Why DSM?

The most general rationale for Demand Side Management (DSM) in the power sector is that it is frequent more cost effective and socially beneficial to decrease or manage electricity demand by investment in efficiency and other demand side measures than to increase power supply or transmission capacity. Reductions in energy demand and consumption at the end user's premises could free up electricity generation, transmission or distribution capacity at a fraction of the costs needed to give new capacity. For some DSM measures, the cost of saved energy has been estimated to be as low as 10 percent of the cost of added capacity.

Therefore, DSM allows existing generation capacity to meet require of a larger number of consumers and defers or reduces the need for new capacity. The potential benefits to be derived by promoting end-use energy efficiency and adopting DSM are:

i)  Possibility of availability of nearly 15,000 MW by reduced energy usage due to enhanced end-use efficiency;

ii)  Saving potential of 30-35% each in industry and agriculture by retrofitting with efficient equipment/ pump sets;

iii)   Saving potential of 25-30% in commercial / Government establishments and residential houses;

iv)  enhanced customer service;

v)   Reduced operational costs; and

vi)  Creation of new revenue streams.

Apart from the above factors, power utilities should undertake DSM because of the following reasons:

• Demand for power far outstrips the capability to provide supply, particularly peak supply;
• Utilities can improve their cash flow revenues, and improve the quality and reliability of power supply; and
• They can also mitigate the impact of rising tariffs on the subsidized customers.

The strategic value of DSM and energy efficiency lies fundamentally in their ability to improve the financial cash flow utilities.  The natural laws of financing need that revenue from electricity sales are used to service debt interest payments and principal due on capital loans. The ability of the utility to attract private investments towards financing Independent Power Providers or other utility services is severely undermined If the flow of revenue is choked on account of commercial and technical losses in distribution and poor end-use efficiency.

Economies are also realized on the capital account. Studies anywhere in all over the world on the cost-effectiveness of DSM have reported that saving one megawatt of power costs about 1/5th to 1/10th of the capital investment required to generate an equivalent megawatt in a power plant.

Therefore, there is an imperative need for adopting energy saving measures and demand side management to mitigate power shortages and drastically decrease capital required for power capacity expansion.

You have learnt that the savings achieved by improved energy efficiency and DSM reduce the required for capital investments as well as fuel, mining, transportation, water and the real estate needed to set up new power plants. Other advantages of DSM include reduced pollution, reduced price volatility, improved reliability of the electric grid, improved resilience against accidents, and reduced bills for customers.

SEBs and privately owned utilities have ample motivation to pursue demand management to the extent which it can

• Improve service (e.g., through improving voltage profiles);
• Increase revenue (e.g., through reducing power theft); and
• Decrease cost (e.g., through reducing peak demand).

It is extremely expensive for utilities in India to purchase power to serve peak demand, whether it be from outside suppliers (generally from other SEBs, while IPPs will be playing a larger role in the future) or oil-fired peaking units (which are still relatively uncommon). Throughout much of USA, power to meet peak needs is sometimes not available and the demand goes unmet - a situation that has unpleasant social and economic consequences. Elsewhere, peak demand is met but at a high financial cost.

The motivation for DSM in a power utility also stems from the subsequent factors:

1.    Dwindling reserve margin of current capacity.

2.    Avoiding financial risk associated with capacity expansion, for example, due to

• Increased construction costs,
• Non predictability of institutional debt markets, and
• Scepticism of institutional debt markets.

3.    Uncertainty over future of independent power.

4.    Environmental issues such as

• Siting/Land use,
• Air/Water quality, and
• Acid rain & environmental pollution.

5.    Triggering pressure through regulatory bodies & vested interest action groups.

6.    Economic attractiveness while viewed in a societal benefit-cost context.

7.    Improved public image & relationship along with customers.

In the current regime of tariff rationalization through the state regulatory agencies and end-use efficiency improvements through DSM at the customer end could mitigate the adverse impact of increased rates on commercial, residential and agricultural customers. At the similar time, DSM could help industries to be placed more competitively in increasingly open markets in the age of globalization. Further, support for energy efficiency at its customers' installations could bring a utility into closer contact with its clients, frequent resulting in better service, and permitted a more efficient future planning process.

In the developed countries, there are examples of DSM services in which have reduced load through over 1,700 MW and saved customers more than USD 7 billion in energy costs, protected the environment through eliminating over 126 million tons of carbon dioxide emissions - equivalent to taking 1.7 million cars off the road each year. One such service in the USA analyzed over five million households by on-line, mail-in and on-site energy audits throughout North America, provided energy analysis and implementation services for more than six billion square feet of commercial and industrial floor space, and designed a huge variety of incentives and energy saving programmes for residential, industrial and commercial customers.

DSM can therefore be looked upon as a partnership among the utility, the customer and the society with benefits to all (Table).

                                                                    Table: Benefits of DSM

This partnership has to be facilitated through the Central and State governments and the Regulatory Commissions, the other stakeholders in this programme. The adoption of DSM measures should provide an option to power utilities for Integrated Resource Planning (IRP). This will help them conduct economic evaluations of the several potential energy efficiency projects, package these projects, prioritize the projects in terms of their economic advantages to the power This partnership has to be facilitated through the Central and State governments and the Regulatory Commissions, the other stakeholders in this programme. The adoption of DSM measures should provide an option to power utilities for Integrated Resource Planning (IRP). This will help them conduct economic evaluations of the several potential energy efficiency projects, package these projects, prioritize the projects in terms of their economic advantages to the power utilities and the global economy and consider several implementation strategies.