Demand Side Management: Strategies, Drivers, and Barriers in the UK

This report analyzes the application of Demand Side Management (DSM) strategies in the UK, including Demand Side Response, Distributed Energy Generation, and Demand Reduction, by examining the drivers and barriers that affect their implementation. The report discusses the benefits of DSM strategies, such as reducing the cost of electricity and lowering carbon emissions. It also examines the drivers of DSM, including the use of aggregators, the Grid Data and Measurement System, and the need for a unified national electricity grid. The report also discusses the barriers to DSM, such as licensing requirements and technical difficulties in the connection process.

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DEMAND SIDE MANAGEMENT
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Demand Side Management 2
Abstract
This essay is a report about the application of Demand Side Management (DSM) strategies. It
also analyses the strategies used in DSM, such as Demand Side Response, Distributed Energy
Generation, and Demand Reduction, by examining the drivers and barriers that affect their
implementation. The drivers and barriers are derived from the trends associated with the
regulations in the U.K. The analysis depicts that the DSM strategies are beneficial and are being
implemented in the U.K. despite the barriers.

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Contents
Abstract..........................................................................................................................................1
Introduction....................................................................................................................................3
Demand Side Response..................................................................................................................3
Distributed Generation.................................................................................................................6
Demand Reduction........................................................................................................................8
Conclusion....................................................................................................................................11
Reference List................................................................................................................................12
Introduction

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Demand Side Management (DSM) is used in the implementation of strategies that aid in
saving energy. The amount of electrical energy used in the U.K. is expected to increase due to
the use of electricity in transport and spaces (Woolf et al., 2014). One of the ways of meeting this
increased demand would be the increase of power generation, which would increase the cost of
electricity. Therefore, this demand necessitates the implementation of smart systems, which are
cost effective and energy saving. Through DSM, the use of demand side response, distributed
energy generation, and demand reduction strategies can help to reduce the electrical energy being
consumed. Ultimately, this would reduce the need for more generation of electricity.
Demand Side Response
Demand Side Response (DSR) is a form of energy saving technique. It occurs when
organizations, such as supermarkets and factories, are given incentives to aid in balancing
demand and supply of electrical energy by turning off processes that are non-essential during
peak periods or consuming more energy during off-peak periods when a signal is given
(Heinzelman, 2016). This technique saves energy because demand is reduced. Heinzelman
(2016) states that it would not be viable to increase the supply of electricity during peak periods
since such high demand is only witnessed for a few hours in the year. Therefore, using this
strategy is economical because it will save money for all parties involved. Additionally, the low
demand will ensure there is less pollution compared to increasing the supply of electricity.
Evidently, the use of DSR is beneficial to the consumer and the power generating plant.
Using the demand side response has the following advantages. Firstly, it reduces the cost
of electricity. According to Heinzelman (2016), demand can be reduced using other methods of
electricity generation such as wind and solar. The use of these alternative sources of energy in
the U.K. reduced the cost of electricity by approximately one billion Euros in 2014 (“Wind and

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Solar Reducing Consumer Bills,” 2014). Evidently, the use of DSR assists in reducing the cost of
living. Secondly, organizations can earn revenue from the use of DSR. Kimmett (2016) states
that most of the businesses that participated in this strategy received approximately 5 percent
return on their electricity bill. This estimate reveals that there is value in participating in this
project. Additionally, to attract more participants the rate of return is expected to increase
(Kimmett, 2016). This information shows that using the DSR is advantageous.
One of the drivers of demand side response is the use of aggregators. Aggregators are
organizations that acquire licenses from the regulator (Ofgem) to supply electricity under the
demand side response strategy (Pratt, 2018). According to Pratt (2018), Flexitricity became an
aggregator after acquiring a supply license, and it promised to provide more access to revenue
gained from the implementation of the DSR strategy. This example shows that aggregators work
under regulations set by Ofgem to drive the implementation of DSR.
Another driver of the demand side response is the use of the Grid Data and Measurement
System (GDMS). According to Power Responsive (2016), GDSM connects the national grid in
the U.K. with the entities involved in the DSR strategy to provide information in real time. This
information is used by the entities to make changes when demand is low or high. This system
drives this strategy because without it a lot of money would be incurred in providing real-time
information making it undoable.
The U.K. government is also a driver of the demand side response. According to a report
provided by the Department for Business Energy and Industrial Strategy (2016), the government
has put measures in place to provide households with smart meters that would support the DSR
strategy. The report further states that the meters would provide support by the provision of load
control capabilities and real-time information (Department for Business, Energy and Industrial

