Energy demand management

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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 [1] 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.[2] 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 for meeting peak demands. An example is the use of energy storage units to store energy during off-peak hours and discharge them during peak hours.[3]

The term DSM was coined following the time of the 1973 energy crisis and 1979 energy crisis. Demand Side Management was introduced publicly by Electric Power Research Institute (EPRI) in the 1980s.[4] Nowadays, DSM technologies become increasingly feasible due to the integration of information and communications technology and power system, resulting in a new term: Smart Grid.


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. One 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. Definition - DSM (Demand Side Management) is the 'Scientific control of usage and demand of Electricity, for achieving better load factor and economy, by the Licensee/Supplier'. TOD (Time of Day) Metering and differential pricing is the method/procedure for achieving targets in DSM.

Logical foundations[edit]

Demand for any commodity can be modified by actions of market players and government (regulation and taxation). Energy demand management implies actions that influence demand for energy. DSM is originally adopted in electricity, 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.

Types of energy demand management[edit]

Energy Efficiency: Using less power to perform the same tasks.

Demand Response: Any reactive or preventative method to reduce, flatten or shift peak demand. Demand Response includes all intentional modifications to consumption patterns of electricity of enduser customers that are intended to alter the timing, level of instantaneous demand, or the total electricity consumption.[5] Demand Response refers to a wide range of actions which can be taken at the customer side of the electricity meter in response to particular conditions within the electricity system (such as peak period network congestion or high prices).[6]

Dynamic Demand: Advance or delay appliance operating cycles by a few seconds to increase the Diversity factor of the set of loads. The concept is that by monitoring the power factor of the power grid, as well as their own control parameters, individual, intermittent loads would switch on or off at optimal moments to balance the overall system load with generation, reducing critical power mismatches. As this switching would only advance or delay the appliance operating cycle by a few seconds, it would be unnoticeable to the end user. In the United States, in 1982, a (now-lapsed) patent for this idea was issued to power systems engineer Fred Schweppe.[7]


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.[8]

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.[9]

Problems with DSM[edit]

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.[10]

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. This is less of a problem now as people are used to suppliers noting purchasing patterns through mechanisms such as "loyalty cards".

DSM in systems based on hydropower[edit]

Demand-side management can apply to electricity system based on thermal power plants or to systems where renewable energy, as hydroelectricity, is predominant but with a complementary thermal generation, for instance, in Brazil.

In Brazil’s case, despite the generation of hydroelectric power corresponds to more than 80% of the total, to achieve a practical balance in the generation system, the energy generated by hydroelectric plants supplies the consumption below the peak demand. Peak generation is supplied by the use of fossil-fuel power plants. In 2008, Brazilian consumers paid more than U$1 billion[11] for complementary thermoelectric generation not previously programmed.

In Brazil, the consumer pays for all the investment to provide energy, even if a plant sits idle. For most fossil-fuel thermal plants, the consumers pay for the “fuels” and others operation costs only when these plants generate energy. The energy, per unit generated, is more expensive from thermal plants than from hydroelectric. Only a few of the Brazilian’s thermoelectric plants use natural gas, so they pollute significantly more. The power generated to meet the peak demand has higher costs—both investment and operating costs—and the pollution has a significant environmental cost and potentially, financial and social liability for its use. Thus, the expansion and the operation of the current system is not as efficient as it could be using demand side management. The consequence of this inefficiency is an increase in energy tariffs … passed on to the consumers.

Moreover, because electric energy is generated and consumed almost instantaneously, all the facilities, as transmission lines and distribution nets, are built for peak consumption. During the non-peak periods their full capacity is not utilized.

The reduction of peak consumption can benefit the efficiency of the electric systems, like the Brazilian system, in some senses: as deferring new investments in distribution and transmission networks, and reducing the necessity of complementary thermal power operation during peak periods, which can diminish both the payment for investment in new power plants to supply only during the peak period and the environmental impact associated with greenhouse gas emission.

See also[edit]


  1. ^ Wei-Yu Chiu; Hongjian Sun; H.V. Poor, "Energy Imbalance Management Using a Robust Pricing Scheme," IEEE Transactions on Smart Grid, vol.4, no.2, pp.896-904, June 2013.
  2. ^ "Demand Management." Office of Energy. Government of Western Australia, n.d. Web. 30 Nov. 2010.
  3. ^ Wei-Yu Chiu; Hongjian Sun; H.V. Poor, "Demand-side energy storage system management in smart grid," 2012 IEEE Third International Conference on Smart Grid Communications (SmartGridComm), pp.73,78, 5-8 Nov. 2012.
  4. ^ Balijepalli, Murthy; Pradhan, Khaparde (2011). "Review of Demand Response under Smart Grid Paradigm". IEEE PES Innovative Smart Grid Technologies. 
  5. ^ Albadi, M. H.; E. F. El-Saadany (2007). "Demand Response in Electricity Markets: An Overview". IEEE. 
  6. ^ Torriti et al (2010) Demand response experience in Europe: policies, programmes and implementation. Energy, 35 (4), 1575-1583 [1]
  7. ^ US-Patent No. 4,317,049: Frequency adaptive, power-energy re-scheduler
  8. ^ "Energy Conservation and Demand Management Program." Queensland Government. Queensland Government, n.d. Web. 2 Dec 2010.
  9. ^ Bradbury, Danny. "Volatile energy prices demand new form of management." businessGreen. Association of Online Publishers, 05 Nov 2007. Web. 2 Dec 2010.
  10. ^ Katz, Myron. "Demand Side Management: Reflections of an Irreverent Regulator." ScienceDirect. Oregon Public Utility Commission, 01 Apr 2002. Web. 3 Dec 2010.
  11. ^ CCEE (2008). Relatório de Informações ao Público. Análise Anual.


  • Loughran, David S. and Jonathan Kulick: "Demand-Side Management and Energy Efficiency in the United States", The Energy Journal, Vol. 25, No. 1. 2004 .
  • "Demand-Side Management." Pacificorp: A Midamerican Energy Holdings Company. 2010. 9 November 2010.
  • Simmons, Daniel. "Demand-Side Management: Government Planning, Not Market Conservation (Testimony of Dan Simmons Before the Georgia Public Service Commission)." MasterResource. 20 May 2010. . 9 November 2010.

Works Cited Assessment of Long Term, System Wide Potential for Demand-Side and Other Supplemental Resources. Rep. Final Report ed. Vol. 1. Portland: Quantec, 2006. Assessment of Long Term, System Wide Potential for Demand-Side and Other Supplemental Resources. PacificCorp. Web. 7 Nov. 2010. <>.

Brennan, Timothy J. "Optimal Energy Efficiency Policies and Regulatory Demand-side Management Tests: How Well Do They Match?" Energy Policy 38.8 (2010). Environmental Sciences and Pollution Mgmt. Web. 7 Nov. 2010. <,1,2>.

Moura, Pedro S., and Anibal T. De Almeida. "The Role of Demand-side Management in the Gird Integration of Wind Power." Applied Energy 87.8 (2010): 2581-588. Environmental Sciences and Pollution Mgmt. Web. 7 Nov. 2010. <,0,25>. Primer on Demand-Side Management. Rep. no. D06090. Oakland: Charles River Associates, 2005. Print.

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