Demand Side Management Programs

11 May 2011Archived News Climate Change Matters

Demand side management (DSM) is the use of financial incentives, education, or other programs to shift peak energy loads to other times, cut the peak load, or reduce the total load by increasing energy efficiency.

The term DSM was coined, and programs began, in California due to the energy crises of 1973 and 1979. The initiatives to achieve DSM are often intertwined, but usually include one or all of the following:

  • direct load control and demand response
  • interruptible loads
  • pricing initiatives and smart metering

These programs maintain system reliability, and delay or eliminate the need for capital investment.

This report will outline the major initiatives contained in most programs, and provide examples of Australian and international programs.

Direct Load Control and Demand Response

Direct Load Control (DLC) and Demand Response (DR) have the same goal of switching off non-essential devices during periods of high demand. In DLC the electricity utility can exercise control in periods of high demand over devices that consumers have volunteered to outfit with a communicating controller, with the incentive of paying reduced energy rates.

Conversely, in DR, the consumer is expected to control the demand manually, by responding to pricing initiatives or smart meters. Examples include:

  • The Queensland Government's Demand Management Program1 fits energy-saving devices to appliances like air conditioners, pool pumps and hot water systems to enable remote cycling over the few hours of peak demand.
  • Toronto Hydro's 'Peaksaver' initiative for furnaces and air conditioners which pays consumers to use smart thermostats in their homes. The objective of the scheme was to trim 2 GW off the peak demand that pushed the peak demand up to 27 GW for only 32 hours of the year. The initiative avoided the need to install the additional 2 GW capacity.2
  • Florida Power and Light (FPL) has successfully implemented direct load programs because of their multi-pronged approach; marketing communications, pricing incentives, and customer education. The FPL regulatory filings have consistently shown that installing and operating their entire DMS program costs 20% to 30% less than building and operating new generating units. 3

Interruptible Loads

Interruptible loads are the right for an electricity utility to interrupt supply to a customer, typically during a system emergency, to relieve short term network constraints up to a couple of hours. Similar to Direct Load Control, they apply on a much larger scale than individual pieces of equipment or appliances outfitted for DLC. Interruptible loads can be deployed in one of two ways. The network operator gives notice of an interruptible load event to the customer, then relies on the customer to reduce their electricity usage; or unilaterally interrupts supply to the customer.

Good examples of interruptible loads are:

  • Florida has operated a voluntary Interruptible Service Program since 1996, available to commercial and industrial customers with an average demand over 500 kW. The utility, Florida Power and Light (FPL) operating under Progress Energy Florida (PEF), has remote control over the customer's supply circuit breaker. Customers are paid a credit per kW of reduced demand below their normal load factor. Using a portfolio of DSM programs, including interruptible rates for large power customers and a predominantly residential load-control program, FPL and its customers had successfully reduced demand for energy by 3463 MW as of 2004. This reduction had allowed FPL to avoid building approximately ten new 400 MW power plants. This prevented blackouts, but also allowed FPL to sell energy to other utilities within Florida when they needed additional power to meet their capacity needs.4
  • In Spain the transmission system operator Red Eléctrica de España (REE) has been running an interruptible load program since 1983. The customers, who range from metal industries to airports, receive a discounted electricity bill in return for signing up to one of the following Load Interruption Contracts, which differ by interruption duration and warning time. An example of the impact is the 3,800 MWh shed during a particular load interruption which saved the utility some €305,000.

Pricing Initiatives and Smart Meters

The true cost of energy is not consistent during each day, because of the fluctuations in supply and demand. Yet most consumers pay a standard price, which provides no incentive for users to reduce their power during times of high demand, and ultimately costs the public through increased government spending to provide generation capacity for those few days of peak demand each year. Pricing initiatives make consumers pay a truer price for their energy, reflective of the real value of the energy at that time of the day or year.

Pricing initiatives usually require users to have Smart Meters installed, which some utilities will subsidise the cost of in order to encourage more customers to switch. Smart meters also provide end-users with detailed information about their energy use patterns, which could be used to identify energy, cost and carbon savings

After California’s 2001 energy crisis the California Energy Commission created the Critical Peak Pricing tariff for large industrial and commercial energy consumers. This optional program charged higher energy prices (up to 10 times the normal price) during up to 12 “Critical Peak Pricing Days” each summer. The customers were warned the day before a CPP day. In exchange the customers received smart meters and discounted electricity rates (up to 10% cheaper) during all other times of the summer.

After four years of experimentation, the French government launched the optional Tempo nationwide tariff program to smooth both the annual and daily load curves, reducing marginal generation and network costs. The customers can choose to stay on a flat-rate base option, a peak/off-peak dual rate system, or the complex Tempo option with pricing up to ten times higher on critical days than on the extremely-cheap non-critical days. Customers who choose Option Tempo are informed each night about the colour for the next day on their control unit. The results have been tremendous, reducing electricity consumption on critical days by 45% compared with non-critical, saving Tempo customers on average 10% on their bills, achieving 90% positive feedback from users, and has become the option chosen by 20% of all electricity consumers.

In Western Australia, Synergy offers variable pricing options for customers under the SmartPower program, offering four pricing rates based on time of the week and specific month. The peak rate is up to 4 times higher than the lowest rate, allowing the customers to decide when to operate appliances, to allow them to save money. The customers are charged a one-time fee to install the SmartPower meter. 5

Written by Michael Fuller and Gordon Weiss


“Worldwide Survey of Network-driven Demand-side Management Projects”, 27 October 2006.
1.|Demand Management Program

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