Improving Building Energy Performance with Demand-Side Management

Topics: building performance, demand side management, demand side response

Jahnavi Sajip
Author : Jahnavi Sajip on November 5, 2018

The normal operating mode of large power systems has been to adjust generation according to demand. The output of power plants is increased when buildings are consuming a lot of electricity, and decreased when demand is low. However, since buildings now have access to on-site generation and energy storage, they can shape their energy demand. The concept is called demand-side management (DSM) or demand-side response (DSR), and it brings benefits for both electricity consumers and the power companies serving them.

Electricity grids normally experience their highest demand during the evening, when the population is returning home and switching on all types of appliances. On the other hand, the lowest demand is present after midnight, when most of the population is asleep. Drastic peaks in demand lead to higher kilowatt-hour prices, for several reasons:

  • The total generating capacity connected to the power grid must be sized according to the highest demand peak. As a result, many generators are idle at hours where demand is below the peak value. Although they only run for a few hours, they have fixed operating costs that are reflected in electricity tariffs.
  • In addition to having spare generation capacity for demand peaks, the power network must have enough transmission and distribution capacity. Power lines and other grid components are expensive, driving up kWh prices.

Uncontrolled peaks in demand bring higher operating costs for power companies, and higher electricity tariffs for consumers. However, if buildings can shape their demand, all parties involved in the power sector achieve savings.

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How to Control the Power Demand of a Building

Unlike homes, which are normally billed only for energy consumption (kWh), commercial and industrial properties pay for both energy (kWh) and maximum demand (kW). This allows a reduction of power bills by trimming demand, even total energy consumption does not change. There are many ways to reduce the electricity demand measured by the building’s power meter:

  • Some activities can be rescheduled away from peak demand hours, reducing the total demand. There is a limit to this, however, since all buildings have critical equipment that cannot be deactivated at will - lighting systems are one example.
  • Building owners can also deploy power generation systems, and their output is subtracted from the total demand measured by the power meter. Just keep in mind that power generation has a cost, and this approach works when demand savings are higher than the cost of on-site generation.
  • Energy storage can be used to achieve the same effect as on-site generation, if the system is configured to supply stored energy during peak demand hours. Energy storage is normally associated with batteries, but there are also thermal methods such as hot water storage and ice storage.

A combination of the methods above can achieve a significant reduction of a building’s peak demand. The cumulative effect of DSM of many properties can shed several megawatts from the total network load.

Demand management measures must be configured so they will not produce a demand peak at another time of the day. Buildings with demand charges are billed regardless of when the peak occurs, even if it happens after midnight when the grid is not burdened.

Benefits of Demand-Side Management


As discussed above, DSM can reduce electricity bills for buildings subject to demand charges. DSM measures can also reduce power bills for clients with time-of-use electricity rates, by lowering net consumption when the highest kWh prices are applied.

The benefits of DSM go beyond power bill savings, and the following are some examples:

  • DSM can make power networks more resilient. Since the transmission burden of the  electricity grid is reduced, the risk of faults and blackouts is lowered as well.
  • DSM can delay or prevent expensive upgrades to the network. Network infrastructure must be upgraded to keep up with the growing demand each year, but this can be mitigated if buildings are trimming their demand peaks with DSM.
  • DSM gets along with variable renewable sources - wind and solar power. Although wind and solar power can achieve a very low kWh price, they are held back by their dependence on variable energy inputs. However, buildings with DSM can shape their demand to allow an increased used of variable sources.

In a few words, DSM improves the overall operation of electricity networks. Grid operators from around the world are creating DSM incentive programs as an alternative to expensive grid upgrades. For example, if the overall demand of an urban area is lowered by 10 MW, the effect is similar to adding 10 MW of distribution capacity.

Energy consultants can analyze the power bills of a building, proposing viable upgrades to reduce electricity expenses. To enhance the effect of DSM, it can be combined with energy efficiency and on-site generation. This leads to a building that consumes as little electricity as possible, while having a local power source and smart energy management with DSM.


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