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Strategy, 2016). These devices would make it easier for households to participate in the DSR
strategy.
The demand side response strategy also has the following barriers. The first barrier is that
majority of the eligible stakeholders do not trust the electricity market. The distrust makes it
difficult for businesses to participate in the program despite the incentives (Torstensson, and
Wallin, 2015). Johnson (2016) also states that in the U.K. majority of the businesses do not know
about the market. The lack of knowledge makes the business seem risky hence businesses opt not
to participate.
Another barrier is the technical difficulties associated with the implementation of the
demand side response system. Research carried out in the U.K. indicated that some businesses
experience problems in the implementation process due to the incompatibility of their systems to
the one used by the DSR strategy (Ofgem, 2016). This incompatibility affects integration thus
businesses may not participate in the program.
Availability of risk also hinders the implementation of demand side response. Majority of
the businesses in the U.K. are afraid that this strategy may interfere with their primary processes,
especially those who are already participating (Ofgem, 2016). Another risk factor is the addition
of third parties who control the process of DSR because they may provide bad services, which
may negatively impact the running of the business (Ofgem, 2016). Overall, risky processes, such
as the DSR, are not viable for businesses.
Distributed Generation
Distributed generation (DG) is an efficient method of providing electricity. Distributed
generation entails a process where generation and distribution of electricity are done in one place
by connecting the source of electricity to a distribution channel (Chen, Zhu, and Xu, 2010). It

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can also be used to supplement the national grid when demand is high. In the U.K., DG occurs in
different types such as wind, solar and hydroelectric power (“Distributed Generation,” 2018).
The use of these sources of energy is encourage because they are renewable. Mainly, DGs are
used by Distribution Network Operators because they are authorized to provide electricity in the
U.K. (“Distributed Generation,” 2018). Overall, the use of DGs in the U.K. has improved the
distribution of power.
In the U.K., the use of distributed energy has the following benefits. The first benefit is
that it increases the number of suppliers (Reckon, 2006). The increased number of suppliers
makes electricity cheaper and more reliable. The second benefit is that it makes the distribution
of electricity flexible (Reckon, 2006). The use of DG makes it possible to use demand side
response, which ensures there is flexibility in the use of energy. Lastly, the use of DGs reduces
the emission of carbon (Reckon, 2006). This reduction is possible renewable energy sources are
used, and it assists in the conversion of energy.
One of the drivers of distributed energy generation is the need for the development of a
unified national electricity grid, which reduces the cost of electricity. According to Reckon
(2006), the generation of electricity initially relied on two systems, which were the national grid
system and the low voltage supply system. With the increased demand earlier mentioned, the
cost of electricity would have increased (Reckon, 2006). However, the use of DGs ensures that
supply is increased to meet the excess demand thus stabilizing the price.
Another driver of distributed energy generation is the use of technology through
innovative projects to provide incentives to develop the implementation process. Through
Ofgem, the U.K. government provided funding to innovative projects geared towards enhancing
DGs (such as network management) in 2009 (Energy Networks Associations, 2014). This

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method is beneficial because it provided new technologies that made the integration of the DCs
and the transmission system more manageable. Additionally, the funds were an incentive that
enabled more organizations to participate in the DGs strategy thus increasing competition.
Eventually, the competition would lead to more innovative ideas.
The impact of energy generation on the environment is another driver of distributed
energy generation. In the U.K., the majority of electricity generation is through the use of fossil
fuels that emit carbon which is harmful to the environment (Energy Networks Associations,
2014). Therefore, the use of alternative sources of energy especially those that do not emit
carbon would be beneficial.
Licensing is one of the barriers to distributed energy. According to Reckon (2006), the
U.K. government requires that all distributed energy generators are licensed to control the quality
of electricity supplied. Additionally, licensing ensures that consumers are protected from sub-
standard products. However, the licensing procedures also discourage businesses from joining
the distributed energy sector due to the bureaucracy involved. Reckon (2006) states that the
licensing entails the participation in a Balancing and Settlement code, which stipulates trading
arrangements for distributing the electricity. This code also makes the distributed energy
generator to incur extra costs. Ultimately, distributed energy generators may prefer to avoid the
strain involved in acquiring the license.
The tasks involved in the connection process also hinder the implementation of the
distributed generation. The requirements of the connection process vary depending on the size of
the generator. In most cases, the largest generators have more requirements. For example, plants
with large generators are required by law to have a thirty minutes metering and renewable energy

