Energy Demand Management

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Main Points
 Definition of energy demand
management
 Reasons for demand energy
management
 Activities of DSM
➢ Load management
➢ Energy conservation & energy
efficiency
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Introduction
 The energy system consists of both supply-side and
demand-side activities. In the early days when
energy prices were cheap, the focus on the energy
sector was on the supply-side.
 That for any given demand, the objective was to
arrange for adequate supply so that the demand is
satisfied.
 Thus, the demand-side was considered as given and
there was a presumption that the supply-side is
easily influenced and managed (perhaps due to less
number of actors involved) than the demand-side.

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Intro.
 However, with rising prices in the 1970s,
it became apparent that ignoring the
demand-side of the equation may not be
an efficient way of managing the energy
problem.
 Thus, high oil prices in the 1970s
provided justification for efforts directed
towards reducing demand.

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 Definition of energy demand
management
 It is systematic utility and government activities
designed to change the amount and/or timing of
customer’s use of energy for the overall benefit of the
society.
 This includes various activities as:
A. Load management: Load management aims at
reducing or changing the size or timing of the
demand.
B. Energy conservation: Energy conservation aims at
reducing the demand, essentially through technical
efficiency improvements.

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Definition of energy demand
management
C. Fuel substitution: Fuel substitution aims at
replacing one fuel by another and thereby modifies
the demand.

➢ Load Management and Energy Conservation

represent the widely-used actions.
. •

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Reasons for demand energy
management
❑ As many countries depend on imports to meet their
needs, a reduction in demand also reduces the
import dependence, which in turn reduces the
vulnerability to price fluctuations and thereby
improves the supply security.
❑ It leads to better resource utilization and therefore
improves market operation.
❑ It reduces the pressure on additional infrastructure
and the accompanied environmental damage.

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 First: Load Management
 Load management is one of the demand-
side options that try to alter the load shapes
so that the demand during the peak period
is reduced.
 Load management, aims at adjusting or
controlling the load rather than the power
station output.
 Load management allows utilities to reduce
demand for electricity during peak usage
times (peak shaving).

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Load Management
Roads with rush hours:
 One solution to cope with these relatively
short periods of high loading is to expand
our network's capacity - much like making
roads bigger to handle more traffic.
 But this is very expensive

 It makes better sense to promote other

cheaper options, such as load
management.
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Load Management
Two Broad Categories:
 Direct load control
 Indirect load control

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 Direct Load Control Method
 The utility reduces the demand by directly disconnecting,
reconnecting or modifying the operation of the end-use
device.
 A form of direct control is the load shedding where the
utility cuts supply to an area for a certain period to manage
the demand.
➢ This is more common in developing countries which face
chronic power shortages.
 In the transport sector, restricting vehicle movement during
peak hours would constitute a load management exercise in
the road transport.
➢ For example, many cities do not allow lorries during the
peak period to avoid congestion.
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 Direct Load Control method
The economic cost–benefit analysis for a direct
control
(a) Demand reduction leads to savings in fuel
cost and there is saving in production,
transmission and distribution related capacity
costs.
(b) But the utility suffers revenue loss due to
loss of demand and reduction in energy sales. It
also incurs costs for managing the direct control
systems.
➢ If the benefits exceed the costs, the option
becomes suitable for the utility.
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 Indirect Load Control method
 The indirect load management provides price signals to
consumers to induce changes in energy demand patterns.
 This relies on the logic that consumers should be made
aware of the varying costs of supply of the utility
through appropriate price signals.
 Consumers should be allowed to decide the most
economic level of consumption for them instead of
forcing consumers to change their behavior.
 Price-responsive program: Whether they specify time-
of use (TOU) rates or critical peak pricing (CPP), some
demand response programs are built on a rate structure
in which the participating consumer pays less than the
standard rate most of the year, but pays significantly
higher rates during hours when the utility system is
stressed.
.  13
 TOU versus CPP
 Time-of-use pricing  Critical peak pricing
(TOU): This rate design (CPP): This rate design
features prices that vary by layers a very high price
time period, and are higher during a few critical
in peak periods and lower hours of the year.
in off-peak periods. It is Typically, a CPP rate is
only used on 12-15 days
slightly more complex and
a year. These days are
involves two pricing
called the day of the
periods within a day, a
critical peak price
peak period and an off-
peak period.

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Two Examples of commonly used Load
Management Options

 Peak Clipping

 Load Shifting

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Peak Clipping
 This aims demand reduction
during the on-peak hours.
Often this is done either by
restricting use of appliances
during peak hours or by
encouraging the consumers
to change their demand
behavior by providing
appropriate price signals.
 In the context of transport
this can be done by
disallowing certain vehicles
to enter the road network or
imposing congestion charges
during peak hours.

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Load Shifting
 It aims at moving
loads from on-peak to
off-peak periods
without changing the
pattern of energy
usage.
 For example, certain
activities in the
households such as
dishwashing and
clothes washing can be
operated at night to
avoid peak loading.
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 Second: Energy Efficiency
improvements and energy
conservation
 Energy conservation can be defined as the deliberate
reduction in the use of energy below some level that would
prevail otherwise.
 Energy efficiency improvements consider a means of energy
conservation.
 The objective of energy efficiency improvements is to reduce
energy demand through better use of energy in energy
consuming devices.
 It is commonly believed that the efficiency of end-use
appliances is not often high, which results in losses, higher
demand for inputs and consequently environmental damages.
 By improving efficiency of energy utilization, energy demand
could be managed along with environmental benefits.
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Energy Efficiency
 Energy efficiency refers to the activity or product
that can be produced with a given amount of
energy.
 for example, the number of tons of steel that can
be melted with a megawatt hour of electricity.
 At the level of a specific technology, the
difference between efficiency and energy
intensity is insignificant — one is simply the
inverse of the other.
 In this example, energy intensity is the number of
megawatt hours used to melt one ton of steel.

