2012

DEMAND SIDE MANAGEMENT

Group 5 Srinivas Singh Pratik Kundu Shradha Sapra Vikas Patel GREAT LAKES IEMR 9/18/2012

Demand Side Management

INDEX

Topic

Page No.

BACKGROUND

DEFINITION AND SCOPE OF REPORT

EXISTING SITUATION AND PROJECTIONS

CRITICAL ANALYSIS OF ISSUES

CONCLUSIONS/RECOMMENDATION

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Demand Side Management

BACKGROUND
India has a total installed capacity of is nearly 2, 05,340 MW as of June, 2012 plus captive power plant produces additional 31,500 MW of power. The break-up has been shown in the chart below. Power is in the concurrent list of Constitution, due to which both the Central and State laws can be implemented, however in case of any clash, the Central law shall prevail. The country had been achieving a growth rate of nearly 8% in the past few years but lately, the situation looks gloomy and a growth of even 7% seems to be very ambitious. In such times the notion of saving electricity is very crucial for the country, not only for economical but also developmental reasons. The present power system in the country is struggling to overcome chronic power shortages and poor power quality. With demand exceeding supply, severe peak (around 18%) and energy (around 12%) shortages continue to plague the sector. Shortages are exacerbated by inefficiencies in power generation, distribution and end-use systems. The inefficiencies in the end-use systems is due to irrational tariffs, technological obsolescence of industrial processes and equipment, lack of awareness, nascent energy services (ESCO) industry, and inadequate policy drivers (such as energy efficiency standards and labeling system, financial incentives) in India. The elementary problem being faced by the power sector is the poor financial conditions of the State DISCOMs or predecessor entities in most states. Over the years, the SEBs had been causing an increasingly larger drain on the State Government budgets, now the legacy continues with the State DISCOMs contributing to 10-15% of the state fiscal deficits adversely impacting much needed investments in the social sectors of health and education. The power sector is operating with very low or no returns on the equity and no contribution to future investments from internal resources. This results in inadequate investment in additional generation capacity which is likely to further exacerbate the existing gap between power supply and demand.

Installed Power Capacity in India (June 2012)

2% 11% 17% 13% Captive Thermal Renewable Nuclear 57% Hydro

Thus, the Indian power sector faces two fundamental and interdependent issues: inferior operational performance leading to poor revenue cash flow, and as a consequence, inadequate capital mobilization for sector expansion. Current approaches do not completely address these

Demand Side Management

issues. Power sector plans focus exclusively on new supply and lately, to an extent, on improving supply efficiency and reducing T&D losses (for instance, the latter through the RAPDRP). A major opportunity lies in the DSM system in the country, which is yet to be utilised properly. The historic problems of the Indian power sector can be traced to three root issues unacceptably high T&D losses, large commercial losses due to poor billing, metering, collection and energy theft, and, low end-use efficiency of energy use specifically in agriculture. There is now widespread agreement that restoration of the financial health of the sector can be only enabled by demand side initiatives. To be specific, the electricity distribution area is where the historic problems converge. This convergence is most felt in the agricultural sector where the water-energy nexus is a major root cause for the precarious financial condition of the power sector in India today. Water withdrawal is an energy intensive operation throughout the agricultural sector, with the result that 30-40% of Indias power consumption is used for irrigation. The irrigation pumping electricity use is at the heart of the subsidy issue and along with electricity theft and T&D losses, comprise the root cause for the sectors financial dilemma. The reasons a power utility in India may undertake DSM include: a) demand outstripping the capability to provide supply, particularly peak supply, b) improve the cash flow revenues of the utility, c) improve the quality and reliability of power supply, and d) mitigate the impact of rising tariffs to the subsidised customers. For agricultural sector particularly, utility DSM is highly beneficial because of the subsidized prices and high costs of supply resulting from technical and commercial losses.

