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Residential, Commercial and Industrial DSM: How Does It Change?

Updated: Feb 27, 2019

The basic operating principle of demand-side management (DSM) is the same regardless of the scale at which it is implemented: energy consumption is managed and shifted throughout the day to achieve the lowest total cost of operation, which also provides benefits to the utility company by reducing the peak load on the power grid. However, the suitability of different DSM technologies varies according to the application – what works in a small home might not be practical for industrial settings, and vice-versa.

In general, batteries and heat storage tend to dominate the landscape in the residential sector. In large-scale DSM applications, such as those found in commercial or industrial settings, technologies such as ice storage and hydrogen synthesis become feasible. It is also important to consider that electricity billing structures vary by sector – this affects the range of possible DSM applications.

Adapting DSM Systems According to the Electricity Rate Structure

There are considerable differences in how residential, commercial and industrial customers are billed. There may be variations by country or by utility company, but the following billing structures are applied most of the time:

  • Residential customers normally only pay for the energy they consume, and prices typically change throughout the day – energy is cheaper when demand is low and more expensive when demand is high. The lowest demand typically occurs after midnight, and peak demand may present itself at several times during the day, especially in the early morning or evening.

  • Commercial and industrial customers are typically billed according to hourly electricity rates, just like the residential sector, but there is an additional charge for their highest individual peak in demand during the month. Industrial clients typically have their highest demand when energy-intensive processes are executed, and in commercial clients it is determined by the time when HVAC equipment has to operate at maximum capacity.

The means that the optimal DSM strategy for each market segment is different: the residential sector benefits from shifting as much consumption as possible to hours with cheap electricity, even if a peak in consumption is produced; commercial and industrial customers also benefit from displacing energy consumption, but they must avoid peaks in consumption at any hour.

DSM for Residential Electricity Rates

In the residential sector, the main goal is to minimize energy consumption when electricity prices are the highest, and moving it to when prices are the lowest. It doesn’t matter if this generates a peak in consumption during low-demand hours, because homeowners are not billed for it.

Of course, double-checking the power bill before deploying DSM is highly recommended, in case a specific utility company has different rules from the norm. For example, there are power companies that bill all sectors for maximum individual demand, including residential customers.

DSM Strategy for the residential sector: Maximizing consumption during low-demand hours (green), when electricity prices are the lowest, and minimizing consumption when prices are at their highest point (red).

DSM for Commercial and Industrial Electricity Rates

In the commercial and industrial sectors, the same principle of minimizing consumption during peak demand hours also applies. However, care must also be taken not to generate peaks in consumption at any point during the day, because it can generate extra charges in the power bill.

Industrial energy demand during the day

DSM Strategy for the industrial sector: Moving consumption to low-demand hours, but without generating peaks in demand, which generate an extra charge regardless of the hour.

Cost-Effective DSM Technologies Vary According to Scale

There are plenty of methods to achieve DSM, but not all of them are viable for all project scales. This means that residential DSM solutions can be drastically different from those deployed at large industrial facilities.

Small-Scale DSM: Residential and Small Commercial Applications

In the residential and small commercial sectors, the most financially viable DSM measures are those built upon existing systems, since they can achieve the lowest possible installation cost. At the moment, there are two types of systems with strong potential: batteries and hot water storage.

Hot water storage has a strong potential because it can integrate directly with electric or solar heating systems found on households. The basic principle is to heat water when demand and electric rates are low, and use previously heated water to avoid running a heater when electricity rates are at their highest.

With the increasing adoption of residential photovoltaic systems, there is a similar scenario for battery storage – it allows small-scale renewable generation to deliver more value:

  • Rather than consuming energy directly or exporting it to the power grid, it can be stored and consumed when it can provide the highest savings.

  • Battery storage allows renewable energy systems to deliver power during blackouts, something that is not possible with basic grid-tied installations.

  • Integration between the power grid and distributed generation is enhanced, since battery storage can serve as a buffer when customers have peaks in either generation or consumption.

In short, the most viable DSM measures for the residential sector are those that are built upon existing systems, such as water heaters or small-scale renewable energy installations.

DSM in the Commercial and Industrial Sectors

Heat storage and batteries are scalable, which makes them viable in the commercial sector as well. There are also additional DSM measures that become viable due to the increased scale of operations:

  • Hydrogen fuel cells have been field-proven in combined heating and cooling applications, where they offer an efficiency of over 95%. The basic principle of this technology is to use low-cost energy to generate hydrogen from water through electrolysis, and then use it as needed to provide combined heating and electric power through a fuel cell reaction.

  • Ice storage is a viable complement for chiller plants in commercial locations, where the basic principle is to freeze water with cheap off-peak energy and then melt it to meet the cooling load partly or fully

In the industrial sector in particular, biomass technologies can also be deployed effectively for demand-side management, especially if the company produces large amounts of organic waste. Companies who own large extensions of land that will not be used for new facilities in the near future can also harvest crops with the goal of processing them into biofuels. A biomass plant can meet three different types of loads, through a concept called tri-generation:

  • The combustion of biofuels can be used to produce steam, which is a key input in a broad range of industrial processes.

  • Steam can also be used to drive a turbine and generator, producing electric power.

  • Finally, the waste heat from the process can be used to run an absorption chiller, for process cooling and air conditioning needs.

Industrial clients can use the power of biomass to meet some of their largest loads during schedules where electricity prices are at their highest. Biomass also allows peaks in individual demand to be controlled, avoiding high demand charges in the monthly power bill. The savings opportunity is significant – large industrial customers are normally charged the highest rates for maximum demand, given how they can strain the power grid if they don’t control demand.

Information Technologies: The Common Denominator of All DSM Measures

Regardless of the scale of operations and technology deployed, demand-side management is not possible without monitoring. Any DSM system must be capable of assessing current operating conditions, especially the hourly retail price of electricity, and optimize the available generation and storage resources to minimize the total cost of operation.

Logic Energy brings a decade of experience offering monitoring systems for all types of energy efficiency measures, storage systems and renewable energy installations. Our company is built upon the knowledge of industry experts, and we offer a high degree of technical competence in both software and hardware. Logic Energy can be the partner of choice for any electric utility or business corporation planning to deploy demand-side management measures, regardless of the scale and specific technology.

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