Energy demand management

Often referred to also as demand side management (DSM), the term has been coined in the 1970's when the energy crisis (1973 energy crisis and 1979 energy crisis) made it clear that some of the most convenient fossil energy reserves, such as crude oil, are approaching exhaustion (see article on Hubbert peak hypothesis). Energy demand management usually implies actions that reduce the quantity of energy consumed by users. It can also include actions targeting only reduction of peak demand during periods when energy supply system is strained. Peak demand management does not necessarily decrease total energy consumption may reduce the need for investments in networks and/or power plants.

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 supplier’s costs do not include all damages and risks of their activities incurred by others directly or by damage to the environment. These external costs may be added to the direct costs of the supplier as a tax (internalisation of external costs. Energy demand management activities should bring the demand and supply closer to a perceived optimum. Governments have mandated performance of various programmes for demand management. An early example is the National Energy Conservation Act of 1978 in the US.

Logical foundations of energy demand management

Demand for any commodity can be modified by actions of market players and government (regulation and taxation). Energy demand management implies actions that reduce demand for energy. This is contrary to what both energy suppliers and governments have been doing during most of the modern industrial history. Rational foundation of the change is in well-judged expectations about the future availability and prices of energy. Whereas real prices of various energy forms have been decreasing during most of the industrial era, the expectations for the future are the opposite. It is reasonable to promote more extensive energy use beyond the cost-benefit logic of consumers when more energy is expected at lower prices for the near future. Contrary to the historical situation, now energy prices and availability is expected to deteriorate. Governments and other public actors, if not the energy suppliers themselves, are well advised to promote lower energy consumption.

External links

[http://europa.eu.int/comm/energy/demand/index_en.htm EU Energy Demand Management, Directorate-General for Energy and Transport |
International Energy Agency Demand-Side Management Programme

References

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