DEFINITION AND SCOPE OF REPORT

Demand Side Management (DSM) is described as the planning, implementation and monitoring of utilitys activities designed to encourage customers to amend their electricity consumption patterns, both with respect to timing and level of electricity demand so as to help the customers to use electricity more efficiently. Various factors such as increasing economic activity and population growth are resulting in additional pressure on ever increasing power demand when the country is already facing power shortage. In such a scenario, DSM can complement supply-side strategies to help meet electric service demands by assisting utilities avoid or delay costly capacity additions by slowing demand growth. To promote DSM, the Government is continuously introducing various policies and programmes targeting different sectors such as appliances, buildings, industries, etc. Despite these policies, the potential remains largely unrealized due to various technical, financial, economic, and institutional barriers. DSM is a concept in which a power utility, such as an unbundled distribution utility, manages the demand for power among some or all its customers to meet its current or future needs. DSM is either implemented directly through utility sponsored programs or through market intermediaries like ESCOs. In India, DSM can be achieved through energy efficiency, which is the reduction of kilowatt hours (kWh) of energy consumption or demand load management, which is the reduction of kilowatts (kW) of power demand or the displacement of demand to

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off-peak times. In the former category are programs such as awareness generation programs, customer or vendor rebates for efficient equipment, etc., while the latter includes time-of-use tariffs, interruptible tariffs, direct load control, etc. Specific types of programs depend on the utility objective: peak clipping, load shifting, strategic conservation or strategic load growth. Reductions in energy demand and consumption at the end users premises can free up electricity generation, transmission and distribution capacity at a fraction of the costs required to provide new capacity. The cost of saved energy has been estimated to be as low as 10% of the cost of added capacity for some DSM measures. In addition to avoided and deferred capacity costs, support for energy efficiency at its customers installations brings a utility into closer contact with its clients, often resulting in better service, and allowing a more efficient future planning process. This report aims at understanding the Demand Side Management (DSM) actions taken by the utility that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand or reduction of energy consumed during periods when energy-supply systems are constrained. While, 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 strategic conservation would lead to reduced energy consumption. Given the acute power shortage in the country and the recent collapse of the grid, it is imperative that the DSM program is carried out in a better and a more all-encompassing way than it is being done presently, we shall take a look at a couple of efforts that had been taken globally to arrest the rising inefficiencies in power transmission and distribution from the government as well as the consumers perspective. This is to bring to notice what all various kinds of measures that can be undertaken by the power generation/transmission/distribution/regulation institutions in the country for proper implementation of the DSM techniques. The benefits from the DSM initiatives are numerous and continue well ahead even when the initiatives are consciously stopped: Reductions in customer energy bills Reductions in the need for new power plant, transmission and distribution networks Stimulation of economic development Creation of long-term jobs due to new innovations and technologies. Increases in the competitiveness of local enterprises. Reduction in air pollution Reduced dependency on foreign energy sources. Reductions in peak power prices for electricity.

Demand Side Management

EXISTING SITUATION AND PROJECTIONS

For long electricity has been considered as a public good instead of a commodity, the first task at hand thus becomes, acceptance of the underlying assumption that electricity should be viewed as a commodity instead of a public good, the principle stated above is equally applicable to electricity. When consumers do not see the real cost of electricity in their power bills, they over consume energy, and that misdirects excessive capital and fuel resources to the power sector. This is especially true during peak periods, when the cost of producing electricity is much higher than during the off-peak periods, largely because electricity cannot be stored in large quantities economically due to technological reasons. DSM is an umbrella term that includes several different load shape objectives, including load management (LM), energy efficiency (EE) and electrification. The load curve can be changed if DSM measures are followed, the diagram below shows what can be done through DSM initiatives.

