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.

In our previous post in this DSM series, we discussed that utility companies seek to provide electricity to the consumer in the most efficient way. This efficiency relies on matching the supply of electricity to the demand. As a result, utilities control the supply of electricity and seek to influence the demand. To influence demand, utilities must influence the consumer; this is called Demand-Side Management (DSM). DSM can be a great tool for electricity providers and other energy entities to efficiently operate the grid. This is characterized by electric generation matching the load (demand) as close as possible, while maintaining a capacity margin to allow for unexpected changes ¹.

Today’s casual conversation will be about DSM benefits and its challenges. Let’s start.

DSM Benefits

If you look at a graph of electricity demand from a utility, a pattern can be seen of the higher- and lesser-demand times on any given day, month, etc. One of  the benefits of DSM is altering these “load-shapes” formed by demand, with tactics such as valley-filling, peak-shaving, and shifting loads to off-hours, allowing a smoother flow of electricity without too high a demand for the utility to handle. 

For example, a manufacturing company has all its heavy machinery powered on between 10AM and 2PM, which results in large energy consumption. The appropriate load curve for our manufacturing company would show its highest magnitude during those hours. The utility company is responsible for providing the necessary electricity to power those machines. However, if every business behaved the same way, the utility would have to generate much more electricity from 10AM to 2PM compared to the remainder of the day. This is an inefficient way to operate and it can potentially cause grid issues. Also, it is awfully expensive to do. So, utilities create agreements with high electricity consumers, like our manufacturing plant, to change their consumption behavior in situations where it benefits them, using incentives such as special pricing to motivate these changes.

Other benefits DSM provides to utilities are economic, as DSM can reduce capital spending or defer large investments ².

For example, utilities may not need another generation plant so soon if a DSM program is implemented. Furthermore, it can help reduce operating costs such as fuel costs. Also, employing a smaller toll in the system reduces maintenance costs and prolongs equipment life. Overall, DSM can help operate the grid more efficiently. For consumers, it gives them a choice to alter their consumption based on price which leads to cost reductions also.

“Well, DSM is great. But this is when you tell me what’s wrong with it.”

Yup, it is.

DSM Barriers and Challenges

DSM does not really have inherited issues, at least in theory. However, there have been several barriers and challenges to the implementation of DSM programs by utilities. To keep it simple, we will categorize these problems into three areas: technology, administrative, and customer-facing.

Technology-based challenges for DSM refer to the lack of infrastructure. Usually, the needed technology is prohibitively expensive, making it difficult to implement ³. For example, a Utility DSM program seeks to communicate with high energy consumers so they too can make educated decisions on electricity consumption based on price changes. At times, a communicating system from the consumer-site to the utility may not exist (smart meters, two-way communication etc.). If it does, the data may not be updated as quickly as needed. Although you may not see many Meter-Readers anymore, this does not mean there is a much faster way to get the data (it can take minutes, hours, days, or longer). Also, our simple example assumes a data presentment system is in place – a way for the customer to see their consumption, analyze the suitable factors, and respond to the program’s request. For some, this system is not always available.

Other DSM challenges can be administrative. Utilities have faced issues while running programs such as delayed rewards ⁴. If it takes too long for the customer to receive the reward, they may choose not to participate moving forward. Free riding is another issue with DSM programs, although it may be more applicable to energy efficient appliances and equipment ⁴. For example, for customers who would have bought the more efficient appliance anyway, when utilities incentivize them for it, there are no real additional savings achieved. Another big issue has been measuring actual energy savings. Without the right methodology in place, it is difficult to associate, measure and verify a customer’s energy consumption with the DSM program. If it is too difficult to quantify the program’s performance, it jeopardizes the program’s continuation ⁵.

Lastly, there have been challenges related to customer functions. Some issues have been related to the lack of education and communication between consumers and the utilities. If the DSM program runs throughout an entire season or longer, customers may forget they enrolled in it. Also, at times, people who were initially trained on the program may no-longer work at the customer site by the time they are needed ⁶. And for programs requesting customers to turn appliances on/off, sometimes those units are not working by the time the utility attempts to call on them. Lastly, some consumers who enrolled in the program figure out a way to get rewarded without participating properly, circling back to the previous paragraph where that issue cannot always be traced ⁶. 

“Ok, DSM programs are great, but difficult to implement. What do you suggest?”

Well, unfortunately there isn’t a single answer. Each utility has different resources and different ambitions when it comes to DSM. Some efforts are led by regulation and compliance but others by true willingness to operate more efficiently. As a result, utilities continuously work to improve the implementation of their DSM programs. However, we do know that a successful DSM framework needs specific program goals such as capital investments, generation mix, capacity and margins, fuel costs savings, among others. Also, a program should allow for extensive development through market research, customer demographics and customer analysis, and it should provide evaluating criteria. The latter will let the program managers and other leadership members justify its continuation ^{3, 7, 8.}

We have been discussing Demand-Side Management, its challenges, and barriers. But what exactly does a DSM program really look like? In what ways do utilities influence consumers’ demand, and how do they achieve such changes? For that, please stick around for our next post in this DSM Series.  

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

• [1] Rahman, S., & Rinaldy. (1993). An efficient load model for analyzing demand side management impacts. IEEE Transactions on Power Systems, 8(3), 1219-1226. doi:10.1109/59.260874
• [2] R. M. Delgado, “Demand-side management alternatives,” in Proceedings of the IEEE, vol. 73, no. 10, pp. 1471-1488, Oct. 1985, doi: 10.1109/PROC.1985.13319. 
• [3] Limaye, D. (1985). Implementation of demand-side management programs. Proceedings of the IEEE, 73(10), 1503-1512. doi:10.1109/proc.1985.13322
• [4] Carley, S. (2011). Energy demand-side management: New perspectives for a new era. Journal of Policy Analysis and Management, 31(1), 6-32. doi:10.1002/pam.20618
• [5] Strbac, G. (2008). Demand side management: Benefits and challenges. Energy Policy. 36. 4419-4426. 10.1016/j.enpol.2008.09.030
• [6] Gehring, K. L. (2002). Can Yesterday’s Demand-Side Management Lessons Become Tomorrow’s Market Solutions? The Electricity Journal, 15(5), 63-69. doi:10.1016/s1040-6190(02)00317-2
• [7] Zhong, J., Kang, C., & Liu, K. (2010). Demand side management in China. IEEE PES General Meeting. doi:10.1109/pes.2010.5589964
• [8] Gelazanskas, L., & Gamage, K. A. (2014). Demand side management in smart grid: A review and proposals for future direction. Sustainable Cities and Society, 11, 22-30. doi:10.1016/j.scs.2013.11.001