Energy Demand Management

Hsiao-Hsuan Lin
December 12, 2014

Submitted as coursework for PH240, Stanford University, Fall 2014


Fig. 1: CFL light bulbs are great substitutes of incandescent light bulbs to increase lighting energy efficiency. (Source: Wikimedia Commons)

Following the two energy crises occurred in 1973 and 1979, electric utilities across the U.S. began implementing Demand-Side Management (DSM) programs targeting at modifying consumer's demand for energy. Demand-Side Management programs were designed in response to rising oil and gas prices and perceived long-term shortages in energy supply. [1] Instead of adding more electricity generators to meet the increasing energy demand, DSM programs incentivize consumers to reduce their consumption. DSM programs are popular among utility companies because it is typically less expensive and easier to acquire energy from consumers' side than from traditional generation.

This report introduces two categories of DSM measures, Demand Response and Energy Efficiency, reviews various common programs under these two types of DSM and discusses how demand response and energy efficiency interact with each other to achieve the goal of energy demand reduction.

Demand Response

Demand response (DR), also known as load management, temporarily shits customer energy load during peak demand hours to off-peak periods, thus alleviating the load burden on the power grid during high demand times. Reducing peak energy demand not only allows more electricity to be produced by cheaper base load generation but also saves the cost of the building additional power plants to meet critical peak demand. Common DR programs implemented in electric utilities can be broadly categorized into two types, reliability-based and market-based programs. [2]

Reliability-Based (or Load-Response) Programs

Reliability-based or load-response programs offer customers with economic incentive such as lower electricity rates or specific bill credits to change their energy loads. Three sub-categories could be identified under reliability-based programs: Direct load control, interruptible programs and curtailable load programs. [2]

In direct load-control programs, utilities or system operators install remote control switches on customers' electronic appliances such as air conditioning systems or water heaters. Utilities Customers allow utilities or system operators to turn off their devices with the installed switches during periods of peak demand. Interruptible programs, on the other had, aims at large commercial and industrial customers, who have their own back-up generations that could be turned on or who can shut down their operation process for a short period of time to meet the load reduction needs. Again targeting large commercial and industrial customers, curtailable load programs require their participants to decrease their energy load upon notice from their utilities or system operator. The main differences between interruptible programs and curtailable load programs are the targeted load size of customers (curtailable programs have a lower 100-200 kW limit), more limited times when curtailments can be implemented and smaller penalties for failure to respond to the reduction request. [3]

Market-Based (or Price-Response) Programs

Participants in market-based programs have opportunities to modify their loads voluntarily upon economic notifications from the utilities or system operators. In return, customers who respond to such signals receive price discount or other incentives to change their demands. Market-based programs vary by pricing structure and the amount of time allowed for advance notice. Common price-based programs include Time of Use (TOU) rates, Dynamic Pricing (DP) and Demand Bidding (DB).

Time-of-use (TOU) pricing programs are leveled rate structure that consists of a peak rate, an off-peak rate, and sometimes a shoulder-peak rate for pre-determined blocks of time in a day. [2] TOU rates reflect average market conditions and the mechanism for TOU does not take into account daily variability of supply costs. [2] Conversely, dynamic pricing (DP) includes volatility and uncertainty of daily energy supply cost, and this allows the customers to pay the fluctuating market rate for their electricity. Critical Peak Pricing (CPP) and real-time pricing (RTP) are two typical dynamic pricing programs adopted by utilities. Demand bidding (DB) works in a different way than TOU and DP by allowing the customers to actively decide how much of their energy load they will be willing to reduce with a specific bidding price. Several different structures can be applied to DB programs. For example, participants can name the price at which they want to sell their load reductions to the utilities. In other case, the utilities or system operator can announce the price they want to pay for the load reduction and let the customers decide how much load they will be willing to reduce at such given price.

Energy Efficiency

Energy efficiency (EE) requires three important components to succeed. Firstly, existing consumer devices are required to be replaced with ones that use less energy without influencing operating performance. Secondly, newly implemented energy-based equipment should consume less energy when performing its functions. Lastly, different from DR, EE is not time-sensitive. EE reduces the actual energy demand with no regard to when the reduction happens. [4]

Types of EE programs and strategies include rebates, financing, trade-ally incentives, commissioning services, education, appliance standards and building codes. [4] Under a rebate program, customers can receive rebates when installing new or replacing existing energy-efficient lighting, HVAC system, motors and so on. In financing case, the upfront charge of energy-efficient actions can be offset at a subsidized rate. The utilities can also actively pay trade-ally incentives to their customers who adopt energy efficiency measures. Commissioning services are very important in helping the utilities or homeowners make sure that the energy-consuming equipment in the buildings are operated and maintained appropriately. The benefits of energy efficiency should also be passed on to the end-users, building/construction trades and other trade allies by educational methods. Innovative design and embedded demand responsive switches should be integrated in appliance standards to support energy efficiency. Finally, revised construction, design and operational standards in building codes allow buildings to be built more energy-efficiently.


Among the various types of demand response programs, about 93 percent of the peak load reduction in the U.S. comes from reliability-based demand response measures. [5] Energy efficiency, depending on when the measures are implemented, can also potentially reduce peak demand load. Nevertheless, energy efficiency has long-term and overall effect of load management and greenhouse gas mitigation. It is very important to understand the attributes of demand response and energy efficiency, and how they can be integrated to attain more energy savings.

© Hsiao-Hsuan Lin. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] D.S. Loughran and J. Kulick, "Demand-Side Management and Energy Efficiency in the United States," Energy J. 25, 19 (2004).

[2] "Demand Response: An Introduction, Rocky Mountain Institute, April 2006.

[3] D. York, and M. Kushler, "Exploring the Relationship Between Demand Response and Energy Efficiency: A Review of Experience and Discussion of Key Issues," American Council for an Energy-Efficient Economy, Report No. U052, March 2005.

[4] C. Goldman et al., "Coordination of Energy Efficiency and Demand Response," Lawrence Berkeley National Laboratory, Report No. LBNL-3044E, January 2010.

[5] P. Cappers, C. Goldman, and D. Kathan, "Demand Response in U.S. Electricity Markets: Empirical Evidence," Energy 35 1526 (1010).