DSM in the Agricultural Sector

The agriculture sector in India uses 85% of the available fresh water. However, on-farm irrigation efficiency is only 20-50%. The other 50-80% is wasted. Combining these data indicate that the agricultural sector in India is wasting from about one half of the countrys total fresh water supply. On the energy front there are inefficiencies as well. The agricultural sector, on the average, accounts for about 30% of the total electricity consumption in India. The figure is somewhat higher in the agricultural states like AP, Gujarat, MP, UP, Karnataka, Haryana, etc. where agricultural electricity use is between 35-45%. However from a revenue perspective, the sale of this electricity amounts to no more than 5-10% of the state electricity boards revenues. The reason for this perverse state of financial affairs is the adoption of flat rate pricing for agricultural power. Under this system, when a farmer pays a fixed price per horse power per

Demand Side Management

month for electricity, or what is termed as a flat-rate system, the marginal cost of pumping water is zero. This leads to energy wastages, over pumping and inefficient selection of crops. Moreover flat rate pumping masks the true cost of power to farmers. When unreliability is factored in, most farmers incur costs of Rs. 2-3/unit more than what typical urban dwellers pay. From a political-economic perspective, the flat rate structure enables the state to give the impression of providing subsidized power to the rural voting population whether or not that population actually receives the intended subsidy. Summing up, the tariff structure and the poor combination of technology and management are responsible for water loss, unsustainable exploitation of ground water and the high energy losses associated with the distribution and end-use of electricity in irrigation water pumping.

THE VICIOUS CYCLE IN ENERGY AND WATER USE IN AGRICULTURE 11kV/440 V SUBSTATION
Power Curtailment Policy
Lack of resources Poor Engg. Standards Sub-optimal planning Long LT lines I2R Losses; low p.f Large DTRs

Ground water depletion Poor water quality Indiscriminate water pumping Resistance to Tariff increase Spurious nameplates Flat rate Resistance to metering

Load Shedding Rostering of Power

Poor Voltage Higher LT Dist. losses

Low Diversity Factor

Motor burnouts DTR burnouts

Customer dissatisfaction Installation of oversized pumpsets

Board of Energy Efficiency

In the year 2001, the Energy Conservation Act, 2001 was passed which led to the set-up of the BEE (Bureau of Energy Efficiency), whose tasks were to make the following a mandate:

Standards and labelling for appliances Energy Conservation Building Codes Energy consumption norms for Designated Consumers Certification and accreditation of energy auditors and energy managers Dissemination of information and best practices

Demand Side Management

Capacity Building Establish EE delivery systems through Public-Private Partnerships (ESCO) route

The various programmes that were undertaken under the DSM initiatives were: Bachat Lamp Yojana to promote energy efficient and high quality CFLs as replacement for incandescent bulbs in households. Standards & Labelling Scheme targets high energy end use equipment and appliances to lay down minimum energy performance standards. Energy Conservation Building Code (ECBC) sets minimum energy performance standards for new commercial buildings. Agricultural and Municipal DSM targeting replacement of inefficient pump-sets, street lighting, etc. Operationalizing EC Act by Strengthening Institutional Capacity of State Designated Agencies (SDAs): The scheme seeks to build institutional capacity of the newly created SDAs to perform their regulatory, enforcement and facilitative functions in the respective States. Energy Efficiency Improvement in Small and Medium Enterprises (SMEs): To stimulate energy efficiency measures in 25, high energy consuming small and medium enterprise clusters. According to a report by BEE (2010), the present statuses of these projects are:
Programme Electricity Saved (MU) Standard & Labelling Industry EC Awards Energy Savings SDA Buildings Bachat Lamp Yojana Total 4369 2450.6 4588.25 144 24 11575.85 BEE Avoided Generation (MW) 2468.9 358.6 855.66 27.5 20 3730.66 Electricity Saved (MU) 4350.92 2450.6 1874.25 21.06 24 8720.83 NPC Avoided Generation (MW) 2179.31 358.6 304.59 3.08 22.43 2868.01

Thus, out of a targeted savings of 10000 MW by 2010, only 6600 MW could have been achieved, which goes to show that the programs were only 66% successful, and some different measures need to be taken, to carry forward these initiatives in future.

