Hu, Han, Wen - 2013 - Integrated Resource Strategic Planning and Power Demand-Side Management

Power Systems
Zhaoguang Hu
Xinyang Han
Quan Wen et al.
Integrated Resource
Strategic Planning
and Power
Demand-Side
Management
Power Systems
For further volumes:

http://www.springer.com/series/4622
Zhaoguang Hu Xinyang Han

Quan Wen et al.
Integrated Resource
Strategic Planning and
Power Demand-Side
Management
123
Zhaoguang Hu Quan Wen
State Grid Energy Research Institute State Grid Energy Research Institute
Beijing Beijing
Peoples Republic of China Peoples Republic of China
e-mail: [email protected] e-mail: [email protected]
Xinyang Han
State Grid Energy Research Institute
Beijing
Peoples Republic of China
e-mail: [email protected]
ISSN 1612-1287 ISSN 1860-4676 (electronic)

ISBN 978-3-642-37083-0 ISBN 978-3-642-37084-7 (eBook)
DOI 10.1007/978-3-642-37084-7
Springer Heidelberg New York Dordrecht London
Jointly published with China Electric Power Press

ISBN: 978-7-5123-4061-9 China Electric Power Press
Library of Congress Control Number: 2013933577
China Electric Power Press and Springer-Verlag Berlin Heidelberg 2013

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Preface
In the 1970s, the Middle East oil crisis, rising land costs, and increasing envi-
ronmental pressure drove power utilities within the US monopoly system to
consider how to ensure low cost power supply, how to coordinate electricity
supply and expand economic production to minimize corporate inputs and maxi-
mize profits, and whether to expand installed capacity or postpone new generation
construction and satisfy clients load demand through electricity conservation and
change of power consumption modes by users. These questions involved inte-
grated planning of power utilities.
Integrated Resource Planning (IRP), and Demand-Side Management (DSM),
emerged to help answer the above questions. IRP/DSM fundamentally changed the
traditional thinking of simply relying on growth in energy supply to accommodate
demand growth, and incorporated demand-side conservable energy into planning
to enable unified optimization of supply-side energy to minimize power utility
inputs and maximize their profits. IRP and DSM are mutually complementary,
with IRP being the theoretical foundation of DSM and DSM being the practice of
IRP.
IRP/DSM aims to achieve the macroscopic effect of reducing demand for
primary energy and alleviating the pressure society places on the environment
through microscopic corporate behavior. Therefore, IRP/DSM has attracted strong
support from many governments. More than three decades of exploration and
practice have seen the accumulation of rich experience. Remarkable economic and
social benefits have been achieved in such areas as conserving energy resources,
improving ecological environment, increasing electric power resource competi-
tiveness, and minimizing cost of energy services. Numerous countries emphasize
energy conservation. Such countries devise regulations, standards and policies on
energy conservation, encourage related technical research and the development of
high-efficiency and energy-conserving products, raise public awareness of energy
conservation, vigorously encourage energy conservation, and study methods and
management modes for resource allocation optimization that better match the
needs of modern social development. These measures ensure energy management
meets the requirements of the market economy system.
As the problem of global climate change intensifies and voices advocating
environmental protection grow louder, governments of all countries have realized
v
vi Preface
the importance of DSM, and have been vigorously supporting and promoting the
implementation of DSM projects. However, with constant power system reform,
breaking of monopolies, introduction of competition, separation of power gener-
ation from power grid and competitive bidding for generation-side grid connec-
tion, power generation enterprises and power grid enterprises have lost the
functions of unified planning and the operations of power generation, transmission,
distribution, and consumption. Enterprises have been unable to perform IRP,
forcing a separation of IRP and DSM, and causing DSM to lose its theoretical
foundations. These issues have created challenges for IRP/DSM implementation.
Power market reform has been constant during the twenty-first century. China
has clearly separated its power generation from its power grid. Competition has
been introduced to the generation side, while the distribution side remains a state
supervised natural monopoly. With the rapid development of the Chinese economy
and the constant improvement in living standards, the proportion of electricity
consumption to terminal energy consumption has been increasing owing to the
positive characteristics of the former in terms of high efficiency, convenience,
cleanness, and security. Electricity has become indispensable to daily life and a
basic requirement for economic production. Electrification has almost become a
byword for modernization, and electric power has become increasingly important
in the energy sector. In the long run, economic and social development will boost
power demand. To maintain Chinas sustainable economic development and build
an energy-conserving and environmentally-friendly society, the government has
prioritized energy conservation. DSM is an effective tool for energy conservation
and emission reduction. The new energy conservation law expressly requires the
state to support and promote DSM with preferential tax and price policies.
Despite separation of power generation from the power grid, and the fact that
IRP/DSM cannot be used by power utilities to generate, transmit, distribute, and
use power, the government remains capable of promoting DSM at the national
level, and can extend the concept of IRP to macroscopic strategic planning.
China is not only a large developing country but also a small country in
terms of per capita resources and a low-efficiency country in resource utiliza-
tion. Problems such as a shortage of energy resources and environmental pollution
severely challenge Chinas sustainable economic development. The question of
how to expand IRP in regard to these problems thus arises. When it comes to plan
formulation, government differs from enterprises in that it formulates strategic
plans while the latter formulate production and business development plans. The
governments strategic plan for the power industry is a macroscopic strategic plan
focused on overall scale of generating units (coal power, gas power, hydropower,
nuclear power, wind power, etc.), energy demand and social environmental impact
in different periods. This national strategic plan is formulated in accordance with
national conditions for economic development, regional development, energy
supply security, and environmental protection. Meanwhile, the plans of individual
power utilities focus on corporate production and business development plans focus
on installation progress and production simulation specific to the construction,
commissioning, operation, and overhaul of individual units based on forecast load
Preface vii
demand, thus maximizing corporate profits. If the concept of IRP is extended to a

method of national strategic planning (Integrated Resource Strategic Planning,
IRSP) to make it applicable to national strategic planning when IRP cannot become
an implementation tool for power utilities, IRSP will offer an effective solution to
challenges encountered by China in its development, and will provide theoretical
support for measures such as DSM, energy conservation and emission reduction,
coping with global climate change. Chinas socialist market economy gives the
Chinese government excellent capability to formulate and implement IRSP/DSM.
The potential of energy saving and mitigating emission by IRSM/DSM will be great
in China, and also in other country in the world. This is the main propose of the
book.
This book discusses the theories, methods, and models of IRSP/DSM formu-
lation at the national level, and establishes the relationship between IRSP and
DSM, whereby IRSP is the theoretical foundation of DSM and DSM is the practice
of IRSP. Also, the book explores how to separate DSM into different components,
including the government, power distribution enterprises, Energy Service Com-
panies (ESCOs) and power users, and how to promote participation of all com-
ponents in DSM projects.
The book conducts theoretical exploration based on years of research on DSM
in the State Grid Energy Research Institute (SGERI, formerly the State Power
Economic Research Institute-SPERI) and Electric Power Research Institute of
China (China EPRI), references extensive domestic and foreign data, and describes
different participants in DSM in a targeted manner. The book includes eight
chapters, including Chap. 1, Basic Theory of Integrated Resource Strategic
Planning (IRSP); Chap. 2, Basic Theory of Demand-Side Management
(DSM); Chap. 3, The Promoter of DSMGovernment; Chap. 4, The
Implementers of DSMPower Grid Enterprises; Chap. 5, The Backbone of
DSM ImplementationEnergy Service Companies (ESCOs); Chap. 6, The
Important Participants in DSMPower Consumers; Chap. 7, The Prospects of
DSM and Chap. 8, Introduction to a DSM Laboratory.
Chapter 1 explores how to implement IRSP at the national level, while Chap. 2
covers theoretical methods of implementing DSM. Both chapters present the
theoretical foundations of IRSP/DSM in a manner suitable for all readers.
Chapters 36 successively elaborate the promoter of DSM (government), the
subjects that help implement DSM (power grid enterprises), the nucleus of DSM
implementation (ESCOs), and the important participants in DSM (power users), so
that various readers can read according to their respective roles to learn how to
quickly participate in and conduct DSM. Chapter 7 examines the prospects of
DSM and explores future development focuses and readers could gain a deeper
understanding by taking Chinas actual situation into account. Finally, Chap. 8
introduces the framework prototype and functions of the DSM laboratory to be
constructed by SGERI.
Readers can read the book guided by the following block diagram. Hopefully,
readers can get detailed data from the chapters of interest to them, to further
understand the essence, development history and outlook of IRSP and DSM, and
viii Preface
to learn about Chinas potential for energy and power conservation and DSM
implementation. Through learning how to participate in and conduct DSM, readers
can better contribute to Chinas DSM work and the creation of an energy-con-
serving and environmentally-friendly society.
benefit from the book
Different readers can
Chapter 1
Basic Theory of IRSP
Chapter 2
Basic Theory of DSM
Various Chapter 4 Chapter 5

readers may Chapter 3 Chapter 6
The Implementers The Backbone of
read chapters The Promoter The Important
of DSM DSM Implementation
according to of DSM Participants in DSM
respective -- Power Grid -- Energy Service
-- Government -- Power Consumers
roles Enterprises Companies (ESCOs)
benefit from the book
Different readers can
Chapter 7
The Prospects of DSM
Chapter 8
Introduction to a DSM Laboratory
The authors of all the chapters are listed as follows: Chap. 1 was authored by
Zhaoguang Hu, Xinyang Han, and Quan Wen; Chap. 2 by Yuhui Zhou, Xinyang
Han, and Zhaoguang Hu; Chap. 3 by Zhaoguang Hu, Xinyang Han, Yugui Gu,
Litong Dong, Jing Zhao, Peng Wu, and Lijie Guo; Chap. 4 by Jing Zhao, Litong
Dong, Peng Wu, Wei Chen, and Zhaoguang Hu; Chap. 5 by Wei Sun and Lei
Chen; Chap. 6 by Xinyang Han, Litong Dong, Hongcai Dai, and Peng Wu; Chap. 7
by Baoguo Shan, Quan Wen, Hongcai Dai, Lei Chen, and Zhaoguang Hu; and
Chap. 8 by Zhaoguang Hu and Xiandong Tan.
Many experts have provided comments and help during the compiling of this
book. The following experts provided numerous constructive opinions and sug-
gestions: Yunzhou Zhang, Xuehao Yu, Zhongbao Niu, Liping Jiang, Ying Li,
Xubo Ge, Ying Ran, Xinmao Wang, Yunliang Ye, Zhengxiang Ge, Feng Han,
Tijun Lei, Yaohua Wang, Deshun Liu, Jiangyi Hu, Ayuan Xu, Xinghua Zhang,
Hong Ji, Xiaoping Sheng, Junling Lu, Xin Xia, Qiong Liu, Wenlong Jin, Feng
Zhou, Qionghui Li, Qiong Li, Jingru Li, Haiyang Zhou, Meng Li, Hongsheng Hi,
Li Zhou, Rong Cao, Jian Zhang, Li Ma and Xiaogang Shen. Regarding the concept
of IRSP, we exchanged ideas with Hans Nilsson, the IEA DSM-Programme;
Hameed Nezhad, the international senior expert that first introduced the concept of
DSM to China; David Moskovitz and Barbara Finamore, international senior
experts who have long promoted Chinas DSM work; as well as domestic senior
Preface ix
experts including Huijiong Wang, Zhirong Yang, Rongsi Ye, Wanxing Wang, and
Qingyi Wang, who offered strong support and valuable opinions. During the
proofing of the book, enthusiastic assistance was provided by Fagen Zhu, Qing
Huang, Yiqun Ma, Lu Xing, Zheng Si, Molin Huo, Chenglong Zhang, Chengjie
Wang, Zhi Luo, Yanan Zheng, Yongpei Wang, Shanshan Wu, Dexiang Jia,
Jinghong Zhou, Xiao Xiao, Wei Duan, Mingtao Yao, Jian Zhang and Lu Yang.
The challenging task of writing and editing this book was made possible by the
excellent co-operation of the team of authors together with a number of colleagues
and friends. Our sincere thanks to all contributors, proofreaders, the publisher, and
our families for making this book project happen.
Errors and deficiencies are unavoidable owing to our limited knowledge, but
reader comments are appreciated. We strongly believe that criticism leads to truth
while praise will bring fallacy.
Beijing, Peoples Republic of China, April 2013 Authors

Contents
1 Basic Theory of Integrated Resource Strategic Planning . . . . . . . . 1

1.1 Basic Concept of Integrated Resource Planning . . . . . . . . . . . . 1
1.1.1 Concept of Integrated Resource Planning . . . . . . . . . . 1
1.1.2 The Features and Advantages of IRP . . . . . . . . . . . . . 13
1.2 The Application of Integrated Resource Planning
and Demand-Side Management in the World . . . . . . . . . . ... 15
1.2.1 The United States. . . . . . . . . . . . . . . . . . . . . . . . ... 16
1.2.2 The Member Countries of International
Energy Agency . . . . . . . . . . . . . . . . . . . . . . . . . ... 20
1.3 Basic Concept of Integrated Resource Strategic Planning . . ... 23
1.3.1 Concept of Integrated Resource Strategic Planning ... 24
1.3.2 Features and Advantages of Integrated Resource
Strategic Planning . . . . . . . . . . . . . . . . . . . . . . . ... 34
1.3.3 The Construction of Integrated Resource Strategic
Planning Model . . . . . . . . . . . . . . . . . . . . . . . . . ... 36
1.4 IRSP for Chinese Economic Development . . . . . . . . . . . . ... 41
1.4.1 Present Situation of Economic Development . . . . . ... 41
1.4.2 The Current Situation in Electric Power
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
1.4.3 The Situation of Energy Resources . . . . . . . . . . . . . . 45
1.4.4 Situation of Energy Consumption Index . . . . . . . . . . . 47
1.4.5 Status of Greenhouse Gas Emissions . . . . . . . . . . . . . 53
1.4.6 Response to the Challenges in Economic
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
1.5 Application of IRSP Model . . . . . . . . . . . . . . . . . . . . . . . . . . 55
1.5.1 Traditional Resource Strategic Planning . . . . . . . . . . . 56
1.5.2 Integrated Resource Strategic Planning . . . . . . . . . . . . 57
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
2 Basic Theory of Demand-Side Management . . . ... ...... . . . . . 63

