DSM and the New Energy Industry

Transmission & Distribution World February 2001

By Chuck Newton, Automation Editor

It appears that the impending death knell for demand-side management (DSM) systems, products and services may not be rung any time soon. You may ask, why not? With the promise of abundant power, cheap prices and supplier choice, there should not be any need for DSM. In fact, many utility-operated DSM programs have been scaled back, and some load-control equipment manufacturers are either crying the blues or have gotten out of the business. Worse yet, some public service commissions (PSCs) have stated that the rules and incentives for DSM have gone with the advent of deregulation.

But let’s not move so fast into giving a universal “thumbs down” for the technology, its rationale or the future outlook of DSM. Let’s look back at a few recent events. Recall the sweltering days of the California peak summer season and the thinning of bank accounts after electric utility payments. Then keep in mind that for every public utility commission (PUC) or PSC washing its hands of DSM, there is another indicating that DSM is vital to the success of the new energy industry. For every utility that laughed when asked about the role of DSM in its plans, there was another indicating a serious effort to strengthen the role of DSM. For every manufacturer that has gotten out of the business, another has advised that things are steaming along.

Some important differences in the way DSM is viewed and the way it will play out in the new energy industry need to be discussed. First, the control of loads is likely to switch from a residential focus to a more sophisticated approach that involves usage based on spot pricing and close-in scheduling of power operation by savvy energy managers in industrial and commercial businesses. Flexible and cost-effective approaches to electricity usage by energy-intensive industries, large commercial companies, and building owners and managers are all being taken, with attention to the vital role that DSM can play.

In the intervening years since the heyday of DSM interest in the mid- to late-1980s through early 1990s, a lot has happened that will affect any re-awakening interest. Technology advances, communications breakthrough, manufacturing process improvements and the lower unit costs of smaller lot production have all made significant headway. In turn, these advances will serve to provide a new, improved generation of DSM or load-control systems, equipment and communications services, and will do so with a more cost-effective and reliable approach.

In areas of the country and world where generation is lagging behind demand, such as California in the United States and many countries in developing nations, DSM and active load management are necessities, not luxuries.

Jim Losleben, director of business development for Cannon Technologies, has been involved with load management for nearly 20 years. He pointed out that there is a philosophical difference in the way North Americans look at DSM, compared with utilities and end users in Europe and other world regions. North American DSM implementations are largely utility operated, infrequently PSC mandated, voluntary on the part of the end user and usually with inactive load control. In Europe and elsewhere, and even among some electric cooperatives in North America, active load control programs are seen as a DSM tool, and DSM is a key component of a utility’s operational strategy.

If North America is to see a resurgence of DSM, then users will have to adopt the European model and not just plan on DSM as an emergency condition tool of last resort. The drivers affecting load management today are, first, the necessity for DSM in areas with demand/supply imbalances as a means for keeping a reliable electric delivery system; second, the economic practicality of implementing load control when spot prices exceed a certain set point and market pricing is volatile; and third, the impact of a deregulated energy business, causing load management to become part of an operating strategy. Finally, a fourth driver that several utilities and suppliers mentioned is the opportunity to sell reserves created by effective DSM programs.

The newer players in the deregulated industry might renew the interest in DSM programs, but expect a strong emphasis on price signals that impact customer usage choices.

A new spin on load control to make it more palatable to a base of energy consumers that have come to expect an abundance of power all day, every day. Energy-efficiency plans of all types, including passive demand management and active load control, make sense and will make a big difference in power-supply reliability, load balancing, paid prices and efficient consumption patterns in a deregulated environment.

Less than four years ago, the reasons utilities cited for lack of interest in DSM were that it was not cost effective, there was no incentive from wholesale rate structures and there was excess capacity. A lot has happened in the intervening time since those utility responses. You can bet there’s a place for DSM in the new energy industry. In fact, count on it to be a cornerstone.