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CRITICAL ANALYSIS OF ISSUES

The way forward is clear; Government should begin their liberalization program by focusing on pricing reform. People in all countries do respond to price signals. It is also to be kept in mind that the restructuring and commercialization activities of the utilities should be designed to maximize the opportunity of sending cost-reflective price signals to customers and there should be a premium on price stability over economic efficiency. Large DSM expenditures on energy efficiency and conservation programs were resulting in revenue losses to the utilities. These concerns were justified, since DSM spending was lowering sales but the utilities had to cover their fixed costs regardless of the amount of electricity that was sold. Several decoupling mechanisms were devised to make the utilities whole by ensuring that they would recover their revenue requirement regardless of the amount of power sold. In other words, recognizing that utilities had large fixed costs, the mechanisms would ensure that sufficient revenues would be collected to cover these fixed costs, even if sales went down.

Types of Price Responsive DSM Programs

Price Responsive DSM Programs

Loan Curtailment Dynamic Pricing Program

DLC Demand Bidding Buy back program Critical Peak Pricing EDRP DADRP Time of Use Pricing Critical Peak Pricing Extreme Day Pricing Extreme Day-CPP Real Time Pricing

Demand Side Management

CRITICAL ISSUES FOR INDIA

Actual savings often fall short of projections, creating a credibility problem for new programs. Free riders often join the program and are paid incentives even though they would have taken the same actions (e.g., purchase an efficient light bulb or air conditioner) even in the absence of the program. Program costs often exceed expectations, rendering the programs cost-ineffective. Utilities will not implement DSM programs without an assurance of cost recovery, the availability of sales-revenue decoupling mechanisms and financial incentives for shareholders. In many situations, standards for appliances (STAR Rating) and building codes (Green Buildings) may be the cheapest way to achieve long term efficiency gains.

PARAMETERS TO BE CONSIDERED
Targeting customer groups for a Phased Implementation Differentiating quotas and establishing criteria for differentiation among industrial customers Trading quotas in the marketplace Establishing quotas for distribution utilities Nature of incentives and penaltiesshould threat of disconnection be used to enforce quotas? Pre-paid meters, half-hourly meters and smart meters % reduction target quota Communicationidentifying messages and key players

Various countries across the globe has been trying various DSM measures to decrease their load in the grid and reduced dependency on grid power, some utilise renewable energy, others decrease consumption usage, however DSM objectives can be met by pursuing common goals and objectives.

CALIFORNIAS 20/20 PROGRAM

Customers were rewarded for voluntarily reducing their monthly consumption compared to the prior year by providing a 20% rebate on the commodity portion of their electricity bill for a 20% minimum reduction in monthly consumption. The rebate applied only to the summer months of June through September. All customers were eligible to participate,

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Rebate for large commercial and industrial customers with time-of-use meters was based on savings in on-peak demand. Over 200 different programs involving all sectors Rebates to customers who used less electricity than in the previous year Public Awareness Campaign Extensive daily coverage in the media Rebates for purchase of efficient appliances and equipment Updated efficiency standards Higher electricity prices to some consumers Estimated electricity savings: 14% Duration of shortage: approximately 9 months Advanced warning: approximately 12 months Energy and Capacity Savings in the 20/20 Program

BRAZILS POWER RATIONING MEASURES

As a country reliant on hydroelectricity for its power, Brazil faced a severe shortage of power when it was hit by a drought in 2001. So it had to go in for a very strict Demand Side Management response, under emergency to curb the shortage of power. Thus this was when they undertook these measures. Quota System approach, in which each customer was obligated to reduce their consumption relative to a baseline with financial penalties and disconnection for noncompliance.

