Energy demand management is often referred to also as demand side management (DSM). Energy demand management usually implies actions that reduce the quantity of energy consumed by users. It can also include actions targeting reduction of peak demand during periods when energy supply system is strained. Peak demand management does not necessarily decrease total energy consumption but is expected to reduce the need for investments in networks and/or power plants.
The term DSM has been coined in the 1970's when the energy crisis (1973 energy crisis and 1979 energy crisis) made it clear that some of the most convenient fossil energy reserves , such as crude oil, are approaching exhaustion (see article on Hubbert peak hypothesis).
How it works
Ideally, the energy use would be optimised by supply and demand price arbitration in the market. Various market failure mechanisms rule out an ideal result. One of the market failures is that supplier's costs do not include all damages and risks of their activities. External costs are incurred by others directly or by damage to the environment. Theoretically the best approach would be to add external costs to the direct costs of the supplier as a tax (internalisation of external costs. Another possibility (referred to as the second-best approach in theory of taxation) is to intervene on the demand side by some kind of rebate.
Energy demand management activities should bring the demand and supply closer to a perceived optimum.
Governments of many countries have mandated performance of various programmes for demand management after the 1973 energy crisis. An early example is the National Energy Conservation Policy Act of 1978 in the US, preceded by similar actions in California and Wisconsin in 1975.
Logical foundations
Demand for any commodity can be modified by actions of market players and government (regulation and taxation). Energy demand management implies actions that reduce demand for energy.
Reducing energy demand is contrary to what both energy suppliers and governments have been doing during most of the modern industrial history. Foundation of the recent change of attitude is the well-judged expectation about the future availability and prices of energy. Whereas real prices of various energy forms have been decreasing during most of the industrial era, due to economies of scale, the expectation for the future is the opposite. In the previous situation it was not unreasonable to promote energy use beyond the current cost-benefit considerations of consumers, as more copious and cheaper energy supply was in the future.
In the centrally planned economies subsidising energy was one of the main economic development tools. Subsidies to energy supply industry is still common (see: Energy subsidies in the European Union: A brief overview).
Contrary to the historical situation, energy prices and availability are expected to deteriorate. Governments and other public actors, if not the energy suppliers themselves, are well advised to employ energy demand measures that would bring energy consumption below the levels dictated by the current market structure.
External links
References
Loughran, David S. and Jonathan Kulick: Demand-Side Management and Energy Efficiency in the United States The Energy Journal, Vol. 25, No. 1. 2004 .
