Demand-side Management – Crack this nut for major energy gains, by Christine Loh

Energy demand-side management (DSM) requires work on the users of energy to see how consumption savings can be made. DSM sounds easy but it is in fact much more difficult to achieve, because supply-side management (SSM) is the norm and it affects how we all think about energy.

When people think about energy, they generally think about the supply of energy. When we turn the lights on, we want them to come on – no questions asked. People think about having sufficient electricity so as to avoid brownouts and blackouts. Thus, an electric utility is allowed to build extra generating capacity to make sure on very hot or very cold days there is still enough generating capacity to keep the air conditioners or heating system running for the entire community. A sign of a “developed” economy is to have enough energy at all times. This is the usual way we think about energy.

So, as population grows and as the economy expands, we think about having more energy generation capacity to keep everything going. This leads to the conclusion that we must built additional supply to meeting ever-rising demand.

We may need to build a new electricity generating plant. With rising concerns about environmental protection and climate change, we may prefer a plant that is not fuelled by coal, which pumps out large quantities of greenhouse gases. We may choose to build a new natural gas plant instead, or a nuclear plant, or even invest in wind, solar or wave power. There is a cost to building a new plant of course, but our minds understand this – we need to find the money to create new energy supply. There is also something appealing about building new plants, especially if they are considered hi-tech, such as renewable energy.

DSM requires us to think differently. We already have a certain capacity in generating electricity. If we are more efficient in how we use that generating capacity, and if we can get electricity consumers to use less energy, we will have extra energy capacity to use, which may mean we can make do without having to build a new power plant. By not having to invest in a new plant, we will save lots of money. DSM helps us to focus on efficiency gains and saving energy, which is a much cheaper option than constructing a new plant of whatever sort.

The challenge is that DSM requires connecting many dots along the energy chain, and we are not used to doing it. Governments need to have an energy policy that promotes DSM rather than focusing on the supply side. An example would be regulations that enable utilities to turn a profit from saving energy rather than from selling more. If regulation is such that a utility makes more money only by selling more electricity, then that is what will happen. The utility has no interest in helping customers to be highly energy efficient.

If a utility is rewarded financially for efforts it makes in energy saving, this will in turn make it look at how it can improve its own energy efficiency, as well as encourage customers to save energy. The utility will then want to work with customers to reduce usage and use energy more efficiently, such as by helping them to retrofit premises on lighting, air conditioning and heating. There are DSM schemes whereby the utility will pay for the cost of retrofit and get paid back over time through electricity bills. Thus, customers will save energy and pay less for electricity, while the utility can earn more through regulated DSM schemes.

Saving energy - whether in an industrial, commercial or residential premise - requires energy experts and electricians who can offer the right services. Traditional electrical training did not teach electricians how to help customers save energy. Thus, it is not always easy to find someone to help us minimise energy usage. If governments push DSM schemes, it can lead to utilities creating a whole new line of business in energy services and generating many new jobs.

In summary, to make DSM work well, we need to help government officials, business people and households understand how to join up the dots along the energy chain for the sake of saving energy throughout. Governments need to provide the proper financial and economic incentives for this to happen, and our academic and vocational training institutions need to provide the manpower to implement it.

Supply-side energy management is still the order of the day. The sooner we understand DSM, the quicker we will be able to make money and reduce energy consumption at the same time.

Christine Loh is chief executive of the Hong Kong-based independent think tank, Civic Exchange.

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