If They Sell Electricity, Why Do They Ask You to Buy Less of It?

Energy & Utilities Café serves as a platform to generate casual conversations about Energy and the Utilities Industry. The content here is meant to strike curiosity and to encourage discussions on the topic for everyone, even if you are not an expert in the field – because energy matters to all.

You may have noticed that utility companies often ask you to increase your AC’s temperature setting by one- or two-degrees during the summer. This may seem counterintuitive, since they sell electricity but are asking you to use less of it. Also, at times, utilities recommend you use home appliances such as a washer, dryer, or dishwasher after 6PM- but why do they care when you wash your dishes?

In a previous post, we learned how utility companies make money. So why would utilities ask you to use, and therefore buy, less electricity, or care when you use it; what’s in it for them? The short answer is reliability and affordability, or the idea of “Demand-Side Management”. The long answer involves energy optimization, reduction of CO2 emissions and regulation. 

So, let’s start today’s casual conversation.

Arguably, the most important goal of a utility company is to provide reliable power to consumers in a safe way. But power reliability depends on multiple factors, among them are dependable infrastructure, weather conditions and fuel costs ¹. To run an efficient system, utilities seek to reduce operating costs while keeping electricity affordable. An efficient system can be characterized by matching the supply of electricity with its demand ². In other words, since we have not figured out a way to store electricity in an affordable way at scale, it must be used almost immediately after it is generated. Therefore, utilities want to keep the amount of electricity generated as close to the amount used.

In general, the grid can be managed from its supply-side and from the demand-side. The supply side, as the name implies, refers to the part of the grid that supplies electricity (generation, transmission, and distribution) ³. The demand side, for the most part, refers to you, the consumer ⁴. You drive the demand of electricity by using more or less of it throughout the day. As you can imagine, utilities are able to control the supply-side of electricity a bit better than the demand. So, when the utility asks you to use less electricity, delay its use, or maybe even incentivize you to reduce your consumption, they are attempting to influence the demand-side of the grid.

But why exactly do they do that, what are the benefits of Demand-Side Management?

Demand-Side Management or simply DSM, is the attempt of utilities, regulators, and other energy entities to influence the consumer’s behavior. It’s often done through policies, programs, actions or simply education initiatives⁵. There are many definitions of DSM, but they all usually agree on three main components: Energy Efficiency, Energy Conservation, and Demand Response (or Load Management) ².

Although often used interchangeably, energy efficiency and energy conservation are not the same thing. Energy Efficiency describes using less power for the same task. For example, a 7W LED light bulb can provide the same amount of light as a 40W incandescent light bulb ⁶; it is said then that it performs the same task with less electricity. Energy Conservation refers to a change in human behavior ⁵. For example, you switch off the lights when leaving a particular area of your house. In the latter example, it does not matter how efficient your lightbulbs are, as you have chosen to turn them off entirely.

Demand Response (DR) describes the ability of a consumer to react to a change of price in electricity ⁵. DR programs have been around since the 1970’s but have recently regained popularity because the technology that makes them possible is becoming readily available and affordable ⁷. For example, if the utility contacted you saying that tomorrow from 2PM to 6PM electricity would be more expensive to use, let’s say 1.5X more, would you use less of it or would you just wait to complete your chores at 7PM? That is the premise of DR; consumers would alter their electricity consumption based on the current price of electricity. This method could closely match the demand and supply of electricity making the system extremely efficient benefiting the utilities and the consumers.

As we can see, there are plenty of benefits with demand response. It reduces operating costs for utilities including fuel costs. It improves system efficiencies therefore reducing losses. For consumers, it means cheaper electricity and contributing to a smaller carbon footprint [less demand, less production].

“It all seems too good to be true; this is when you tell me why it can’t be done, right?”

Yes, there are some challenges and barriers to DSM, but those will be explored in the next post in our DSM series.

We encourage you to find out more about this topic. Start by checking the following references: