EPE621

Selective Topics in Power Systems

Fundamentals of Demand Side Management

Study Guide — Simple English Summary

This document summarises the key topics from the course slides. It explains what Demand Side
Management (DSM) is, the five main techniques utilities use to shape electricity demand, and
the tariff (pricing) structures used in Egypt. The goal is to help you understand the ideas, not just
memorise definitions.

1. Key Definitions
1.1 What is Demand?
Demand means how much electrical power (in kilowatts, kW) is being used at any moment in
time. It changes through the day — it is usually low at night and high during working hours.

1.2 Maximum Demand

The maximum demand is the highest power value reached over a given period (for example,
over 24 hours). The power company must have enough installed capacity to meet this peak,
even if it only happens for a short time.

1.3 Average Demand

The average demand is calculated by dividing the total energy used (in kWh) by the total time
period (in hours). It is an imaginary, constant load level that, if held steady for the whole period,
would consume the same total energy as the real, changing load.
Average Demand = Total Energy Used (kWh) ÷ Total Time (hours)

1.4 Load Factor (LF)

The load factor shows how evenly electricity is used across the day. It is a ratio between 0 and
1 (or 0 % and 100 %).
Load Factor = Average Demand ÷ Maximum Demand

EPE621 - Fundamentals of Demand Side Management

 • A Load Factor close to 1 means demand is spread evenly — the utility uses its capacity
efficiently.
• A low Load Factor means there is a high peak but low usage at other times — expensive
for the utility.
• For electricity supply to work well: (1) the peak load must be within the utility's capacity,
and (2) the load factor should be as close to 1 as possible.

1.5 Diversity Factor (DF)

When you have several consumers connected to the same network, their peaks do not all
happen at exactly the same time. The diversity factor measures this:
Diversity Factor = Peak of the Combined Load ÷ Sum of Individual
Peaks
The Diversity Factor is always equal to or less than 1. A value less than 1 means the network
can serve all consumers with less total capacity than the sum of all their individual peaks — this
is good news for the utility.

2. What is Demand Side Management (DSM)?

Demand Side Management (DSM) refers to all the actions a utility (the electricity company)
takes to influence when and how much electricity its customers use. Instead of only building
more power plants to meet demand, the utility can also try to change the shape of the demand
curve itself.
The utility controls variables such as: available capacity, available energy, service duration,
connection charges, and tariffs (prices). The customer controls variables such as: level of use
(demand), amount of use (energy), and time of use.
DSM uses tariffs as its main tool — by pricing electricity differently at different times or for
different quantities, the utility encourages customers to change their behaviour.

3. The Five DSM Techniques

The five main techniques that a utility can use are shown below. Each one has a different
objective and uses different mathematical constraints.

3.1 Valley Filling

Objective
• Increase demand during OFF-PEAK periods while keeping the same peak level.
• This raises the load factor without exceeding the existing capacity.
• Total energy consumption increases.

EPE621 - Fundamentals of Demand Side Management

How it works: The utility gives consumers incentives (such as low off-peak tariffs) to use more
electricity at times when demand is normally low — for example, at night. This 'fills in the
valleys' of the load curve.
Real-world example: Encouraging customers to charge electric vehicles or run washing
machines at night using cheaper off-peak prices.

Advantages Disadvantages / Constraints

• Better use of existing capacity • Total energy consumption goes up
• Improves load factor (utility must produce more energy)
• Can reduce average cost per kWh • May require investment in metering
• Useful when the utility has surplus infrastructure (smart meters)
capacity at night • Customers may not respond if the
price incentive is small

3.2 Load Shifting

Objective
• Move demand from PEAK periods to OFF-PEAK periods.
• The total energy consumed stays the same — only the timing changes.
• The peak is reduced and the valleys are filled simultaneously.

How it works: Through time-of-use tariffs, the utility charges much more during peak hours and
less at other times. Customers with flexible loads (factories, water heating, pool pumps, etc.) are
motivated to shift their activities to cheaper periods.
Real-world example: An industrial customer shifts heavy machinery operation from 5 pm (peak)
to midnight (off-peak) to save money on their electricity bill.

Advantages Disadvantages / Constraints

• Reduces peak demand without • Not all loads are flexible (hospitals,
reducing total energy sales some industrial processes)
• Defers or avoids expensive capacity • Requires time-of-use metering for all
expansions affected customers
• Improves load factor • Customers need smart control
• No loss in the utility's revenue from systems or manual discipline
energy sales

3.3 Peak Clipping

Objective
• Reduce demand specifically during PEAK periods.
• The demand is NOT moved to another time — it is simply lost (not used).
• Total energy consumed decreases as a result.

EPE621 - Fundamentals of Demand Side Management

How it works: The utility forces or strongly encourages consumers to reduce their load during
peak hours. Methods include: direct load control (the utility remotely switches off non-critical
loads such as air conditioners), interruptible supply contracts, or very high peak-hour tariffs.
Physical limiters on the supply connection can also be used.
Real-world example: During a summer heat wave, the utility remotely reduces power to
industrial air conditioning units for 30 minutes to prevent a grid blackout.

Advantages Disadvantages / Constraints

• Directly reduces stress on the grid • Customers may be unhappy (comfort
during emergencies or production disruption)
• Avoids blackouts or equipment • Requires advanced metering and
overload remote control infrastructure
• Can be done quickly (direct control) • Lost load means lost revenue for the
• Defers need for new peak-generation utility
capacity • Customers lose the energy they would
have used

3.4 Energy Conservation

Objective
• Reduce total energy consumption across ALL hours (not just the peak).
• The new load curve is proportionally lower than the old one at every hour.
• Both peak demand and total energy decrease.

How it works: Customers are encouraged (or required) to use more energy-efficient equipment
— LED lights instead of incandescent bulbs, A+++ rated appliances, better insulation, efficient
motors, etc. The utility may also run awareness campaigns or offer subsidies for efficient
equipment.
Real-world example: A government programme gives households subsidies to replace old
refrigerators with modern, high-efficiency models. Each household uses fewer kWh every
month.

Advantages Disadvantages / Constraints

• Permanent reduction in demand and • Reduces the utility's energy sales and
energy consumption revenue
• Reduces import of fuel and carbon • Requires time for customers to replace
emissions equipment
• Saves money for the customer in the • Upfront cost for customers to buy
long run efficient equipment
• Reduces the need for new generation • Benefits are gradual, not immediate
and transmission capacity

EPE621 - Fundamentals of Demand Side Management

3.5 Load Building

Objective
• Increase total energy consumption — the opposite of energy conservation.
• Beneficial when the utility has SURPLUS capacity (more supply than demand).
• More energy sold over the same fixed infrastructure = lower average cost per kWh.

How it works: The utility actively markets electricity as a cheaper or better alternative to other
fuels (gas, oil, coal). It may offer low prices for high consumers in order to attract new industrial
or commercial customers and to grow its revenue base.
Real-world example: A utility promotes electric water heaters, electric cooking, or electric
vehicles, replacing gas-powered alternatives. It offers special low rates to attract large industrial
factories.

Advantages Disadvantages / Constraints

• Spreads fixed costs over more kWh — • Increases total energy demand — may
average cost falls require more generation capacity in
• Increases utility revenue the long run
• Makes use of installed capacity that • May increase fuel imports and carbon
would otherwise sit idle emissions
• May promote electrification and • Risk of creating new peaks if poorly
economic development managed
• Not appropriate when capacity is
already tight

Summary Table: The Five DSM Techniques

Technique Main Goal Energy Change Peak Change Load Factor
Valley Filling Fill off-peak troughs Increases Same Improves
Load Shifting Move peak to off- Same Decreases Improves
peak
Peak Clipping Cut peak demand Decreases Decreases Depends
Energy Reduce all Decreases Decreases Unchanged
Conservation consumption
Load Building Grow overall sales Increases Increases Depends

4. Tariff Structures as DSM Tools

A tariff is the price structure used to charge customers for electricity. Tariffs are the most
important practical tool in DSM because they directly influence when and how much electricity

EPE621 - Fundamentals of Demand Side Management

customers decide to use. The electricity utility in Egypt (regulated by EgyptERA) uses several
types.
Pricing must reflect: (1) the cost of service at each voltage level (generation, transmission,
distribution), and (2) broader goals such as development plans, social welfare, and DSM
targets.

4.1 Uniform (Flat) Energy Rates

A single fixed price per kWh is charged regardless of when or how much the customer uses. All
customers (above or below a certain size) pay the same rate.
In Egypt, uniform rates have historically been used for industrial, commercial, and large
consumers at Extra-High Voltage (EHV) and High Voltage (HV). Rates were approximately 2 to
4 US cents per kWh.

