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Demand-Side Management for the Smart Grid

Fabrice Saffre and Richard Gedge

AbstractEfficient Demand Response or Demand-Side

Management (DSM) has long been one of the key aspirations of
the Energy Sector. In Smart Grids, there could be many
opportunities for semi-automated DSM, assuming proper
coordination (i.e. de-synchronization) mechanisms are in place.
In this paper, we present the results of a simulation study that
was carried out to outline the potential benefits and sketch the
key ICT requirements for DSM in Smart Grids. Our preliminary
findings indicate that a simple, centralized reactive pricing
scheme could be implemented with an acceptable communication
overhead, but also suggest high computational needs.
Index TermsDemand-Side Management, Smart Grid, ICT


many years, Demand Response (DR) or Demand-Side

Management (DSM) have been regarded as the Holy
Grail of efficient power generation. DSM is basically
perceived as the solution to a classical dimensioning problem,
namely the fact that the current power generation and
distribution infrastructure is designed to accommodate peak
and not average demand. Because the demand fluctuates
substantially over a daily cycle, a sizeable chunk of the system
capacity is effectively wasted
The high-level objective of DSM is therefore to flatten the
load over time by shaving the peaks and filling the
troughs or, in other words: to transfer as much of the flexible
demand as possible away from peak time into periods of lower
activity. A reliable and efficient approach would make
downscaling of the existing generation infrastructure feasible
without impacting negatively on total power consumption. It
could also facilitate the adoption of weather-dependent
generation by matching the load to an ever-changing capacity.
The traditional way of implementing DSM is via price
incentives, i.e. by lowering tariffs at times when the
aggregated demand is expected to be below average, so as to
encourage the end user to shift flexible loads towards these
periods [1]. Because of technology barriers and lack of
automation, such policies have so far been very coarse-grained
and mostly static (e.g. day-rate vs. night-rate), at least in
the consumer market.

Manuscript received January 11, 2010.

F. Saffre is with the ETISALAT BT Innovation Centre (EBTIC), Khalifa
University of Science, Technology and Research, Abu Dhabi Campus PO Box
127788, Abu Dhabi, UAE (e-mail:
R. Gedge is with BT Innovate and Design, Adastral Park, Martlesham
Heath, Ipswich IP5 3RE, UK (e-mail:

978-1-4244-6039-7/10/$26.00 2010

The Smart Grid vision simultaneously brings new

opportunities and new challenges for DSM. For instance, the
fact that an increasingly large share of the supply will come
from fluctuating renewable sources will jeopardize the
efficiency of fixed, strictly time-based tariffs. Instead, much
more dynamic, reactive pricing mechanisms will be required
to take into account real-time availability of a partly
unpredictable supply [2].
On the positive side, the roll-out of a new ICT infrastructure
to support a more efficient Smart Grid is a clear opportunity to
improve the performance and maximize the impact of DSM
solutions. Indeed, it will become feasible to communicate
frequent price updates to follow the evolution of the balance
between supply and demand in near real-time. Also, this
technological transition bears the possibility of partly
automating the load-shifting process, with intelligent
appliances switching themselves on or off in an attempt to
reconcile user preferences and targets with advertised
electricity prices.
The benefits of a Smart Grid are well documented [3] with
total gains of 18% for the USA. The benefits of demand-side
management for the UK are further discussed in [4] and
highlight the challenges for deployment including
communications infrastructure. Sood et al. [5] describe the
requirements for managing the transmission line components
and show the needs for an exceptional tight latency
characteristic for communications. The key question remains:
what are the communications needs for the overall Smart
Grid? Discussions hint at not being able to predict those needs
[6] whilst Cap Gemini states that the Smart Grid must begin
with the communications backbone [7].
This paper provides some high-level insights into the
transactional volumes for DSM in the Smart Grid. We present
the results of a preliminary investigation into the likely
communication requirements for a relatively crude but largescale (100,000 households) Smart DSM solution. In
particular, we look at the trade-offs between efficiency (i.e.
success in flattening the load) and communication intensity
(frequency of price updates).
A. Load creation and execution
The population is discretised at the household level. On
every time-step, every household has a given probability of
trying to initiate a flexible load. This probability is calculated
based on the duration of a simulation time-step so as to ensure
1. on average, every household initiates one flexible