2.1 Theoretical Frame of DSM . . . . . . . . . . . . ... ...... . . . . . 63
2.1.1 Core Concept Group of DSM . . . . ... ...... . . . . . 63
2.1.2 Correlation Between DSM Concept and Method . . . . . 67
xi
xii Contents
2.1.3 DSM Technologies and Methods . . . . . . . . . . . . . . . . 68

2.1.4 Tariff Mechanism of DSM . . . . . . . . . . . . . . . . . . . . 72
2.2 DSM Object and The Decomposition . . . . . . . . . . . . . . . . . . . 75
2.2.1 Object Design of DSM . . . . . . . . . . . . . . . . . . . . . . . 75
2.2.2 MBO Process of DSM . . . . . . . . . . . . . . . . . . . . . . . 78
2.2.3 Index Decomposition Method of a DSM Project . . . . . 78
2.2.4 Evaluation Index System of DSM . . . . . . . . . . . . . . . 86
2.3 DSM Operation Under Different Tariff Mechanism . . . . . . . . . 87
2.3.1 Low Electricity Price Mode and Its Adaptability . . . . . 88
2.3.2 High Electricity Price Mode and Its Adaptability . . . . . 90
2.4 Cost-Benefit Analysis of DSM . . . . . . . . . . . . . . . . . . . . . . . 91
2.4.1 Basic Theory of Cost-Benefit Analysis of DSM. . . . . . 91
2.4.2 Cash Flow Analysis of DSM . . . . . . . . . . . . . . . . . . . 92
2.5 Cost-Benefit Analysis of Each DSM Participants . . . . . . . . . . . 105
2.5.1 Social Cost-Benefit Analysis of the Government . . . . . 105
2.5.2 Cost-Benefit Analysis of Power Utility . . . . . . . . . . . . 111
2.5.3 Cost-Benefit Analysis of Users . . . . . . . . . . . . . . . . . 114
2.5.4 Cost-Benefit Analysis of Energy Service Company . . . 118
2.5.5 Influences of Electricity Price on DSM
Cost and Benefit . . . . . . . . . . . . . . . . . . . . . . . . ... 121
2.5.6 Sensitivity Analysis of DSM Cost and Benefit . . . ... 123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 133
3 The Promoter of Demand-Side Management: Government . . . . .. 135

3.1 Government is the Promoter of Demand-Side Management. . .. 135
3.2 Successful Experience of DSM Developed by Governments . .. 139
3.2.1 Improvement of Laws and Regulations to Establish
a Long-Term Effective Mechanism . . . . . . . . . . . . .. 139
3.2.2 Economic Measures . . . . . . . . . . . . . . . . . . . . . . . .. 148
3.2.3 Information Popularization and Guidance Measures . .. 152
3.2.4 Government Guide Enterprises to Participate
in Voluntary Agreement . . . . . . . . . . . . . . . . . . . . .. 153
3.2.5 Formulate Reasonable Electricity Price Policy . . . . . .. 155
3.3 The Achievements and Experience of China in Carrying
Out DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 156
3.3.1 DSM is Gradually Incorporated into National
Special Regulations . . . . . . . . . . . . . . . . . . . . . . . .. 156
3.3.2 Enrichment of Guidance of DSM. . . . . . . . . . . . . . .. 162
3.3.3 Relevant Notices and Documents About DSM
have been Issued for Many Times . . . . . . . . . . . . . .. 164
3.3.4 Formulation of Relevant Supporting Measures. . . . . .. 166
3.3.5 Promulgation of Relevant Policy Solutions
by Local Government . . . . . . . . . . . . . . . . . . . . . . .. 168
Contents xiii
3.4 Measures for Continuously Prompting the Effective

Development of DSM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
3.4.1 Prefect Legal Environment . . . . . . . . . . . . . . . . . . . . 173
3.4.2 Establishment of Market Mechanism . . . . . . . . . . . . . 182
3.4.3 Guidance Methods . . . . . . . . . . . . . . . . . . . . . . . . . . 190
3.4.4 Operation Mechanism. . . . . . . . . . . . . . . . . . . . . . . . 201
3.5 Analysis and Evaluation of Social Benefits . . . . . . . . . . . . . . . 205
3.5.1 Social Benefits Evaluation of DSM . . . . . . . . . . . . . . 205
3.5.2 Simulation Analysis of Social Benefits
of a DSM Project. . . . . . . . . . . . . . . . . . . . . . . . . . . 207
3.6 Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
3.6.1 Energy Efficiency Labeling Program in Thailand. . . . . 207
3.6.2 Energy Star Program in the United States . . . . . . . . . . 213
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
4 The Implementers of Demand-Side Management:

Power Grid Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
4.1 Power Grid Enterprises: Subjects of Demand-Side
Management Implementation. . . . . . . . . . . . . . . . . . . . . . . . . 219
4.2 Work Contents of Demand-Side Management Implementation
by Power Grid Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 223
4.2.1 Organization Structure of Demand-Side Management
Implementation by Power Grid Enterprises . . . . . . . . . 223
4.2.2 Work Contents of Demand-Side Management
Implementation by Power Grid Enterprises . . . . . . . . . 224
4.2.3 Main Responsibilities of Power Grid Enterprises
During Demand-Side Management Implementation . . . 229
4.2.4 Steps of Demand-Side Management Implementation
by Power Grid Enterprises . . . . . . . . . . . . . . . . . . . . 231
4.3 Conditions for Promoting Power Grid Enterprises to Actively
Develop Demand-Side Management Program . . . . . . . . . . . . . 234
4.3.1 Completing Policies and Regulations Step by Step. . . . 235
4.3.2 Completing Electricity Price System Step by Step . . . . 236
4.3.3 Practical and Effective Fiscal Taxation Incentive
and Demand-Side Management Fund Mechanism . . . . 237
4.4 Experiences of Power Grid Enterprises in DSM
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
4.4.1 Energy Efficiency Labeling Activity
and User-Oriented Scheme Design of Efficiency
Electricity Generating Authority of Thailand . . . . . . . . 239
4.4.2 Energy Conservation Cash Subsidy Policies
Implemented by American Power Utilities
in Regional Range . . . . . . . . . . . . . . . . . . . . . . . . . . 240
xiv Contents
4.4.3 Various Measures Taken by Power Utilities

