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 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.[1] 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.
The term DSM was coined during the time of the 1973 energy crisis and 1979 energy crisis.
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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. Theoretically the best 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 in 1975.
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 energy, 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.
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.[2]
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.[3]
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.[4]
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.
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. <http://www.pacificorp.com/content/dam/pacificorp/doc/Energy_Sources/Demand_Side_Management/Demand_Side_Management.pdf>.
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. <http://csaweb112v.csa.com/ids70/view_record.php?id=4&recnum=2&log=next&SID=bldrtpskgjmpd36b4bmdhi9mi2&mark_id=view:8,1,2>.
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. <http://csaweb112v.csa.com/ids70/view_record.php?id=4&recnum=0&log=from_res&SID=bldrtpskgjmpd36b4bmdhi9mi2&mark_id=search:4:37,0,25>. Primer on Demand-Side Management. Rep. no. D06090. Oakland: Charles River Associates, 2005. Print.
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