Demand Management

(Energy Planning and Management)

Rabin Shrestha
Visiting Faculty
Department of Mechanical Engineering/IOE
 Demand-Side Management

• First introduced in 1981 as “Demand-Side

Load Management” by Clark W. Gellings
• Then changed to “Demand-Side Planning”
• And then changed to “Demand-Side
Management”

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 What is DSM?
• Any program intended to influence the
customers’ use of energy is considered DSM
• DSM must achieve selected objectives of
reduction in average rate of energy,
improvement in customer satisfaction
• DSM should be evaluated against non-DSM
alternatives
• DSM identifies how customers will respond not
how they should respond

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 Why DSM?
• Inefficient pricing of energy
• Saving in transmission and distribution costs
• Reduce capital investment
• Reduce losses

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 Inefficient Energy Pricing
 Generally, electricity rates are set to recover the average
costs of all utility resources which includes, high-cost
plants and power purchase contracts.
 And such rates do not reflect the true cost of supplying
electricity.
 For example, a high load factor customer may pay the
same rate as a low load factor customer, though it costs
much less to supply the former.
 As a result it would be beneficial to use local resources
(i.e., DSM).
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 T&D Cost Savings
 The most significant potential for DSM lies in
application with substantial transmission and
distribution cost savings.

 With DSM transmission and distribution (T&D) cost

could be avoided.

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Reduce Large Capital Investment

 With DSM, investment in large generation

capacity could be avoided.

 As a result investment requirement will be

lower.

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 Reduce Losses
 One of the main attractiveness of DSM is
that it is located near the load center that will
minimize the transmission loss compared to
electricity transmitted from the central
generation.
 Higher the losses in the transmission
system the more attractive is DSM.

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 Other advantages of DSM
 Uncertain load growth.
 Uncertain fuel costs.
 Dependence on government funding.
 Dependence on foreign capital.
 Environmental/Locational problems.

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Demand-side Management Activities
• Direct Demand Control
• Thermal Storage
• Electrification
• Energy Efficiency Improvement
• Energy Pricing
• Labeling and Standardization
• Fuel Switching

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 Direct Demand Control
• With prior agreement (voluntary)
– Control Devices: Time-Switch, Thermostat, Current Limiter,
Remote Control, etc.
– Air Conditioners, Water-heaters, Space-heaters, Irrigation
pumps

• Without prior agreement (involuntary)

– Scheduled load curtailment
– Unscheduled load curtailment

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 Thermal Storage and Electrification
 THERMAL STORAGE
– Major Targets: Water heating, and Space Conditioning

 ELECTRIFICATION
– Major Targets: rural electrification, electric transport systems,
and fuel substitution in industrial appliances.

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 Energy Efficiency Improvement
Improvement of efficiency in energy use. It covers major
end-use and associated appliances. Major programs are:

 Building Envelope Programs (Building Insulations and

Reduction of Air Infiltration).
 Improved Air Conditioner Efficiency.
 Improved Water Heating Efficiency.
 Energy-Efficient Motor-Systems.
 Energy-Efficient Appliances and Uses.

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 Rebound Effect of DSM
• Also known as feedback effect
• The actual electricity saving after the
introduction of an efficient demand-side
technologies would be less than the savings
based on engineering estimates.
• Due to reduction in effective “price” (i.e., cost)
of energy using service with the adoption of
the DSM program (Khazzoom, 1980; 1987).
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Values of rebound effect from selected studies

Study Focus of the Study Rebound Effect

(%)
Greene (1992) Vehicle efficiency improvement in US 5-15
Greening et al. Space cooling (based on 35 case studies in various
(2000) countries) 10-50
Jones (1993) Passenger vehicle use and rebound effect in US 60
Khazzoom (1987) Use of energy efficient appliances in US 75
Murck et al. (1985) Policy simulation to reduce wood use in Sudan 48
Efficient lighting in households (based on 4 case
studies) 5-12
Water heating based on 5 case studies 10-40
Ronald and Energy conservation in commercial/household 10-40
Haugland (1994) sectors in Norway
Zein-Elabdin (1997) Improved stoves programs in Sub-Saharan Africa 50

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 Demand Management by Pricing
• Time-of-Day Rates, Off-peak Rates
• Seasonal Rates
• Inverted Rates
• Interruptible Rates
• Promotional Rates
• Conservation Rates