of Canada to Promote Demand-Side Management . . . . 240
4.4.4 Economic Reward Implemented to Energy-Saving
Product Users by German Power Utilities . . . . . . . . . . 243
4.5 Experiences of Power Grid Enterprises in Demand-Side
Management Implementation in China . . . . . . . . . . . . . . . . . . 246
4.5.1 Completing Demand-Side Management
Organization System . . . . . . . . . . . . . . . . . . . . . . . . 246
4.5.2 Making Plans and Continuously Adjusting Targets. . . . 248
4.5.3 Striving for Government Support and Continuously
Widening Project Fund Channels . . . . . . . . . . . . . . . . 248
4.5.4 Applying Price Lever and Rationally Allocating
Power Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
4.5.5 Promoting Demand-Side Management
Technology Support Means . . . . . . . . . . . . . . . . . . . . 252
4.5.6 Popularizing the Successful Experience and Promoting
Demand-Side Management Implementation. . . . . . . . . 253
4.5.7 Arranging Plan Elaborately and Organizing Orderly
Power Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
4.5.8 Exhibition Window Establishment
and Wide Promotion . . . . . . . . . . . . . . . . . . . . . . . . 256
4.6 Load Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
4.6.1 Important Means for Power Grid Enterprise
to Implement DSM: Load Management . . . . . . . . . . . 258
4.6.2 Necessary Means for Power Grid Enterprise
to Implement DSM: Orderly Power Utilization . . . . . . 268
4.7 Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
4.7.1 Demand-Side Management Work Condition
of Hebei Province . . . . . . . . . . . . . . . . . . . . . . . . . . 279
4.7.2 Demand-Side Management Work Condition
of Power Grid Enterprises in Jiangsu Province . . . . . . 283
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
5 The Backbone of DSM Implementation:

Energy Service Companies . . . . . . . . . . . . . . . . . . . . .......... 287
5.1 Energy Service Companies are the Hardcore
for Implementing DSM Projects . . . . . . . . . . . . .......... 287
5.2 ESCOs are the Professional Service Organization
in Energy-Saving Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
5.2.1 ESCO and EMC . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
5.2.2 Business Features of ESCO . . . . . . . . . . . . . . . . . . . . 290
5.2.3 Type of ESCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
5.2.4 Service Type of ESCO . . . . . . . . . . . . . . . . . . . . . . . 292
Contents xv
5.2.5 Operation Mode of ESCO . . . . . . . . . . . . . . . . . . ... 293

5.2.6 Operation Means of ESCO . . . . . . . . . . . . . . . . . ... 295
5.3 Current Situation and Prospect of Development
of ESCOs in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 296
5.3.1 Progress of Energy-Saving Promotion Projects
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 296
5.3.2 Development Status of Energy-Saving Service
Industry in China . . . . . . . . . . . . . . . . . . . . . . . . ... 298
5.3.3 Development Prospect of ESCO in China . . . . . . . ... 301
5.4 Development Situation of ESCOs in the Market Economy
Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
5.4.1 The United States. . . . . . . . . . . . . . . . . . . . . . . . . . . 302
5.4.2 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
5.4.3 European Countries . . . . . . . . . . . . . . . . . . . . . . . . . 308
5.4.4 Asian Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
5.5 Major Contents of EMC Business . . . . . . . . . . . . . . . . . . . . . 311
5.5.1 Working Content and Benefit Source of ESCO . . . . . . 311
5.5.2 Business Process of ESCO . . . . . . . . . . . . . . . . . . . . 313
5.6 Market Development of ESCOs . . . . . . . . . . . . . . . . . . . . . . . 315
5.6.1 Potential of Electricity Conservation in China . . . . . . . 315
5.6.2 Potential Market Field of Energy-Saving Service
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
5.6.3 Target Market of ESCOs . . . . . . . . . . . . . . . . . . . . . 321
5.6.4 Customer Selection of ESCO . . . . . . . . . . . . . . . . . . 322
5.6.5 Project Line of ESCO. . . . . . . . . . . . . . . . . . . . . . . . 324
5.7 Energy-Saving Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
5.7.1 Evaluating Indicators of Energy Utilization Level . . . . 327
5.7.2 Economic Analysis of Energy-Saving Technology . . . . 331
5.7.3 Energy Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
5.7.4 Calculation of Energy-Saving Amount . . . . . . . . . . . . 339
5.7.5 Calculation of Energy-Saving Benefit. . . . . . . . . . . . . 345
5.7.6 The Monitoring of Energy Consumption . . . . . . . . . . . 345
5.8 Financing Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
5.8.1 Basic Financing Way of ESCO . . . . . . . . . . . . . . . . . 347
5.8.2 Loan Guarantee Plans of ESCOs . . . . . . . . . . . . . . . . 350
5.9 Risks and Countermeasures of EMC Project . . . . . . . . . . . . . . 353
5.9.1 Source and Type of the Risks . . . . . . . . . . . . . . . . . . 353
5.9.2 Method to Reduce Risks . . . . . . . . . . . . . . . . . . . . . . 357
5.10 Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
5.10.1 Energy-Saving Reform Project of the Electromotor
System of a Coal Company. . . . . . . . . . . . . . . . . ... 363
5.10.2 Energy Conservation of the Control System
of Central Air Conditionings in a Hotel . . . . . . . . ... 373
xvi Contents
5.10.3 The Decision Support System of DSM

of an Oil Field. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
6 The Important Participants in Demand-Side Management:

Power Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 385
6.1 Power Consumers are the Most Important
Participant in DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 385
6.1.1 Power Consumers are the Carrier of Electricity
Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 385
6.1.2 Power Consumers are the Direct Beneficiary
for Carrying Out DSM . . . . . . . . . . . . . . . . . . . . . .. 385
6.1.3 Saving Electricity is a Legal Obligation
for Each User . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 388
6.2 Experiences of Power Consumers to Participate in DSM . . . .. 389
6.2.1 Relevant Policies for Power Consumers
to Participate in DSM. . . . . . . . . . . . . . . . . . . . . . .. 389
6.2.2 Steps of Power Consumer and ESCO
to Carry Out DSM Cooperation . . . . . . . . . . . . . . . .. 396
6.2.3 Experience of Power Consumers
6.2.4 External Conditions for Power Customers
6.3 Approach and Means for Power Customers
to Participate in DSM. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 402
6.3.1 Electricity Saving Potential of Terminal Electrical
Equipment and Technology . . . . . . . . . . . . . . . . . . .. 402
6.3.2 Basic Work and Procedure for Carrying
Out DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 412
6.3.3 Cooperation with ESCOs to Jointly
Carry Out DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
6.4 Industrial Customers Participation in DSM . . . . . . . . . . . . . . 419
6.4.1 Attach Importance from the Aspect of Management. . . 419
6.4.2 Implement from the Aspect of Technology . . . . . . . . . 422
6.5 Commercial and Residential Customers
Participation in DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
6.5.1 Attach Importance from the Ideological Aspect . . . . . . 428
6.5.2 Implement from the Aspect of Technology . . . . . . . . . 432
6.6 Other Customers Participation in DSM . . . . . . . . . . . . . . . . . 447
6.6.1 Power Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
6.6.2 Agricultural Customers . . . . . . . . . . . . . . . . . . . . . . . 457
6.7 Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
6.7.1 Modification of Transformer . . . . . . . . . . . . . . . . . . . 459
Contents xvii
6.7.2 Modification Process of Reactive