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Electricity rationing Penalties for failure to cut consumption Extensive coverage of shortage by media Daily reports on reservoir status Distribution of conservation devices to the poor Strong national commitment to conservation Higher savings goal for public sector Fuel switching Estimated electricity savings: 20% Duration of shortage: approximately 10 months Permanency effect in Brazils rationing measures

Consumption per household in Brazil

GEOTHERMAL BASED AC SYSTEMS

A traditional air-conditioner functions by absorbing heat from the room and expelling it into the environment. It uses more power when the outdoor temperature is high (say, 45-49 degrees centigrade) and less when the outdoor temperature is lower (for instance, in September or October). This effect is put to use by new geothermal based air-conditioning systems to enhance efficiencies of traditional AC systems by more than 60%. The geothermal based system makes use of the ground (or the soil) to generate cooling for the air-conditioning equipment

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throughout the year, thus saving energy required for operating ACs. In fact, a geothermal system can help cut your power bill by as much as 80%.

CLOSED CIRCUIT SOLAR WATER HEATERS

In a "close-coupled" SWH system the storage tank is horizontally mounted immediately above the solar collectors on the roof. No pumping is required as the hot water naturally rises into the tank through thermosiphon flow. In a "pump-circulated" system the storage tank is ground- or floor-mounted and is below the level of the collectors; a circulating pump moves water or heat transfer fluid between the tank and the collectors. This reduces the energy consumed from geysers.

CONCLUSION/RECOMMENDATIONS
The Governments, including the Ministry of Energy and appropriate Electricity Regulatory Commissions, should reform rate design, encouraging consumers to shift their usage to less expensive periods. They should reform the rate level, encouraging consumer to use less electricity if initially rates were lower than average costs, as they are in most developing economies. DSM programs should employ market pull strategies. It is important to create a self-sustaining process involving all members of the value chain, including the equipment manufacturer, wholesaler, retailer, installation and maintenance contractors and the end use customer. This process helps to transform the market infrastructure and is often referred to as market transformation. We felt that the Demand Side Management involves actions at the level of consumers which would ultimately depend upon numerous factors. These recommendations therefore focus on the necessary regulatory interventions which have to be primarily in the areas of appropriate pricing of electricity and enabling regulatory framework for consumer-utilities partnership. Operational issues should be responsibility of the utilities. The Forum of Regulators should organize training courses in the area of DSM for capacity building of the personnel of the SERCs, the staff of DSM, Cells of the utilities in which the representatives of the State Governments may also be invited. The SERCs could also consider giving a slightly higher return on equity for the investments made towards DSM measures. The Bureau of Energy Efficiency (BEE) must follow-up with its various programs that have been launched and check the status of the same. BEE needs to be given more teeth. Facilitate grid interconnection for Co-generators State level Energy Efficiency Plans Mandate least cost Planning Energy Conservation Fund

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Focused DSM programs like Golden Carrot for efficient products, Efficient Lighting Initiative, Municipal Water Pumping, Efficient Motors Programme Strengthen labelling Initiative Energy Performance of New Buildings / Facilities Improving Energy Efficiency in the Transport Sector by Strengthening Urban Public Transport / Mass Transit Systems, Increasing Freight Traffic by Railways and Staggering office / school timings in Urban areas to balance traffic loads Private Utilities like NDPL and BSES have been doing pretty commendable task towards DSM and Energy Efficiency. They must be given additional powers and grants from the government to take this work further. Primary issue being faced now is educating the consumers for Energy Efficiency. Agriculture sector is one which can be used as an example for the entire country, a domain where 50%-60% energy used is wasted, can be brought down to a meagre number, which again due to technical issues. Despite the recent blackout in the country, various DISCOMs have been still overdrawing from the grid and happily paying the meagre penalty being charged. Besides increasing the penalty amount, DISCOMs need to be disciplined and educated about the same. Since energy savings from S&L products are market transformation related , it is recommended that , towards improved reporting and data accuracy , BEE may consider specific studies (CRISIL,ICRA,CMIE etc.) pertaining to the market research and market transformation of BEE S&L schemes, as also to identify enablers for increasing penetration of S&L products etc. Since energy savings from S&L products are market transformation related , it is recommended that , towards improved reporting and data accuracy , BEE may consider specific studies (CRISIL,ICRA,CMIE etc.) pertaining to the market research and market transformation of BEE S&L schemes, as also to identify enablers for increasing penetration of S&L products etc.