Demand side management: Benefits and challenges $ Goran Strbac à Department of Electrical and Electronic Engineering, Imperial College London, South Kensington Campus, London SW7 2AZ, UK article info Keywords: Electricity demand Electricity networks Metering abstract In this paper, the major benefits and challenges of electricity demand side management (DSM) are discussed in the context of the UK electricity system. The relatively low utilisation of generation and networks (of about 50%) means that there is significant scope for DSM to contribute to increasing the efficiency of the system investment. The importance of the diversity of electricity load is discussed and the negative effects of DSM on load diversity illustrated. Ageing assets, the growth in renewable and other low-carbon generation technologies and advances in information and communication technologies are identified as major additional drivers that could lead to wider applications of DSM in the medium term. Potential benefits of DSM are discussed in the context of generation and of transmission and distribution networks. The provision of back-up capacity by generation may not be efficient as it will be needed relatively infrequently, and DSM may be better placed to support security. We also present an analysis of the value of DSM in balancing generation and demand in a future UK electricity system with significant variable renewable generation. We give a number of reasons for the relatively slow uptake of DSM, particularly in the residential, commercial and small business sectors. They include a lack of metering, information and communication infrastructure, lack of understanding of the benefits of DSM, problems with the competitiveness of DSM when compared with traditional approaches, an increase in the complexity of system operation and inappropriate market incentives. & 2008 Queen’s Printer and Controller of HMSO. Published by Elsevier Ltd. All rights reserved. 1. Key features of the present power systems and the opportunities for demand side management (DSM) The traditional electricity system has four main sectors: generation, bulk transmission, distribution and consumption. Key features of each of the sectors are briefly reviewed in the context of the discussion of the potential role of DSM to improve the efficiency of operation and investment in the system. 1.1. Generation capacity, plant utilisation and efficiency In order to supply demand that varies daily and seasonally, and given that demand is largely uncontrollable and interruptions very costly, installed generation capacity must be able to meet maximum (peak) demand. In addition, there needs to be sufficient capacity available to deal with the uncertainty in generation availability and unpredicted demand increases. Historically, a capacity margin of around 20% was considered to be sufficient to provide adequate generation security. Given the average demand across the year, the average utilisation of the generation capacity is below 55%. This relatively low average plant utilisation opens up significant scope for DSM as shifting load from peak to off-peak periods would reduce the need for generation capacity and increase the utilisation of generating plant and hence increase the efficiency of generation investment. There is a significant spread in utilisation among different generators. As a result, the lowest marginal cost plant would operate at about 85% load factor (e.g. combined cycle gas turbine, nuclear), while plant with the highest fuel cost (e.g. old open cycle gas turbine (OCGT)) would operate only a few hours per year. Clearly, by shifting load from peak to off-peak periods, generation fuel cost could be reduced and the utilisation of investment improved. 1.2. Utilisation of transmission and distribution networks Historically, the design and structure of electricity transmis- sion (and distribution) networks were driven by an overall design philosophy developed to support large-scale generation technol- ogies. The network is able to continue to function after loss of a single circuit (or a double circuit on the same tower). After loss of a circuit due to a fault (e.g. lightning strike), the remaining circuits that take over the load of the faulty line must not become overloaded. This means that, under normal operation, during ARTICLE IN PRESS Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ -see front matter & 2008 Queen’s Printer and Controller of HMSO. Published by Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2008.09.030 $ While the Government Office for Science commissioned this review, the views are those of the author(s), are independent of Government, and do not constitute Government policy. à Tel.: +44 20 7594 6169; fax: +44 20 7594 6282. E-mail address: G.Strbac@imperial.ac.uk Energy Policy 36 (2008) 4419–4426