Power Compensator . . . . . . . . . . . . . . . . . . . . . . . . . 465
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
7 The Prospects of Demand-Side Management. . . . . . . . . . . . . .... 471

7.1 Outlook of Demand-Side Management Under Power
Market Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . .... 471
7.1.1 Marketization Reform of Power as Well as DSM .... 471
7.1.2 Development of DSM Under Power
Market Condition . . . . . . . . . . . . . . . . . . . . . . . .... 477
7.1.3 Demand Response . . . . . . . . . . . . . . . . . . . . . . .... 486
7.1.4 Development Outlook of DSM Under Power
Market Environment of China . . . . . . . . . . . . . . .... 492
7.2 Development Potential of Clean Development Mechanism
Project of DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 495
7.2.1 Introduction of Clean Development Mechanism. . .... 495
7.2.2 Operation Process and Development
Potential of CDM. . . . . . . . . . . . . . . . . . . . . . . . . . . 498
7.2.3 Development of CDM in DSM . . . . . . . . . . . . . . . . . 501
7.2.4 Case Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
7.3 Development Outlook of White Certificate . . . . . . . . . . . . . . . 510
7.3.1 Concept of White Certificate . . . . . . . . . . . . . . . . . 510
7.3.2 Operation Mechanism of White Certificate . . . . . . . 513
7.3.3 Selection of the Implementation Scheme
of White Certificate . . . . . . . . . . . . . . . . . . . .... 516
7.3.4 Implementation Situation of White Certificate
in Each Country. . . . . . . . . . . . . . . . . . . . . . . . .... 520
7.3.5 Enlightenment Given by White Certificate
to Energy Efficiency Market of China . . . . . . . . .... 526
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 527
8 Introduction to a Demand-Side Management Laboratory . . . . . .. 529

8.1 Basic Concept of Demand-Side Management Laboratory . . . .. 529
8.1.1 Functions of Demand-Side Management Laboratory. .. 529
8.1.2 Definition of Demand-Side Management
Laboratory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 530
8.2 Overall Structure of Demand-Side Management Laboratory . .. 530
8.2.1 Software Function Structure of Demand-Side
Management Laboratory . . . . . . . . . . . . . . . . . . . . .. 530
8.2.2 Software System Structure of Demand-Side
8.2.3 Hardware Structure of Demand-Side
xviii Contents
8.3 Key Technology of Demand-Side Management Laboratory. . . . 535

8.3.1 Experimental Economics. . . . . . . . . . . . . . . . . . . . . . 535
8.3.2 Intelligent Engineering . . . . . . . . . . . . . . . . . . . . . . . 536
8.3.3 Agent Technology . . . . . . . . . . . . . . . . . . . . . . . . . . 537
8.3.4 Data Warehouse and Data Mining . . . . . . . . . . . . . . . 538
8.4 Introduction of Some Modules in Demand-Side
Management Laboratory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
8.4.1 Data Acquisition Module . . . . . . . . . . . . . . . . . . . . . 539
8.4.2 Project Analysis Module . . . . . . . . . . . . . . . . . . . . . . 541
8.4.3 Load Analysis and Predication Module. . . . . . . . . . . . 543
8.4.4 DSM Cost-Benefit Evaluation Module . . . . . . . . . . . . 544
8.4.5 DSM Policy Simulation Module . . . . . . . . . . . . . . . . 546
8.4.6 Comprehensive DSM Evaluation Module . . . . . . . . . . 546
8.5 Important Module Function Design . . . . . . . . . . . . . . . . . . . . 548
8.5.1 Cost-Benefit Evaluation Module of Power
Saving Projects . . . . . . . . . . . . . . . . . . . . . . . . . ... 548
8.5.2 DSM Compensation Mechanism
Simulation Module. . . . . . . . . . . . . . . . . . . . . . . ... 552
8.5.3 Time-of-Use Price Simulation Module . . . . . . . . . ... 563
8.6 Analysis Method Introduction . . . . . . . . . . . . . . . . . . . . . ... 572
8.6.1 Calculation Index Weight of Analytic
Hierarchy Process . . . . . . . . . . . . . . . . . . . . . . . ... 572
8.6.2 Calculation Process of Fuzzy Comprehensive
Evaluation Method . . . . . . . . . . . . . . . . . . . . . . . ... 574
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 575
Contributors
Lei Chen State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: chenlei@
sgeri.sgcc.com.cn
Wei Chen State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: chenwei@
sgeri.sgcc.com.cn
Hongcai Dai State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail:
[email protected]
Litong Dong State Power Economic Research Institute, No. 8, Nanheng East
Street, Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail:
[email protected]
Yugui Gu State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: guyugui@
sgeri.sgcc.com.cn
Lijie Guo State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: guolijie@
sgeri.sgcc.com.cn
Xinyang Han State Grid Energy Research Institute, No. 8, Nanheng East Street,
[email protected]
Zhaoguang Hu State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: huz-
[email protected]; [email protected]
Baoguo Shan State Grid Energy Research Institute, No. 8, Nanheng East Street,
[email protected]
xix
xx Contributors
Wei Sun State Grid Corporation of China, No. 86, West Changan Street,
Xicheng District, 100031 Beijing, Peoples Republic of China, e-mail: sunwei@
sgcc.com.cn
Xiandong Tan State Grid Energy Research Institute, No. 8, Nanheng East Street,
[email protected]
Quan Wen State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: wenquan@
sgeri.sgcc.com.cn
Peng Wu State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: wupeng@
sgeri.sgcc.com.cn
Jing Zhao State Grid Energy Research Institute, No. 8, Nanheng East Street,
Xicheng District, 100052 Beijing, Peoples Republic of China, e-mail: zhaojing@
sgeri.sgcc.com.cn
Yuhui Zhou Beijing Jiaotong University, No.3 Shang Yuan Cun, Haidian Dis-
trict, 100044 Beijing, Peoples Republic of China, e-mail: [email protected]
Chapter 1
Basic Theory of Integrated Resource
Strategic Planning
1.1 Basic Concept of Integrated Resource Planning
1.1.1 Concept of Integrated Resource Planning
The objective of power utility is very clear, namely to provide adequate, quality,
and reliable power supply service to power users (referred to as the users) at the
lowest cost. It takes a long time to prepare for the approval and construction of
new power plants, with some projects spanning a few years, while others lasting a
decade or so (such as the large hydropower and nuclear power plants, etc.), hence
it is necessary to make appropriate development plans for power units. Power
supply is an industry, which has a huge impact on the development of the national
economy, with intensive investment and high consumption in primary energy.
Mistakes in resource planning will bring irreparable damage to national con-
struction. By contrast, reasonable planning can about bring great economic and
social benefits.
There are two concepts in resource planning, traditional resource planning
(TRP) and integrated resource planning (IRP).
1.1.1.1 Traditional Resource Planning
The initial method of traditional resource planning is relatively simple, which is to

compare and select the recommended program from the several optional programs,
based on comparisons between different programs from the technical and eco-
nomic perspectives. Generally, the programs to be compared are proposed by the
planning staff on the basis of personal experience, and do not necessarily include
the objective optimal solution. Therefore, the final recommended plan would have
a considerable proportion of subjectivity.
Since the 1960s, resource system planning has become the truly optimized
planning, based on the characteristics of the power system itself, and has raised a
variety of optimization models, combined with the research results of system
Z. Hu et al., Integrated Resource Strategic Planning and Power Demand-Side 1

