Demand-side management (DSM)
Demand-side management (DSM) is a strategy aimed at influencing and modifying consumer energy use to enhance efficiency and reduce peak demand. By encouraging customers to alter their consumption patterns, DSM seeks to lower energy demand, particularly during high usage times, thereby reducing the need for additional power generation facilities. This approach often involves differential pricing models that incentivize reduced energy consumption during peak hours and may include educational initiatives to inform customers about their energy use.
The origins of DSM in the United States can be traced back to the energy crises of the 1970s, which highlighted the need for conservation and more sustainable energy practices. Over the years, various programs have emerged, including load curtailment initiatives that financially reward customers for using less energy during peak periods. Dynamic pricing models, such as time-of-use and real-time pricing, have also been developed to align electricity costs with demand fluctuations. Despite the economic benefits these programs can offer, challenges remain, including utility reluctance to implement DSM due to potential revenue losses and the historical perception of low energy rates. Current research focuses on leveraging intelligent energy management systems to enhance the effectiveness of DSM, particularly in conjunction with renewable energy sources.
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Demand-side management (DSM)
Summary: Demand-side management is a method of managing resources, such as energy, that emphasizes changing demand for those resources by encouraging customers to modify their levels and patterns of use (that is, their individual demand).
Demand-Side Management (DSM) is sometimes called a bottom-up approach to management because it focuses on modifying the behavior of individual customers who are assumed to prefer to obtain services at lower cost by removing barriers (such as lack of information, lack of capital, or misplaced incentives) to enable them to make choices that will further this self-interest. In the field of utilities management, implementation of DSM often includes differential pricing that encourages customers to use less energy at peak hours and may also include components such as education and personalized feedback concerning energy use.
US interest in DSM as a means of lowering demands for energy began in the 1970s, when the Arab oil embargo of 1973 and then the Iranian Revolution in 1979 abruptly raised the cost of energy and increased interest in conservation. DSM was seen as a way to reduce energy demand and thus avoid the expense of building new power plants or expanding existing plants. A number of programs were tried, including time-varying rates for industrial customers and time-of-use pricing for residential customers, to encourage people to use less electricity at peak hours, but because these programs were primarily crisis-driven and aimed at immediate results, little hard monitoring or evaluation was performed to see which programs were most effective. In the first half of the 1980s, interest shifted toward using a variety of means, including conservation, load management, and strategic electrification, and in the second half of the decade experiments with real-time pricing (RTP) were also tried.
In the early 1990s, DSM activity rapidly expanded in some states, and in 1993, 447 utility companies had DSM programs. There was also a new focus on measuring the environmental benefits of DSM programs. However, in the mid-1990s, faced with competition from independent power producers, many traditional vertically integrated utilities reduced or dropped their DSM expenditures as a cost-cutting effort in the face of this new competition.
In the late 1990s, utility regulators added a “public goods charge” on the sale of electricity by distribution utilities (rather than the power providers) to cover DSM expenditures. DSM programs at this time were often implemented by third-party energy service companies (ESCOs). Price spikes in wholesale power markets in 2000 again increased interest in DSM programs, and the 2001 power crisis in California raised interest in pricing reform as well.
Several principles can be drawn from the history of DSM in the United States. One is that DSM programs often reduce utility revenues; hence, utilities are reluctant to implement them unless they are assured of cost recovery. Another is that appropriate pricing, reflecting marginal costs, is necessary if DSM programs are to succeed in the long term. A third is that cash rebates should be used with care, primarily to encourage people to participate in programs at their beginning rather than as a long-term strategy.
Types of DSM Programs
There are two principal types of DSM programs relevant to utilities: load curtailment programs and dynamic pricing programs. Both are aimed at reducing electrical demand at peak periods, because the utility must maintain the ability to produce sufficient electricity at the period of peak demand even if it is not needed for most of the time of operation. If the peak demand can be lowered, less capacity is required and thus costs are reduced.
Load curtailment programs pay customers for reducing their use of energy during peak periods. This may be in the form of an up-front incentive payment (the more traditional model) or a pay-for-performance incentive payment (more typical of new DSM programs). Upfront incentive programs may include direct load control of appliances such as water heaters and air conditioners for residential customers and interruptible rates for industrial and commercial customers. Pay-for-performance incentive programs, also known as demand bidding or buyback programs, may include specified payments for each unit of electrical load curtained during peak periods. Although both types of programs offer economic benefits to consumers, historically speaking they have been a tough sell in the United States, perhaps because electrical rates are generally low as compared to many other countries and, thus, savings involved seem not to be worth the effort.
Several types of dynamic pricing programs are possible, carrying different amounts of risk to customers and utilities. Time-of-use pricing (TOU) involves set rates that are lower in off-peak periods and higher in peak periods and may also include an intermediate rate for shoulder periods. Critical peak pricing (CPP) is similar to TOU but includes a much higher critical peak price, which may be imposed with minimal warning (perhaps even the same day) for a fixed number of days each year. Extreme day pricing (EDP) is similar to CPP, but the higher price is imposed for 24 hours of a given day, and such days are not known until 24 hours in advance. Extreme day CPP (ED-CPP) is similar to CPP but applies the critical peak and lower off-peak prices only on extreme days. Real-time pricing (RPT) allows rates to vary hourly or subhourly, with notification of rate changes a day or an hour ahead.
Researchers are hopeful that the development of intelligent energy management systems will increase the efficiency and reliability of DSM systems for renewable energy. The intermittence of renewable sources has been a major drawback of these systems in the past.
Bibliography
Ahmad, Syed Yasir, et al. "A Sustainable Approach for Demand Side Management Considering Demand Response and Renewable Energy in Smart Grids." Frontiers in Energy Resources, vol. 11, 10 Sept. 2023, doi.org/10.3389/fenrg.2023.1212304. Accessed 30 July 2024.
Galbraith, Kate. “Why Is a Utility Paying Customers?” New York Times, January 23, 2010.
McLean-Conner, Penni. Energy Efficiency: Principles and Practices. Tulsa, OK: PennWell, 2009.
Nebey, Abraham Hizkiel. "Recent Advancement in Demand Side Energy Management System for Optimal Energy Utilization." Energy Reports, vol. 11, June 2024, pp.5422-5435, doi.org/10.1016/j.egyr.2024.05.028. Accessed 30 July 2024.