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while those with small generators are not (Energy Networks Associations, 2014). This barrier
prevents the implementation of large plants because the requirements are more.
The implementation of the distributed energy generation is also hindered by the
integration of the current power system and the distributed energy system. According to Strbac,
Ramsay, and Pudjianto (2007), the current system would have to undergo some structural
changes to withstand the requirements of DGs. For example, the integration of DGs at various
points in the distribution channel would require technical compatibility between the current and
the new system. These changes may require a lot of capital, which slows down the
implementation.
Demand Reduction
Demand reduction in the electrical energy sector is an essential strategy in demand side
management. The demand may be reduced by changing some processes used in the business or
households such as the lighting used may be switched to LEDs (“2010 to 2015 government
policy,” 2016). The aim of implementing the demand reduction strategies in the U.K. is the
reduction of harmful gas emissions (Department of Energy and Climate Change, 2012). Demand
reduction would also assist in the demand side response strategies. Evidently, these strategies
have a positive impact on the households, businesses and the environment.
Demand reduction has various benefits for the consumers and businesses. For instance,
for the consumers, it may aid in reducing the overall cost of electricity (“2010 to 2015
government policy,” 2016). The reduced cost would raise the living standards of U.K. citizens.
Demand reduction also benefits businesses by lowering the cost of production (“2010 to 2015
government policy,” 2016). The reduced cost allows businesses to invest in other income
generating schemes. The last benefit is the low emission of carbon, which is beneficial for all

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parties involved (“2010 to 2015 government policy,” 2016). The reduced demand will lower the
generation of energy using fuels that emit carbon.
One of the drivers for demand reduction is the U.K. government. The government runs an
efficiency scheme aimed at reducing the emissions by encouraging large organizations to use
energy saving methods (“2010 to 2015 government policy,” 2016). Under this scheme,
organizations incur a cost for every emission that exceeds the limit set. Additionally, the
government provides allowances to organizations that invest in measures to save energy (“2010
to 2015 government policy,” 2016). These methods assist in discouraging the use demand
reduction methods to reduce emission. Therefore, the government increases the implementation
of measures to reduce demand.
Financial incentives are another driver of demand reduction in the U.K. Through the
government, organizations that reduce the demand of electrical energy receive payments even
after gaining revenue from the process (“2010 to 2015 government policy,” 2016). Presently, the
government is also running a program where it pays organizations that adopt demand reduction
techniques in a bid to evaluate the suitability of this measure in meeting the overall energy
saving goals (“2010 to 2015 government policy,” 2016). These financial incentives are
motivating factors for those organizations that can participate in the strategy.
Another driver of demand reduction is the use of organizations that aid in the
implementation of demand reduction strategies. For example, the Carbon Trust assists
organizations that choose to use energy saving methods of production (“2010 to 2015
government policy,” 2016). Additionally, some of these organizations, such as Salix Finance,
provide loans for the organizations that implement energy saving mechanisms (“2010 to 2015

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government policy,” 2016). Overall, these organizations assist the government in fostering the
implementation process.
Demand reduction is hindered when the parties involved cannot agree on an
implementation strategy. For example, in rental situations, the landlord is supposed to incur the
cost of reducing the use of energy through energy saving lighting while the tenants benefit
(Department of Energy and Climate Change, 2012). In such a situation, the landlord may lack the
motivation to implement the energy-saving techniques. This case also applies to businesses since
most of them use rent their offices and factory sites. To overcome this barrier, both parties may
have to agree to share the initial cost, or the government can offer incentives.
Lack of information about demand reduction also hinders its implementation. In most
cases, households are unaware of the benefits accrued from reducing the demand for electrical
energy (Department of Energy and Climate Change, 2012). Therefore, they do not take
advantage of the demand reduction strategies offered by the government. Additionally, the lack
of information makes the venture seem risky. These risks can be mitigated by making such
information accessible to the public.
The implementation of demand reduction strategies entails some hidden costs. For
instance, households may need to research the available options that are beneficial to them and
the suitable suppliers to provide the implementation strategies (Department of Energy and
Climate Change, 2012). These hidden costs may make the whole process expensive for the
households. Alternatively, for some businesses and households the cost of implementing the
demand reduction strategies may be too expensive (Department of Energy and Climate Change,
2012). In such cases, these companies may choose to continue using their current energy
methods.