Management, Power Systems, DOI: 10.1007/978-3-642-37084-7_1,
2 1 Basic Theory of Integrated Resource Strategic Planning
theory, decision theory and operation research, and other fields. The application of
computer programs has greatly lessened the subjective factors in the calculating
process, making the decision-making process more scientific.
The basic principle of resource planning is based on the load forecasting to
determine the type of power generation technologies, positioning and construction
time, and quantity put into production according to the maximum load within the
system, electricity demand and predicted results of load curve, and how to guide
power grid construction to meet the needs of users in a more economic, reasonable,
and reliable way. It regards the demand as a given target, on the part of the supply
side, to develop programs to meet this target passively, i.e., with the least
investment in generation, transmission, and distribution equipment and the least
operating costs, to provide reliable electricity service for the demand-side. Its main
feature is only aimed at increasing the power supply to meet demand, and is a
supply-based planning.
Resource planning consists of different stages including confirming the plan-
ning objective, forecasting electricity demand, setting some programs according to
the supply-side resources or assessing the supply-side resources, comparing and
choosing the optimal program, and optimizing and planning on the basis of the
supply-side resources; Implementing the chosen program including power sources
construction, power grid construction and power purchase agreements, etc.;
monitoring and evaluating the planning. See Fig. 1.1 for the process.
1. To confirm the planning period. It means to set a target to meet the generator
expansion supply demand in a certain future period at the minimum cost. For
example, to make the generator expansion planning of an electric power
company in 2020, this is a planning objective.
2. To forecast load demand in the future. It means to make judgements for the
growth of load demand at a certain time point during a certain period (it can be
divided into long term, medium term, and short term, etc.), and to predict the
growth scope of load demand in advance.
Before forecasting, it shall be confirmed whether to forecast the total data or the
unified regulation data. It shall make judgments on the future economic devel-
opment trend according to a variety of model methods and software systems, and
then forecast the load demand, electricity demand, and the annual load curve, load
factor, typical daily load curve, and other load indicators without taking the
demand-side resources in the future into account.
There are many ways to predict the electricity demand, such as the regression
analysis, time series, trend extrapolation, gray model, logistics, Compertz, neural
network, consumption per unit output value, coefficient of elasticity, load density,
analogy, sector analysis, LEAP model, econometric model, wavelet analysis, co-
integration model, expert system, intelligent simulation, and so on. We do not give
a detailed explanation here as they are not the focus of this book.
3. To develop some programs in accordance with the supply-side resources or to
evaluate the supply-side resources. Previously, in the absence of computers, the
1.1 Basic Concept of Integrated Resource Planning 3
Confirm the planning Confirm the planning

period period
Forecast electricity demand Forecast electricity demand
Develop some programs Assess the supply-side

according to the supply-side Improved resources
resources
Compare and choose the Optimize the

optimal program planning
Implement the planning Implement the planning

program program
Monitor and Monitor and

Evaluate Evaluate
Initial Traditional Resource Improved Traditional

Planning Resource Planning
Fig. 1.1 The process of traditional resource planning
initial generator expansion planning was based on the experience of experts

whereby reasonable programs were developed; however, it was unlikely to
achieve the optimal scenario in this way. After the popularization of computers,
it can analyze and compare thousands of programs with the aid of computer, so
the main job for the improved traditional resource planning in this phase is to
gather the investment costs, operation costs, and related parameters of the
supply-side resources (such as fuel prices, generator capacity, annual genera-
tion capacity, adjustable capacity ratio, and load curve, etc.)
4. To optimize the chosen programs or the plan according to the data from the
supply-side resources. The initial electricity planning is to make analyses and
comparisons on the several selected programs, then choose the one that can
meet the future load demand at the minimum cost. The improved generator
expansion planning is on the basis of supply-side resource data, and in accor-
dance with the principle of the minimum cost during the planning period, to set
target function, with the future load demand, supply-side resources, fuel
resources, load curve, and a series of factors as constraints to establish the
planning model and get the optimal program through the planning software
package. The planning software packages which are frequently used are
CPLEX, GESP, GAMS, WASP, DECADES, PROSCREEN, EGEAS, EFOM,
MARKAL, MESSAGE, MERSM, and so on.
The purpose of this phase is to select the optimal program, describe the put-
into-production and retirement plan of power resources, generation plan, invest-
ment cost, operating cost, fuel cost, power supply reliability index, interconnection
benefit, pollutant emission, and long-term marginal cost, etc., from the initial year
to the target year, and do some sensitivity analyses about the uncertainties of some
parameters.
5. To implement the planning program. Once the plan is confirmed, it will be
implemented. At the same time, arrange reasonable power resources con-
struction projects and generator output. This phase is the planned implemen-
tation phase. The success of this part will depend on whether the planning
program is reasonable or not.
6. To monitor and evaluate. Finally, it shall compare the program with the actual
situation and evaluate the program. This is the post-assessment phase to
evaluate the original planning program against the actual situation that has
happened, and the main purpose is to continuously improve the planning level.
1.1.1.2 Integrated Resource Planning
The main feature of traditional resource planning (TRP) is to consider the user
demand and demand models of electricity utilization as external factors, and focus
on setting up new power plants to increase the power supply to meet the demand of
users. In the wake of the 1973 oil crisis, power companies began to think about
whether to simply expand the installed capacity or to educate the power users to
conserve energy consumption, adjust the models of using power energy to post-
pone the construction of new power plants, and meet the power supply demand
and bring economic benefits to power companies. It gradually started to focus on
the demand-side resources and incorporate the power saving resources into the
planning, through improving the energy efficiency and changing the electricity
methods, as the resources that can be mobilized, with competition between the
supply-side resources and demand-side resources, all of which develop into the
integrated resource planning (IRP).
IRP is the best resource planning carried out by power utilities which takes into
account the supply-side and demand-side resources as a whole, so as to use them in
an efficient, economic, and rational way, and under the premise of maintaining the
energy service level to minimize the total cost of the planning.
The basic idea of IRP is: due to the implementation of demand-side manage-
ment (DSM), the energy consumption and load at the demand-side will decrease.
In addition to the supply-side resources, IRP will consider the electricity conser-
vation and load reduction as a kind of resource, carry out cost-benefit analyses for
the power supply program and energy-saving program, and develop an integrated
planning program at the lowest cost and also meet the same energy services
through the optimization combination.
The objective of IRP is: through the rational and effective use of supply-side
and demand-side energy resources, to reduce the investment on power construc-
tion, reduce operating expenses and provide energy service for consumers at the
lowest cost.
The resource choices for IRP usually include the traditional normal power
plants, renewable energy power plants, independent power plants, purchased
power from other areas, co-generation power plants, improvements of transmission
and distribution system and Demand-Side Management. The DSM plays a key role
in MPIRP, and makes it easier for the power companies to change the shape of the
load curve. The experience has shown that the cost of power optimization program
including the DSM is less than the cost of only considering the optimization of the
supply-side resources.
The implementation phases for IRP include: (1) confirm the planning period;
(2) forecast electricity demand; (3) evaluate the demand-side and the supply-side
resources; (4) integrate and optimize all the resources, (5) implement the planning
program involved by the selected resources; (6) monitor and evaluate the program.
See Fig. 1.2 for the process.
1. To confirm the planning period. It means to meet the power supply demand at
the minimum cost. For example, to make the power planing of an electric
power company in 2020, this is a planning period.
2. To forecast the load demand in the future. Similar to the traditional resource
planning, it shall forecast the future economic development trend according to a
variety of method models and software systems, and then forecast the load
demand, electricity demand, annual load curve, load factor, typical daily load
curve and other load indicators without taking into account of the demand-side
resources in the future.
3. To evaluate the supply-side resources (including the existing and those new
generating units possibly to be built in the future, fuel supply, etc.) and demand-
side resources (including various DSM measures). It is necessary to collect the
investment costs, operating costs and other related parameters of these
resources (to get fuel price, cost for pollutant emission, generator capacity,
annual generation capacity, quantity of pollutant emission, peak-regulating
operation, power curve for supply-side resources, and to collect investment,
quantity of energy and load saving, etc. for demand-side resources).
Confirm the planning

