DSM is the modification of consumer demand for energy and may be used to:
- reduce customer load during peak demand or during supply shortages,
- shift loads from times when supply is short or prices are high to times when there is excess supply,
- shift loads to times when renewable energy is available,
- reduce overall customer bills by improving the efficiency of end-use processes, and
- provide capacity in electricity markets.
DSM is utilized by both natural gas and electricity customers, and there are two broad categories:
Energy efficiency
Energy efficiency reduces overall energy intensity for a specific use without concern for the timing of the use.
Demand response (DR)
Demand response or DR reduces demand during specific times or shifts demand across time. DR can be emergency demand response where customers are required to reduce demand when their failure to do so will create reliability issues; or economic demand response where customers are given economic incentives to:
- reduce demand during times when it is cheaper to reduce demand than to purchase or generate additional units of electric supply, and/or
- shift usage to times when plentiful renewable supply is available.
In electric markets, DSM is increasingly becoming an important supply resource. For example, energy efficiency programs can address system capacity needs by using capacity payments to increase the energy efficiency of end-use customers (and thereby reduce loads) instead of paying to build new generation. With the growth of renewables, system operators now require increasing amounts of flexible resources and often experience significant shifts in costs of generation across the day.
Demand response is now a common option for meeting the need for system flexibility. For example, in electric markets facilitated by Independent System Operators (ISOs) demand response can participate in energy and ancillary services markets. In the future, electric and gas utilities may contract with customers on specific electric circuits or gas lines to implement DSM as a means of avoiding costly upgrades. In the electric industry this is called non-wires alternatives. DSM is also considered an important tool in decarbonization efforts to fight climate change since DSM can displace the need to burn fossil fuel in power plants.