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Example for energy saving
Electricity generation
▪ Electricity demand is increasing in the final use
relatively fast. However, the efficiency of electricity
generation processes is relatively low.
▪ In addition, a significant amount of electricity is lost in
transmission and distribution, causing further losses.
▪ Improving the efficiency of electricity generation
process by using modern technologies (like combined
cycle gas turbine, supercritical pressure boilers, etc.)
and reducing losses in transmission and distribution can
save significant amounts of fossil fuels.
a.

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Example for energy saving
Transportation
As transportation is required for moving
personnel or goods over distances, energy
can be saved by:
a. Switching to less energy intensive modes
of travels
b. Changing travel behavior

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 Economics of Energy Efficiency
Improvements

 The basic idea of energy efficiency improvements

can be captured using the production function
concept.
 Assume that capital and energy are two inputs into a
production process.
 The cost minimizing level of energy use is
obtained at the point of tangency of the isoquant
and the total cost line.
 At this point, the marginal rate of technical
substitution is equal to the ratio of the inputs’
prices.

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 Economics of Energy Efficiency
Improvements
 Greater energy efficiency can be driven by
market forces in two ways within this
production function framework.
 First, households may move along the energy
services isoquant by substituting capital for
energy in response to a change in relative prices
 Second, technological change that shifts the
isoquant in a way favoring greater energy
efficiency.

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 Energy efficiency improving
Substitution
 A change in relative
prices from P0 to P1
results in a substitution
process where capital
is substituted for
energy by moving
along the same
isoquant.
 Here, lesser energy
input is used per unit
of output but results in
a higher use of the
other factor of
production, capital.

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 Energy Saving
Technological change
 It is also possible that the
production possibility
moves to a different
isoquant consequent to a
technological change.
 Technological change
results in a shift from I0
to I1.
 It results in a lower level
of energy input for any
combination of capital
used, and therefore
produces greater energy
efficiency.

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 Energy Efficiency Versus Economic
Efficiency Debate
 The proponents of energy efficiency tend to
suggest that since energy efficiency reduces
wasteful use of energy, it is a reasonable
objective and by promoting such policies,
economic efficiency will be improved.
 Energy efficiency is a concept which considers
only a single factor while economic efficiency
aims at choosing the most appropriate
combination of factor inputs to generate an
output.

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 Energy Efficiency Versus Economic
Efficiency Debate
 Thus, minimizing use of a single input may not be a
desirable objective for economic development because:
A. Normally for economic development, higher inputs of
labor, capital and other factors are targeted. The
objective of reducing energy inputs would be
contradictory to this standard policy objective.

B. Selecting a technology based on minimization of total

costs is a rationale choice rather than just minimizing
the energy cost.

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Energy Efficiency Versus Economic Efficiency
Debate
Four possibilities could be considered in the energy efficiency–
economic efficiency debate:
(a) Those investments in energy efficiency which improve
economic efficiency are the desirable ones.
(b) There may be investments which improve energy efficiency
but reduces economic efficiency.
(c) There could be cases where economic efficiency improves
with higher energy use (i.e. reduced energy efficiency) but a
focus on energy efficiency would not allow such investments.
(d) Finally, there may be a case where neither energy efficiency
nor economic efficiency improves and such investments would
be rejected.

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 Energy Efficiency versus Economic
Efficiency

Increases
Decreases energy
Options energy
efficiency
efficiency
Energy
Increases economic Energy assisted
efficiency
efficiency growth
scenario
Decreases economic Rejected as
Not promoted
efficiency undesirable

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 Energy Efficiency versus Economic
Efficiency
 This suggests that the focus on energy
efficiency investments could be
misleading in cases when they are not
promoting economic efficiency
 Therefore, energy efficiency policies
which are consistent with the economic
efficiency should be considered to achieve
better utilization of resources.

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 Role of government in achieving
energy efficiency
 Existence of market failures normally implies
that some corrective actions are required.
 Also, in the presence of externalities when prices
do not reflect the correct cost to users, the
consumption decision will be incorrect and
governments can intervene to correct such
externalities through pricing or regulation.
 There are number of government initiatives: (1)
information and labeling, (2) standards and
regulation, and (3) financial and fiscal
mechanisms.
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 1. Information and labeling
programs
They aim at disseminating information on
energy technologies, efficiency measures
and incentives, as well as generating
awareness about efficient use of energy.
 These could include educational and
training programs, performance labeling
for specific products, awareness raising
campaigns, advertisements and seminar
conferences.

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 2. Standards and Regulation
 They tend to influence behavior by stipulating certain
minimum levels of performance or acceptable level of
behavior.
 Although reliance on regulation and standards is
quite common in both developing and developed world,
having them does not ensure better energy efficiency or
better performance.
 Monitoring and enforcement are essential for the
success of regulations and standards but lack of adequate
regulatory enforcement arrangements makes their
implementation difficult in many countries.
 Moreover, the cost of regulatory compliance increases
as the standards become stricter.

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3. Financial and Fiscal Incentives
A number of financial incentives are
provided in many countries: grants
subsidies, tax relief and favorable
loans are some such options.

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