Ways to manage energy demand

Economic growth in India has been fuelling demand for electricity. However, the demand-supply gap hasn't been bridged, as installation of new generation capacity has been falling well short of successive Plan targets. The Eleventh Five-Year Plan is likely to have new generation capacity of more than 55,000 MW. Although this is more than 2.5 times as compared with the previous Plan period, it is still short of the original target of 78,000 MW, thereby resulting in electricity shortages of around 10-12 per cent. While efforts to create new generation capacities, and minimise leakages are underway, Demand Side Management (DSM) provides an effective resource to bridge the gap. Sustained investments in DSM could, therefore, result in reduced investment in electricity assets.

DSM denotes a set of interventions to create the desired change in demand profile, while maintaining or even enhancing the quality, reliability and cost of service. Several studies have highlighted the potential of DSM, including the latest published by the Bureau of Energy Efficiency (BEE) that estimates the demand-saving potential in electricity at approximately 15 per cent.

The potential was recognised by the Conference of Chief Ministers on May 28, 2007, as a measure to reduce electricity shortages. BEE has been implementing measures like the ‘Standards and Labelling' programme, energy efficiency programme in buildings, and lighting energy efficiency interventions, to name a few, that would have, in effect, avoided a capacity addition of approximately 10,000 MW in the last 5 years. These could be called market-transformation-based DSM measures with an indirect interface of the proponent (i.e. BEE). Direct DSM measures, also called utility-driven DSM measures, could be effective tools in reducing peak demand, reducing the gap between peak and off-peak demand, and lowering the overall demand, and could supplement utilities' efforts to manage shortages while simultaneously enhancing revenue realisation.

OFF-PEAK DEMAND

Most utilities procure electricity at levels close to peak demand. Such peaks often occur between 9 am to 1 pm, and 6 pm to 10 pm everyday. The demand usually flattens out at remaining times. Given that electricity cannot be stored, the off-peak surplus electricity sourced becomes an unproductive asset with very low returns, impacting adversely utilities' recovery of investments in power procurement. Take the case of Delhi — while the peak demand surges to more than 5000 MW, the off-peak demand usually falls to approximately half. If the utility is unable to secure an economic alternative for off-peak surplus, its investment in approximately 2500 MW of electricity may fail to get adequate returns. Effective DSM interventions that could disperse the demand during the day and reduce the difference between peak and off-peak demand could reduce the surplus off-peak power.

Such measures were successful in the telecom sector in the early 1990s. Time of day tariffs were used by the Telecom Commission to even out demand during the day. The tariff during peak hours was made 3-4 times costly as compared with the late-night tariff structure. A similar success could easily be replicated by utilities by phased introduction of time-of-day tariffs structure. Smart meters that could record the time of usage are now widely available in the market.

However, there is an inherent reluctance on the part of utilities for undertaking DSM. Thus, DSM potential in concentrated load clusters like industry and commercial category consumers isn't taken up on fear of losing revenues. However, in most cases, DSM interventions could well offset the reduction in revenues.

In order that DSM interventions are effective, utilities need to undertake the following tasks:

(a) Undertaking Load Research to ascertain the pattern of consumption of targeted consumers in the supply area. This would include profiling of demand of consumers and determining the possibility of cost-effective interventions.

(b) Preparing DSM action plans on a rolling basis, based on the potential, and secure regulatory approvals for making or arranging investments in DSM. Cost effectiveness of interventions need to be ascertained to prioritise them in terms of effectiveness.

(c) Undertaking consumer awareness and education to not only provide them with adequate information, but also to make them a willing participant. BEE's success in implementing appliance energy efficiency by educating and informing consumers is a case in point.

A FILLIP TO DSM

Given the fact that DSM resource acquisition by utilities is rare, it is important to spell out a strategy that could encourage the following elements of effective DSM interventions:

(a) Enhancing capacities of utilities for DSM resource acquisition by training and capacity building. For this purpose, it is necessary that a DSM unit be carved out in a utility that undertakes the entire task. The DSM unit needs to prepare, implement and evaluate the DSM projects.

(b) Encouraging a supply chain to deliver DSM projects, particularly in the private sector. The efforts of BEE to accredit and rate the Energy Service Companies (ESCOs), who have the technical expertise in implementing energy efficiency, need to be strengthened.

(c) Ensuring regulatory certainty of DSM interventions. This is because of the fact that all investments by utilities need the approval of the regulator. Investments in DSM need to be made pass-through in tariff, very much in the manner as other investments of the utility.

(d) Encouraging innovative financing of DSM investments and securing returns thereon. This could be undertaken in several ways like creation of a DSM fund under a regulatory oversight, direct funding support from the state or central government, or by market-based instruments like the Renewable Energy Certificates (REC). This would not only encourage private investments, but would also usher in the much-needed expertise for DSM.

(The author is Programme Officer, OzoneAction Programme, United Nations Environment Programme, Bangkok. The views are personal.)

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