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 Time-of-Day Rates
• Higher rate during peak period and lower rate
during off peak periods
• Main objective is to reduce peak demand and
encourage off peak use.
• To provide correct signals on temporal variations
in electricity supply costs (capacity cost +
energy cost)
• Off-Peak Rates are priced to reflect lower off
peak cost of generation
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 Seasonal Rates
• Rates according to season to reflect the
seasonal variation in cost of generation
• Useful in hydro-dominated system
• These rates differentiate among the seasons
in which the energy is consumed.
• These rates may be combined with flat rate

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 Interruptible Rates
• Objective: To reduce utility’s capacity requirement
• Reduced demand charge for participants
• Offer discount in return for expected load reduction
• Interruptible Credits
• Incentives-based on net costs avoided by utility
• Rate Options: Based on frequency, maximum
duration and magnitude of interruptible load.

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 Inverted Rate
• Customer pay more for each unit of
electricity consumed in later tail blocks
• The first block may or may not consist of a
life line rate
• Nepal Electricity Authority adopts inverted
rate with life line rate for domestic
consumers

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Conservation Rates and Promotional
Rates
• Conservation Rates
– Reduced rates for buildings with prescribed level of thermal
insulation, peak saving solar appliances or meets minimum energy
efficiency standard

• Promotional Rates
– These rates are designed to attract targeted group of customers to a utility service
area.

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 Barriers to Various DSM Activities
Activities
End-use Efficiency
Tariff Adjustment
Labeling and Standardization
Direct Load Control
Rabin Shrestha -- Demand Management
Barriers
Technical, financial, regulation
Effectiveness of pricing, loss of
utility revenue
Regulation
Consumers acceptance, Public
complaints, loss of revenue
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 Barriers to DSM in Most Countries
• Institutional bias towards supply-side Options
• Inadequacy of information dissemination programs
• Inefficient energy pricing (energy price subsidized)
• Power Sector Reform & Uncertainty of DSM Programs
• Unfavorable Taxes
• Absence of loan scheme
• Absence of appropriate legislation
• Low quality of power supply and absence of quality
assurance for the efficient appliances
Rabin Shrestha -- Demand Management 23
 Barriers to DSM
• Institutional bias towards supply-side Options
 No dedicated DSM units
 No comprehensive DSM program

• Inadequacy of information dissemination programs

 No campaigns to educate the people on efficient end-use technologies.
 No policy of labeling the electric equipment e.g, Thailand.

• Inefficient energy pricing

 residential and agricultural users pay less than the marginal cost of electricity
supply.
 either uniform pricing or inefficient TOD pricing
 subsidy in fuel price
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 Barriers to DSM…
• Unfavorable taxes rates
 Prevailing tax rates not favorable to efficient end
use appliances:
Tax rates do not distinguish the difference between
efficient and inefficient appliances
 Taxes on efficient appliances based on a fixed
percentage of appliance cost

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 Barriers to DSM…
 Absence of loan scheme
 Programs to provide loans for the end-use energy efficiency
improvement
 There are both financial and non-financial incentives to electricity
customers for the promotion of efficient appliances in Thailand:
 free installation of energy efficient appliances
 launching of fluorescent program and
 low interest financing mechanism for purchasing electricity efficient

appliances

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 Barriers to DSM…
 Low quality of power supply and absence of
quality assurance for the efficient appliances
Low quality of the power supply reduces the adoption
of efficient appliances e.g., CFLs and FLs ( < 170 V. in
rural areas).
Uncertainty in quality assurance of high initial cost
efficient appliances reduces the likelihood of the
adoption of such appliances

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 Sample Questions
• Discuss the importance of DSM in a developing country. Why
Demand Side Management?
• State major types of technology- and price-based DSM options.
• Discuss different types of barriers to DSM
• Write short note on rebound effect; TOD tariff, etc

Rabin Shrestha -- Demand Management 28

 References
• C.W. Gellings, and J.H. Chamberlin: Demand-Side
Management: Concepts & Methods, Fairmont Press, 1988.
• C. W. Gellings, and J. H. Chamberlin: Demand-Side
Management Planning, Fairmont Press, 1993.
• J. N. Swisher, G.de M. Jannuzzi and R. Y. Redlinger:
Integrated Resource Planning, UNEP Collaborating Centre on
Energy and Environment, Risoe, Denmark, 1997.
• M Munasinghe and G Schramm, Energy Economics, Demand
Management and Conservation Policy, Van Nostrand Reinhold
Company, 1983.

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