Advantages Disadvantages
• Simple to understand and administer • No incentive to reduce consumption at
• Predictable costs for customers peak times
• Low metering requirements (a basic • Treats all customers and all activities
kWh meter is enough) equally — no DSM signal
• Does not address the level of demand
(capacity), only energy

Variant — Uniform Rate with Demand Charge: A flat energy rate is combined with a separate
monthly charge based on the customer's contracted or maximum power demand (kW). This was
the historical and current approach for large Egyptian consumers (since before September 2007
for energy-intensive users, and continuing today for some categories).
• Helps control peak demand because customers pay for the capacity they reserve.
• Still does not distinguish between energy consumed at different times of day.
• A demand charge of 46.4 LE/kW was an example used in Egypt.

4.2 Time-of-Use (TOU) Rates

Different prices apply during different periods of the day or year. Peak hours (when the grid is
most stressed) carry a higher price; off-peak hours carry a lower price. The customer decides
when to use electricity to minimise their bill.

Advantages Disadvantages
• Directly encourages load shifting • Requires interval metering (smart
• Sends a clear price signal about when meters) for every customer
the grid is under pressure • Customers with inflexible loads (e.g.
• Customers who can shift their loads hospitals) cannot respond
benefit financially • More complex billing and
administration

EPE621 - Fundamentals of Demand Side Management

4.3 Declining (Decreasing) Block Rates
The price per kWh decreases as consumption increases. The first block of energy is priced
highest; each additional block is cheaper. This encourages customers to use more electricity
and supports industrial development.
In Egypt, declining block rates were used for non-residential large consumers (contracted power
above 500 kW at Medium Voltage and Low Voltage). An example tariff structure from the slides:
Block (hours x contracted kW) Rate (LE/kWh) Approximate US
cents/kWh
First 1,000 hours x kW 0.0830 ≈ 8.3 ¢
Next 500 hours x kW 0.0782 ≈ 7.8 ¢
Next 1,000 hours x kW 0.0680 ≈ 6.8 ¢
Next 1,000 hours x kW 0.0586 ≈ 5.9 ¢
Next 1,000 hours x kW 0.0445 ≈ 4.5 ¢
All additional energy 0.0380 ≈ 3.8 ¢

Plus a separate demand charge of 46.4 LE per contracted kW per month. If actual demand
exceeds the contracted level by more than 5%, a penalty of 8 LE/kW is applied to the excess.

Advantages Disadvantages
• Promotes large industrial energy use • No incentive for energy efficiency —
and economic development more consumption = cheaper price
• Encourages customers to sign and • Heavy users pay less per kWh, which
stay within contracted demand — may not reflect the true cost of supply
helps capacity planning • Does not target time of use — no load-
• Energy-intensive industries pay less shifting signal
per kWh, which is internationally
competitive

4.4 Inverted (Inclining) Block Rates

The opposite of declining block rates — the price per kWh increases as consumption rises. Low
users pay less; heavy users pay much more. This structure is used in Egypt for residential and
commercial customers.
In Egypt (November 2023 tariff structure for residential customers):
Block (kWh/month) Rate (Pt./kWh) Approx. LE/kWh US cents/kWh
First 50 kWh 5 Pt. 0.05 ≈ 0.1 ¢
51 to 200 kWh 12 Pt. 0.12 ≈ 0.25 ¢
201 to 350 kWh 19 Pt. 0.19 ≈ 0.4 ¢
351 to 650 kWh 29 Pt. 0.29 ≈ 0.6 ¢

EPE621 - Fundamentals of Demand Side Management

 Block (kWh/month) Rate (Pt./kWh) Approx. LE/kWh US cents/kWh
651 to 1,000 kWh 53 Pt. 0.53 ≈ 1.1 ¢
Above 1,000 kWh 67 Pt. 0.67 ≈ 1.4 ¢

Note: Each block only applies to the energy in that range. For example, a household using 350
kWh pays: (50 × 0.05) + (150 × 0.12) + (150 × 0.19) = 2.50 + 18.00 + 28.50 = 49 LE. The
average electricity price in Egypt (around the time of the slides) was approximately 15.6
Pt./kWh, far below the full cost of supply (targeted at 44 Pt./kWh), which reflects the large
subsidy provided to residential consumers.