period
Forecast load demand
Evaluate the demand-side Evaluate the supply-side

resources resources
Integrate and
optimize all the
resources
Implement the planning

program
Monitor and
Evaluate
Fig. 1.2 The process of integrated resource planning
4. Integrate and optimize all the resources. Based on the IRP model, to integrate
and optimize the supply-side resources and demand-side resources to determine
the program for future power resource development and output. What is dif-
ferent from the traditional resource planning is that the IRP is a process
involved with huge analyses and calculation which necessarily requires the aid
of computer. To set a target function according to the planning objective at the
minimum cost, set up the planning model with the future load demand, supply-
side resources, demand-side resources, fuel resources, sewage in the plant and a
series of factors as constraints to get the optimal planning program with the aid
of the planning software package. This phase is the core part of the generator
expansion planning.
The purpose of this phase is to select the optimal program, describe the put-
into-production and retirement plan of power resources, generation plan, invest-
ment of DSM project, operating cost of generating, operating cost of DSM project,
fuel cost, reliability index, amount of pollutant emission, and compared with the
traditional resource planning amount of decreased pollutant emission, revenues
and long-term marginal cost of DSM project, etc. from the initial year to the target
year, and do some sensitivity analyses about the uncertainties of some parameters.
5. To implement the planning program. Once the plan is confirmed, it will be
implemented, at the same time, arrange reasonable power resources construc-
tion projects and generator output. This phase is the planned implementation
phase and the practice phase. The success of this part will depend on whether
the planning program is reasonable or not.
6. To monitor and evaluate the program. At last, it shall compare the program
with the actual situation and evaluate the program. This phase is the post-
assessment phase to evaluate the original planning program against the actual
situation that has happened, and the main purpose is to continuously improve
the planning level.
For the implementation steps of the IRP, the most important part is to integrate
and optimize the resources and its main task is to build the models and choose the
final IRP program. For the personnel who are engaged in the resource planning, the
main task is to input the requisite data into the software (such as the future power
demand, investment and operation of supply-side resources, fuel resources, pol-
lutant emission in the plants, investment and operation of the demand-side
resources, etc.), then the software will automatically calculate and receive the
planning results.
If you need to know about the planning methods and mechanisms, then it is
necessary to know how to set the objective function and constraints of the plan-
ning, and learn how to create the IRP model. In general, the planning model can be
shown like Fig. 1.3.
As mentioned earlier, the goal of IRP is to take into account of the demand-side
resources and supply-side resources to meet the future load demand at the mini-
mum cost, which is the objective function of the planning. The costs that the IRP
has to consider mainly include the initial investments in new units, operating costs
of existing units and new units, the residual values of all kinds of units at the end
of the planning period (this item refers to the income), and the initial investment
and subsequent operating costs to carry out DSM. The goal of the planning is to
minimize the sum of investment costs and the operating costs.
The minimum cost of IRP is controlled by some certain constraints which
should guarantee the security and stable operation of power system and energy
supply reliability, and its constraints include the load demand constraint, the
constraints of the maximum and minimum output load, power system reliability
constraint, generating constraint, constraint of the new generator capacity, coal and
other fuel resources supply constraint, amount of load demand constraint, pollutant
emission constraint, external power constraint and demand-side resources con-
straint, etc. Among these constraints:
The load demand constraint is that the load demand forecast before must be
met, because the goal of the resource planning is to meet reasonable load demand,
Supply-side Demand-side
data data
IRP Model
Object: to meet the future load demand with the
minimum cost of the demand -side and
supply-side resources in the planning
period
Constraints
1 load demand constraint
2 unit capacity and output constraint
3 power system reliability constraint
4 unit generation constraint
5 quantity constraint of the new unit
6 resource supply constraint
7 electricity demand constraint
8 pollutant emission constraint
9 external power constraint
10 demand-side resource constraints
......
Optimal Planning
Quantity of new units and the
Unit output and amount of
Investment cost and
Pollutant Emission
power generation
operating cost
progress
Fig. 1.3 Model of integrated resource planning

