropriate pricing is important for the industry. This leads to more pricing-types of solutions.

Both EE and DR are viewed as integrated solutions of the same spectrum of services. However, EE supporters resist DR investments and EE/DR integration.

The present situation is ambiguous, as DSM supporters are spending substantive amounts, while many utilities are actively supporting DR to enhance reliability and to go to floating prices where the customer can shop around for the best deals.

Moreover, as incentives for DSM investment are highly supported, and renewables are becoming more viable alternatives. DSM options are now viewed as diversified resources and can provide a physical hedge against different uncertainties (Loughran, 2004).

Benefits of the DSM initiatives are numerous (DSMTI, 1993). Some of the most salient benefits are described as follows:

• a.

  Customer benefits including the following: 1) meet customer demand, 2) reduce electricity bills, 3) improve level of service, and 4) improve comfort, lifestyle, and productivity.

• b.

  Utility benefits including the following: 1) lower cost of service, 2) improved operating efficiency, 3) postpone capacity additions, 4) reduce capital needs, and 5) improve customer service by enhancing system reliability.

• c.

  Societal benefits including the following: 1) reduce environmental pollution, 2) introduce new resources, 3) increase economic efficiency, 4) introduce new job opportunities and business formulation, and 5) maximize customer welfare.

Concepts And Characteristics Of Demand Side Management (Dsm)

The accelerated growth in demand for electricity causes financial burdens on consumers as well as on electric utilities. Increased electricity bills causes consumers to consider the adoption of a more rational use of electricity. At the same time electric utilities are forced to take into consideration efforts which will slow down this growth. Certain measures and activities can curb this growth in demand into manageable levels which are also economical and beneficial to consumers, utilities and the national economy. These measures and activities are integral parts of DSM programs (Sarkar, 2009).