Advantages Disadvantages
• Strong social protection — low-income • Does not directly control peak demand
households with low consumption pay — a heavy user at night costs as much
very little as one at noon
• Promotes energy efficiency (higher • Does not address when electricity is
consumption costs more per unit) used, only how much
• Simple for customers to understand • Large subsidies in lower blocks create
conceptually a fiscal burden on the government

4.5 Elements of an Electricity Supply Contract

Regardless of which rate structure is used, a typical electricity supply contract in Egypt includes
three types of charges:
Charge Type What It Is DSM Purpose
Connection Charge One-time or instalment payment Ensures cost recovery for
to physically connect to the grid infrastructure investment
Demand Charge (Capacity) Monthly charge based on Controls the level of peak demand
contracted, maximum, or average customers reserve from the utility
power demand (LE/kW)
Energy Charge Charge for each kWh consumed Main tool to influence the amount
(can be flat, block, TOU, inclining, and timing of electricity use
or declining)

5. The Optimal Formulation (Mathematical Framework)

The course introduces a simple optimisation framework to describe each DSM technique
mathematically. The key variables are:
• State variables: P = [P1, P2, P3, ..., Pn] — the load at each hour of the day.
• Control variables: Energy tariffs = [et1, et2, et3, ..., etn] — the price charged at each
hour.
• Electricity bill: sum of (Pi × ti × eti) for all hours i.

EPE621 - Fundamentals of Demand Side Management

For each DSM technique, a mathematical problem is defined with an objective function and
constraints:
Technique Objective Function Key Constraints
Valley Filling Maximise total energy consumed P_new = P_old during peak hours;
(sum of P_new × t) P_new ≥ P_old during off-peak
hours; P_new ≤ a maximum value
during off-peak
Load Shifting Total energy new = Total energy old P_new = a fixed value during peak
(same energy, different timing) hours; P_new ≥ P_old during off-
peak; P_new ≤ maximum value
during off-peak
Peak Clipping Maximise energy reduction during P_new = P_old outside peak hours;
peak hours P_new ≤ a maximum clipping level
during peak hours; P_new ≥ a
minimum floor
Energy Conservation Minimise total energy (sum of P_new P_new ≤ P_old at every hour; Total
× t) new energy ≤ factor × Total old
energy (factor < 1.0)
Load Building Maximise total energy (sum of P_new P_new ≥ P_old at every hour; Total
× t) new energy ≤ factor × Total old
energy (factor > 1.0); P_new ≤ a
maximum capacity value

6. The Power System: From Generation to Consumer

Understanding DSM requires a basic picture of the electricity supply chain:
Generation → Transmission (High Voltage) → Distribution (Medium & Low Voltage) →
Consumer
• Generation: Power plants produce electricity at high voltage (500 kV, 220 kV, 132 kV).
• Transmission: High-voltage grid carries power over long distances. The further from the
source, the higher the cost of service.
• Distribution: Step-down transformers reduce voltage to Medium Voltage (MV) and Low
Voltage (LV) for delivery to businesses and homes.
• Consumer: The end user at LV pays the highest tariff because their supply involves the
most infrastructure.
Tariff levels typically reflect this: customers connected at EHV or HV pay less per kWh than LV
customers because the utility incurs less infrastructure cost to serve them.

7. Quick Reference — Key Formulas

Formula Expression What It Tells You
Average Demand Total Energy (kWh) ÷ Total Time Constant equivalent load for

EPE621 - Fundamentals of Demand Side Management

 Formula Expression What It Tells You
(h) the period
Load Factor Average Demand ÷ Maximum Efficiency of capacity use (0 to
Demand 1)
Diversity Factor Peak of combined load ÷ Sum of Benefit of combining diverse
individual peaks loads
Electricity Bill Σ (Pi × ti × eti) for all hours Total charge using time-
varying tariff
Load Factor (expanded) (Σ Pi × ti ÷ 24) ÷ Pmax Calculated from hourly load
data

Note on Course Assessment

The course is assessed as follows: 40% class work (including quick tests) and 60% end-of-term
exam. Both tests and the exam are open — you may use books, the internet, and open media.
This means the focus is on understanding and applying ideas, not memorising numbers.

— End of Study Guide —

EPE621 - Fundamentals of Demand Side Management