Introduction to Demand Side Management

1. Introduction to Demand Side Management Day 1 - Dr. Herb Wade

2. Demand Side Management for UtilitiesCourse outline

3. Program Days 1-4 Start at 0800 Review of previous day’s work Morning Lectures and Demonstrations Lunch Case studies, practical work, exercises Daily Comprehensive quiz Finish about 1700

4. Day 5 • Visit to a government facility to do an energy audit • Course review and comprehensive examination • Presentation of certificates of participation • Closing

5. Course Content

6. Focus is on DSM and Utilities • How DSM programmes affect utilities both technically and financially • Why utilities do DSM programmes • Creating DSM programmes to provide benefits to utilities • Case studies of DSM activities by utilities • Practical work in energy audits, financial analysis and with tools for DSM

7. Utility Management Issues and DSM • Determining the financial effects of DSM activities on the utility • How lowering kWh sales through DSM changes cash flow for a utility • Impact of meeting external requirements for implementing DSM • Planning, forecasting and DSM

8. Technical Aspects of DSM • Energy auditing • Commercial • Industrial • Government • Residential • Energy management technology • Utility technical operations and DSM • Renewable energy and DSM

9. Analyzing Cost/Benefits of DSM • Life cycle costing for DSM investment • Concept of “payback period” for DSM investments • DSM in situations where tariffs are below service delivery cost • DSM in rising fuel price conditions

10. DSM Programming • Energy Surveys and Audits • Designing programmes for each class of customers • Public Information programmes • Appliance efficiency rating programmes • ESCO type activities • DSM programmes and government • Energy codes for buildings

11. Energy Service Companies and DSM • ESCO Services • ESCO type operations by utilities

12. So What Really is DSM?

13. Demand Side Management • Actions carried out by the utility on the customer’s premises that help manage the customer’s electrical usage • To modify energy use patterns including electricity demand timing or amount of demand • To encourage actions by the customer to modify the electrical usage to meet some goal, usually a reduction in electricity cost

14. While load management can be implemented by customers without any interaction by the utility, usually the term Demand Side Management (DSM) refers to actions taken on the customer’s premises that are actively encouraged or carried out by the utility.

15. Supply Side Management (SSM) • Actions carried out by the utility on its own premises to manage electricity supply • Usually incorporates efficiency improvements to reduce technical losses • Fuel efficiency improvements • Reduce parasitic loads • Reduce transformer losses • Reduce line losses

16. May also incorporate generation and distribution management • Operating the optimum mix of generators • Improving fuel efficiency by shifting generators on and off line to keep generator loads at optimums • Maintaining a high power factor • Incorporating compensators to keep generation power factor high • Managing the distribution system optimally • Substation management • Power routing management

17. What about Non-Technical Losses? • Non-Technical losses include such things as: • Excess use by customers having electricity provided without metering (24 hour street lights, un-metered government customers, broken meters, etc.) • Electricity stolen through customers wiring around meters, tapping feeders or modifying metering • Non payment of bills by customers

18. Comparison of DSM and SSM Actions • Longevity of results • Supply side 20-30 years • Demand Side much shorter term unless continually promoted • Quantification • Supply side benefits easily measured • Demand side benefits often difficult to quantify

19. Non-Technical losses are often not considered in either SSM or DSM programmes • Typically treated as an administrative issue

20. This course covers only DSM. Neither SSM nor non-technical loss reduction will be covered

21. Objectives of DSM by Utilities • Financial benefits • Political benefits • Socio-Economic benefits • Improved quality of electrical services • Avoiding the need for power cuts and rolling blackouts • Improving voltage stability in distribution

22. Does DSM Differ from Energy Conservation? • DSM strives to improve the efficiency of energy use without any reduction in the services that the energy provides • Conservation includes energy efficiency but also adds reducing energy use through the reduction of non-essential services

23. Why Do DSM? • Maybe advantageous to the utility because: • Can avoid capital investment in higher capacity for generation and/or distribution • Currently losing money on each kWh sold due to rates set below cost of service delivery • May allow increased generation efficiency and lower fuel bills • Marginal Costs are higher than average costs • Load patterns cause inefficiencies in generation or distribution

24. DSM is Mandated by Government • Reduction in fuel imports • Carbon emission reduction goals • Donor programmes • Public Relations • Customer’s perceive the utility in a more favourable light

25. How can a Utility Make More Money by Selling Less Electricity?

26. Tariff is too Low • Government forces the utility to sell electricity below actual cost • Often residential rates are substantially below the real cost of service and are subsidised by higher commercial and government customers rates. • residential DSM allows the utility to keep more of the revenue from commercial and government customers

27. Tariff cannot keep up with fuel price increases • In times of rising fuel prices, tariff increases lag behind fuel prices. • DSM helps reduce fuel cost and losses due to tariffs consistently below the real cost of service.

28. Marginal Costs Higher than Average Costs • For each kW of new capacity needed the per kWh generation cost is higher than current costs • Slow down rate of demand growth to limit the need for higher cost new capacity

29. Marginal Cost

30. Generation Capacity Barely Adequate • Improving the efficiency of customer energy use may keep the peak load within existing capacity and avoid or at least put off new investment in generation

31. Inadequate Capacity Forces DSM • Rolling blackouts • the ultimate DSM measure is turning off the power to the customer • Rolling blackouts possibly can be avoided through other DSM measures • Small rural hydro based utility in Bhutan could not meet demand until all incandescent lights were changed to CFLs.