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load per day, and

statistically, in the absence of DSM, the aggregated
load follows a realistic daily profile (informed by
an in-house experimental study involving 30 BT
All loads have an average duration of 119 (binomial
distribution between 0 and 238), during which they consume
an average 50.5W (random value between 1 and 100 for every
time-step, flat distribution).
Whenever a flexible load is initiated, it starts if at least one
of two conditions is met:
1. the cost of executing the load, averaged over its
entire duration, is below a given price target X, or
2. a random test performed against a fixed probability
P 1 of starting execution independently of the
price returns true
P is currently identical for all simulated households. X is a
randomized, load-specific target, obeying a binomial
distribution around the average value X (the actual simulation
If neither condition is met, the load enters stand-by mode
until the next time-step, at which point the same test is
repeated. Note that if P = 1, execution is never delayed, which
corresponds to the benchmark case (no DSM). Progressively
lower values of P are used to model an increasing
willingness of the end-user to wait until the target price is
When a load begins its execution, a point-to-point message
is sent to notify the aggregator (see below). Once started, a
load is never interrupted.

B. Price updates
The price per Watt for all future time-steps is calculated
using the currently known aggregated load. Basically, a
centralized entity (the aggregator) keeps track of all existing
loads and computes a unit-price accordingly: whenever the
forecasted aggregated load reaches a multiple of a specific
value S for any given future time-step, the corresponding price
tag is incremented.
This effectively means that the cost of power increases as a
step function of the known aggregated load on every future
time-step. It is easy to understand intuitively that this reactive
pricing mechanism tends to prevent the clustering of loads in
time as, the higher the demand, the higher the unit-cost and the
higher the probability that new loads will enter stand-by mode,
so as to avoid crowded periods.
When a price update occurs for at least one future time-step
as a result of a new load starting its execution, a message is
broadcasted to all households to notify them of the tariff
change(s). At the chosen simulation scale, there can be many
such broadcasts per time-step.
It is worth noting that, when a load is initiated, the cost of
its immediate execution (on which the decision of entering
stand-by mode or not is being made) reflects the forecasted
aggregated demand, not the actual one (which may depend on
future events and decisions by other households). As a result,
a fair billing mechanism would need to be put into place

whereby the total price paid for any given load is that which
was advertised at the time when its execution started.
C. Key parameters
The key parameters that will determine the outcome of the
simulation include the average target price X, the probability
of spontaneous execution P and the width of the aggregated
load intervals between price increments S. The duration of a
time-step (granularity) mostly affect the length of the
simulation and the resolution of the data. For all the results
presented here, it was kept constant at 1 minute.
D. Measured variables
Six variables are recorded for every time step: (1) the actual
aggregated load, (2) the final price tag, (3) the number of
broadcast messages, (4) the number of point-to-point
messages, (5) the number of ongoing individual loads and (6)
the number of loads in stand-by mode. The fraction of loads
having successfully executed below their price target and the
frequency distribution of all loads as a function of how many
time-steps they spent in stand-by mode before execution are
also recorded.
Fig. 1 shows the effect of our DSM algorithm on the shape
of the aggregated flexible load, for 3 different values of P and
over a period of 3 days. Constant parameter values are X = 50,
S = 10,000.

Fig. 1. Simulation traces showing daily fluctuations in the aggregated load,

for variable levels of demand flexibility (X = 50, S = 10,000).

Fig. 2a illustrates the limited influence of widening the gap

between price updates on the resulting load profile, by
comparing two orders of magnitude (S = 10kW, S = 100kW).
Constant parameter values are X = 50, P = 0.001. There is
however a significant negative effect on the distribution of
waiting (stand-by) times. Fig. 2b shows the long tail of the
frequency distribution, where the difference is the most

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noticeable. Respectively ~85% (S = 10kW) and ~80% (S =

100kW) of the loads executed without delays, with the
average waiting time increasing from ~53 to ~78.

when considering the size of the population.

