Energy demand management

Energy demand management is often referred to also as demand side management (DSM). Energy demand management usually implies actions that influence the quantity of energy consumed by users. It can also include actions targeting reduction of peak demand during periods when energy supply systems are constrained. 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 in the 1970's when the 1973 energy crisis and 1979 energy crisis made it clear that some of the most convenient fossil fuel energy reserves]], such as crude oil, are approaching exhaustion (see article on Hubbert peak).

How it works

Ideally, the energy use would be optimised by supply and demand price arbitration in the market. Various market failure mechanisms rule out an ideal result. One of the market failures 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. 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 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 programmes for demand management after the 1973 energy crisis. An early example is the National Energy Conservation Policy Act of 1978 in the US, preceded by similar actions in California and Wisconsin in 1975.

Logical foundations

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.

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 the centrally planned economies subsidising 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.

External links

• EU Energy Demand Management, D-G Energy and Transport
• Demand-Side Management Programme IEA
• Energy subsidies in the European Union: A brief overview)

References

• Loughran, David S. and Jonathan Kulick: "Demand-Side Management and Energy Efficiency in the United States", The Energy Journal, Vol. 25, No. 1. 2004 .