32. Distribution Capacity Inadequate • DSM may allow the utility to avoid investment in distribution upgrading • DSM measures specifically focused on customers connected to feeders that are at or above the proper loading level

33. Load Levelling • The more constant the system load, the more efficient the system can be. High peaks and/or deep valleys in the daily load curve usually cause increased losses and higher costs to the utility • DSM applied specifically to loads that cause the peaks/valleys can help level the load over the day

34. Increasing/Shifting Demand • DSM is not just applied to lowering demand, it also can be used to increase or shift the timing of demand either globally, seasonally or at particular times of the day • During the wet season in a country with diesel+hydro, energy costs are lower so increased demand at that time will increase utility net income • Shifting electric water heating to late at night may improve generation efficiency • Ice making/fish freezing can be shifted to times when loads are too low to allow efficient generation

35. Desired Results of DSM Actions

36. Providing Services Associated with DSM • Renting customers energy efficiency equipment (e.g. solar water heaters) and charging a fee equivalent to the non-fuel cost of generating the kWh saved by the equipment • Joint venture with a gas company to shift customers from electric cooking to gas • Joint venture with a local engineering firm to provide ESCO type services to industrial, government and commercial users • Determine equipment needs, provide finance and maintenance for a fee that covers costs plus the non-fuel cost of generating the kWh saved

37. How are Users Encouraged to do DSM? • Usually by financial incentives • Lower electric bills • Lowered rates for desired actions • Higher rates for undesired actions • Finance for investing in energy efficiency measures • Provision of low or no cost CFLs to replace incandescent lights

38. Technical assistance services • Energy audits to determine where energy use can be reduced without reducing services • Advice/assistance in specifying and locating equipment that can provide higher efficiency • Joint ventures/cooperative agreements with local engineering firms to provide technical advice for energy efficiency improvements in commercial and industrial facilities • Training and information programmes • Workshops for hotel, office building and government building managers • Public information programmes through local media, events, public meetings and school activities

39. Selection of DSM Technologies • Technologies that have the greatest potential for overall energy saving • Technologies that are cost effective (payback in less than 10 years) • Technologies that can be installed and maintained locally

40. Financial Analysis of Energy Alternatives • Typically used to compare the “before” and the “after” financial results of implementing DSM. • Financial Rate of Return (FRR) • The effective interest rate received for the investment through energy savings • Often required by financiers but actually not always a good objective measure of DSM effectiveness • Payback period • The amount of time needed before the savings pay for the investment • Good mainly to eliminate clearly poor options and to provide an easily understandable measure of effectiveness.

41. Life Cycle Cost (or Net Present Value) • The total cost of implementing an energy efficiency measure compared to BAU (Business As Usual) energy costs • Includes capital investment, energy cost, repairs, replacements, maintenance, interest and inflation • Most realistic measure of the financial effectiveness of a DSM action • Requires a good understanding of costs and their timing

42. Understanding Life Cycle Costing • Time value of money • Through investing money, more money can be made over time. This gives today’s money increased value over time. • This value can be stated as an “annual interest rate”, the percentage of increase in money value each year

43. Interest Calculation • Period = amount of time the investment is increasing value due to interest (day, month, year, etc) • Interest rate is the % growth for each period (6% per year, .5% per month, etc.). If no period is stated, a year is assumed. So $5000 invested at 6% for 1 year will increase in value $5000 X .06 = $300

44. Simple Interest • Calculations are made as though each year had no effect on other years. This is equivalent to spending the interest as soon as it comes in. Year 1: $5000 X .06 = $300 ($5300 total) Year 2: $5000 X .06 = $300 ($5600 total) Year 3: $5000 X .06 = $300 ($5900 total) Year 4: $5000 X .06 = $300 ($6200 total)

45. Compound Interest • Based on the increasing value of the investment as interest is added to the principal as it comes in. Year 1: .06 X $5000 = $300.00 ($5300) Year 2: .06 X $5300 = $318.00 ($5618) Year 3: .06 X $5618 = $337.08 ($5955.08) Year 4: .06 X $5955.08 = $357.30 ($6312.38) So compounding shows increased value of $112.38 over that of simple interest

46. Future Value = Today’s value times ( 1+i )N Where N = the number of periods (years, months, etc.) at the interest rate “i” for one of those periods.

47. Future value after 4 years of investment of $5000 at 6% per year = $5000 X (1.06)4 where (1.06)4 (1.06) X (1.06) X (1.06) X (1.06) = 1.26247696 $5000 X 1.262477 = $6312.38 (the same thing we got earlier when calculating it a year at a time)

48. 4 years of $5000 invested at 6% annual interest compounded annually: Year 1: .06 X $5000 = $300.00 ($5300) Year 2: .06 X $5300 = $318.00 ($5618) Year 3: .06 X $5618 = $337.08 ($5955.08) Year 4: .06 X $5955.08 = $357.30 ($6312.38) or using the formula $5000 X (1.06)4 $5000 X 1.262477 = $6312.38

49. The effect of the time interval in compounding • The more frequently you add in the interest, the higher the final value of the investment.

50. Assume $5000 at 6% compounded every 12 months for 4 years: $5000 X (1.06)4 = $6312.38 Assume $5000 at 6% compounded every 6 months for 4 years: $5000 X (1_.06/2)8 = $6333.85 ($21.47 more) Assume $5000 at 6% compounded every month for 4 years $5000 X (1_.06/12)48 = $6352.45 ($40.07 more) Assume $5000 at 6% compounded every day for 4 years $5000 X (1+.06/365)1460 = $6356.12 ($43.70 more)