Provided that the volume per message can be kept relatively
small (of the order of a few kilobytes), the predicted traffic is
well within acceptable limits, suggesting that the
communication overhead is unlikely to represent a significant
obstacle to the launch of a basic, centralized DSM solution.
Similar considerations apply to the point-to-point traffic
generated by loads notifying the aggregator of their execution,
with a maximum observed value only slightly above two
messages per second (see Fig. 3b). It should be noted that the
value of S has no noticeable effect on point-to-point traffic.
Indeed, even though waiting times are longer, similar numbers
of loads are expected to start their execution per time-unit
once the system has reached steady state.


Fig. 2. Comparison between price update frequencies (X = 50, P = 0.001). (A)

Simulation traces showing daily fluctuations in the aggregated load. (B)
Impact on the frequency distribution of waiting times. The y coordinate of
every point is the fraction of all executed loads that remained in stand-by for
the corresponding time (x coordinate).

The results presented in this paper strongly suggest that

efficient DSM is possible at a relatively limited
communication cost. Our crude reactive pricing algorithm
proves capable of reducing the amplitude of fluctuations in the
aggregated load by over 25% for the chosen parameter values,
provided that the demand is sufficiently flexible (P << 1).
Also, considering the scale of the numerical experiments
(100,000 households), the number of broadcast and point-topoint messages is well within acceptable limits.
Furthermore, widening the interval between price
increments so as to lower the frequency of broadcast messages
does not seem to have any adverse effect on load-shifting. On
the contrary, such coarse-grained pricing scheme (steeper, less
frequent updates) appears to have a positive impact on peak
reduction. The downside is of course longer waiting times and
a lower fraction of loads executing successfully below their
price target. Since both effects would likely impact negatively
on customer satisfaction, a suitable balance between a
strong and weak DSM strategy would need to be found
prior to deployment.
Finally, our findings should not be interpreted as an
indication that there is no ICT challenge in implementing an
advanced DSM scheme for the Smart Grid. Even though our
current conclusion is that its communication requirements
would be remarkably lightweight, we cannot make any such
claim with respect to the computing infrastructure needed to
support it. The complexity of the billing process alone, with
different loads incurring a different unit-cost at any given time
depending on system history, could create substantial
difficulties. Also, it is worth noting that alternative DSM
solutions, for instance in a fully distributed scenario (see
Future work), may generate much larger traffic volumes.

Fig. 3 summarizes the simulation results with respect to the

communication intensity of our simple reactive pricing
scheme. The reduction in broadcast traffic obtained by
widening the interval between price updates can clearly be
seen on Fig. 3a. However, it is worth emphasizing that, even
for S = 10kW, the maximum observed value is only about one
broadcast message per second, i.e. a very manageable figure


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Future work will involve refining the simulation engine so
as to increase its capabilities. For instance, we will explicitly
take into account the interplay between flexible and inflexible
demand (the latter not being part of the present study). We
will also introduce time-based fluctuations on the supply side,
which will likely characterize the future Smart Grid [8].
Finally, we will consider geographical constraints in a more
distributed generation and distribution infrastructure (e.g.
micro-grids). In that context, power from renewable sources
may be used up locally in priority, which would lead to even
more dynamic pricing, with different prices being advertised
simultaneously in different parts of the network by weakly
coupled aggregators.


The authors wish to thank Mark Shackleton, leader of the

Sustainability and Climate Change Research theme within BT
Innovate and Design, for his helpful comments and advice,
and Laurent Kretzschmar, BT Openreach Business
Development, for commissioning this study.



[8] XI - Time of Use Pricing and

Energy Use for Demand Management Delivery/Reports/ST4 Report 30
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Gerkensmeyer, K.P. Schneider, S. Katipamula, T.J. Secres (2010) The
Smart Grid: An Estimation of the Energy and CO2 Benefits, Study
commissioned by the US Dept of Energy: PCNNL-19112, Revision 1
G. Strbac (2008) Demand-side management: benefits and challenges,
Energy Policy, Volume 36, Issue 12, Pages 4419-4426
V.K. Sood, D. Fischer, J.M. Eklund, T. Brown, Developing a

Fig. 3. Traffic volumes (X = 50, P = 0.001). (A) Frequency distribution of the

number of broadcast messages (price updates). (B) Frequency distribu ion of
the number of point-to-point messages (notification).

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