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Conclusion
Application of demand side management strategies is used in improving energy
efficiency. For instance, the implementation of demand side response allows companies to
participate in the reduction of demand for electrical energy by turning off non-essential processes
while demand reduction is achieved by using alternatives that reduce energy. Though the U.K.
government has provided incentives to increase the use of DSM, the barriers mentioned earlier
make the implementation difficult. Nevertheless, the report shows that the application of DSM is
ongoing and beneficial.

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Reference List
2010 to 2015 government policy: energy demand reduction in industry, business and the public
sector (2016). GOV.UK. [online]. Available from:
https://www.gov.uk/government/publications/2010-to-2015-government-policy-energy-
demand-reduction-in-industry-business-and-the-public-sector/2010-to-2015-government-
policy-energy-demand-reduction-in-industry-business-and-the-public-sector#appendix-3-
crc-energy-efficiency-scheme [Accessed 23 Apr. 2018].
Chen, C., Zhu, Y. and Xu, Y. (2010) Distributed generation and demand side management.
Electricity Distribution (CICED), 2010 China International Conference. pp. 1-5, IEEE.
Department for Business, Energy and Industrial Strategy (2016). Smart meters and demand side
response. GOV.UK. [online]. Available from:
https://www.gov.uk/government/publications/smart-meters-and-demand-side-response
[Accessed 23rd April 2018].
Department of Energy and Climate Change (2012) Electricity Demand Reduction: Consultation
on options to encourage permanent reductions in electricity use. [online] Available from:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/
attachment_data/file/66561/7075-electricity-demand-reduction-consultation-on-optio.pdf
[Accessed 23 Apr. 2018].
Distributed Generation (2018). Ofgem.gov.uk [online] Available from:
https://www.ofgem.gov.uk/electricity/distribution-networks/connections-and-
competition/distributed-generation [Accessed 23 Apr. 2018].
Energy Networks Associations (2014). Distributed generation connection guide. Available from:
http://www.energynetworks.org/assets/files/electricity/engineering/distributed

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%20generation/DG%20Connection%20Guides/July%202014/G59%20Full%20June
%202014%20v3_Updated.pdf [Accessed 23 Apr. 2018].
Good Energy (2014) Wind and solar reducing consumer bills: An investigation into the Merit
Order Effect. [online]. Available from: https://www.goodenergy.co.uk/media/1194/wind-
and-solar-reducing-consumer-bills-an-investigation-in-to-the-merit.pdf [Accessed 22
April 2018].
Heinzelman, W. (2016) Demand Side Response: Reducing demand to reduce costs. Good
Energy[online]. Available from:
https://www.goodenergy.co.uk/blog/2016/10/20/demand-side-response/ [Accessed 22nd
April 2018].
Johnson, S. (2016) Demand-side response: five barriers to business take-up. Utility Week
[online]. Available from: https://utilityweek.co.uk/demand-side-response-five-barriers-to-
business-take-up/ [Accessed 23rd April 2018].
Kimmett, C. (2016) 10 myths about Demand Side Response. 2degrees [online]. Available from:
https://www.2degreesnetwork.com/groups/2degrees-community/resources/10-myths-
about-demand-side-response/ [Accessed 22nd April 2018].
Ofgem (2016) Industrial & Commercial demand-side response in GB: barriers and potential.
[online] Available from:
https://www.ofgem.gov.uk/system/files/docs/2016/10/industrial_and_commercial_deman
d-side_response_in_gb_barriers_and_potential.pdf [Accessed 23rd April 2018].
Power Responsive. (2016). A new frontier in demand side response. [online] Available from:
http://powerresponsive.com/a-new-frontier-in-demand-side-response/ [Accessed 23rd
April 2018].

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Reckon (2006) Barriers and incentives to distributed generation/CHP. [online]. Available from:
http://www.reckon.co.uk/item/f9d9949e [Accessed 23 Apr. 2018].
Strbac, G., Ramsay, C. and Pudjianto, D. (2007) Integration of Distributed Generation into the
UK Power System. [online] Available from: https://www.ofgem.gov.uk/ofgem-
publications/55759/dgseeewpdgvaluepaperv30.pdf [Accessed 23rd April 2018].
Torstensson, D. and Wallin, F. (2015) Potential and barriers for demand response at household
customers. Energy Procedia, 75, pp.1189-1196.
Woolf, M., Ustinova, T., Ortega E., O’Brien, H., Djapic, P., Strbac, G., (2014) Distributed
generation and demand response services for the smart distribution network. Imperial
College London.