and try not to cut off the power in order to reduce the pressure caused by the
unbalance between power supply and demand. Its nature is to make sure that the
sum of the installed capacity and the decreased load after the introduction of the
DSM programs is greater than the forecasted load demand.
The unit capacity and output constraint mainly takes account of the security
and stability of the unit, including the maximum and minimum output constraints.
Each unit has a rated capacity, in general, and it can not exceed the rated capacity
in operation, even if it is allowable to run beyond the rated capacity and it can only
occur in a relatively short period of time. In the long-term planning, it is con-
sidered that the unit should work below or equal to the rated capacity. Controlled
by the boiler, turbine and other operating conditions, the electric generating set
may either turn off or ensure the output larger than the minimum output.
The power system reliability constraint is mainly to ensure the security and
stability operation of the grid, and its essence is to ensure that the power system
has some certain spare capacity.
The unit generation constraint is set to avoid the generator unit being exces-
sively idle. Each generator unit has a certain number of hours available for critical
power generation with a profit and loss, that is to say, if the number of hours for a
generator unit is below a certain critical point, the enterprise will suffer losses and
it occurs mainly when the installed capacity is much greater than the power
demand, i.e. the supply is greater than the demand. Therefore, we must ensure that
the number of hours available for each unit is above the reasonable value.
The constraint of the new unit mainly means that the new unit is either subject
to the amount of energy resources available or the number of equipment. Every
year the number of new units can not exceed a certain amount.
The resource supply constraint refers to the capacity to provide resources for
the whole society. The water supply in the hydropower plant is limited, so it is
impossible to keep long-term rapid growth rate. In terms of the sustainable
development of resources, the resource supply is one of the major constraints for
the power development.
The electricity demand constraint, similar to the load demand constraint, means
that the sum of the electricity supply which the generating unit can produce in the
reasonable available hours, and the equivalent saving energy of demand-side
resources must meet the forecasted electricity demand.
The pollutant emission constraint refers to year-by-year pollutant emission
control. As the environmental pressure increases, the pollutant emission has
become a major constraint factor in the resource planning. If we do not take into
account of the pollutant emissions, the results of the planning may point to more
ordinary coal-fired units; if we take into account of the emissions of pollutants, the
results of the planning may necessitate more investment to transform coal-fired
units into the integrated gasification combined cycle (IGCC), pressurized fluid-
ized-bed combustion combined cycle (PFBC-CC) and other units, or increase the
desulfurization equipment, or increase hydropower, wind power, and other
renewable energy generating units. The data related with the pollutant emission
can be based on the results of the traditional resource planning, for example, the
SO2 emission is 100,000 ton in the optimal program of the traditional resource
planning in a certain year, so it can set the amount of SO2 emission no more than
95 % of 100,000 tons in the year, or set the limit according to the regulations of the
government.
The external power constraint refers to the constraint set after considering the
power exchange capacity with the surrounding areas. For example, Shanxi, Inner
Mongolia, Shaanxi, Ningxia and other regions will take into account of the
transmission capacity to other regions in the generator expansion planning or in
other planning; Beijing-Tianjin-Tangshan, Shanghai, Jiangsu and other regions
will take into account of the power from outside the region.
The demand-side resource constraint mainly takes into account of the steady
growth of the DSM projects and the quantity that can be implemented each year.
In the specific planning, there are other constraints, for example, the energy-
saving curve of the demand-side resources and the production simulation
according to the load curve.
It will get the optimal planning result which can meet the constraint require-
ments through the IRP model optimization, including the quantity and time of the
future new units, output and amount of generation for the generating unit in each
time period, the investment cost and operating cost during the planning period and
quantity of various pollutant emission, and can also calculate out other relevant
indices.
1.1.1.3 Demand-Side Management
The demand-side managemen (DSM) refers to conducting the load management

activities by taking effective measures to promote the users to use power energy in
a scientific and rational way, save energy, improve energy efficiency, optimize
resources and protect the environment to achieve the electrical services at the
lowest cost.
The position of DSM in the IRP is very important, and its main goal is to reduce
the load demand and decrease power consumption and at the same time to improve
the load characteristics which can be seen from the load curve.
For example, the solid line shows the typical daily load curve of a certain grid
in Fig. 1.4. It can reduce the peak load by DSM, or transfer part of the peak load to
the off peak hours. The original maximum load is 58.5 GW, reduced by 5 % after
the introduction of the DSM (approximately 2.8 GW); the maximum load demand
dropped to 55.7 GW; the load factor rising from the original 0.850.89. It can be
seen that the DSM can reduce or shift the peak load about 2.8 GW, that is to say, it
can reduce the installed capacity demand at least 2.8 GW; at the same time, the
grid load factor also increases 4 % points which facilitates the generation
scheduling.
In recent years, the duration hours of load above 95 or 97 % of annual maxi-
mum load are relatively less in the power grids of China. The Table 1.1 shows the
load characteristics for a certain power grid during 2000 and 2011, and only in
60
50
GW
40
After introducing the DSM
Before introducing the DSM
30
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 0 1 2 3
Fig. 1.4 The status of DSM in the IRP indicated from the typical daily load curve
Table 1.1 The duration hours of load above 90, 95 or 97 % of annual maximum load in
20002011 hours
Years The quantity of load hours The quantity of load hours The quantity of load hours
with annual maximum load with annual maximum load with annual maximum load
above 90 % above 95 % above 97 %
2000 431 78 21
2001 401 76 36
2002 372 61 10
2003 469 44 11
2004 550 107 73
2005 403 82 31
2006 780 159 50
2007 415 85 27
2008 203 41 13
2009 407 86 27
2010 315 64 20
2011 503 103 35
2004, 2006 and 2011, the duration hours of load above 95 % of annual maximum
load are more than 100 h.
If transferring some of the load in those time periods, much more load demand
can be saved. The decline of peak load is primarily achieved by the DSM, as
shown in Fig. 1.5. We can clearly see the status of DSM in the IRP in the annual
sustained load curve.
The DSM has three functions: (1) Reduce the peak load, therefore reducing the
demand for the installed capacity (as shown in Fig. 1.5, saved roughly 2.8 GW). It
is a concept of a point of time, as shown in Fig. 1.6, reduced part of the load in the
peak hours; (2) Save energy (as shown in Fig. 1.5, saving roughly 2.5 TWh). It is a
concept of time span, as shown in Fig. 1.6, the area between the two curves is the
amount of electricity to be saved before and after the implementation of DSM
projects; (3) Peak electricity will be transferred to the off-peak periods (as shown
60
It can reduce 5% of the load demand, thereby
reducing the installed capacity demand for roughly 2.8
GW 3.5 TWh electricity
consumption shifted
50 to the valley period
from peak period
To save and shift 6 TWh

GW
40 electricity consumption in the

way of reducing the load curve
and shifting the peak load, in
which 2.5 TWh saved and 3.5
TWh shifted.
30
Before introducing the DSM
After introducing the DSM
20
1 1001 2001 3001 4001 5001 6001 7001 8001
Fig. 1.5 The status of DSM in the IRP indicated from the annual sustained load curve
65
The area between the two The decreased
The load curve prior to the
curves is the amount of load
implementation of DSM programs
electricity consumption saved
55
GW
45
The load curve after the
implementation of DSM programs
35
25
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Fig. 1.6 Diagram of the decreased load and amount of electricity consumption
in Fig. 1.5, transferred roughly 3.5 TWh). It has not reduced the load demand, but
increased the grid load factor. This can decrease the overall amount of energy
consumption (include coal, gas, oil, etc.) in the power system, improve the energy
efficiency level of the power system and save the energy.
Since the early 1990s, we have introduced the DSM into China as an effective
method to distribute electric power resources, which has played an important role
in balancing the power supply and consumption, improving power grid load factor,
saving energy resources and protecting environment, etc., and has brought great
economic, social and environmental benefits. In the early 1990s, there was power
shortage in China, but the peak clipping and valley filling of DSM effectively
transferred the peak load and satisfied the countrys load demand for production
and living; From 2001 to 2005, through the implementation of DSM, it had saved
electricity about 100120 TWh, shifted peak load about 20 GW, saved energy
more than 40 million tce, reduced CO2 and SO2 emissions of about 120 million
tons and 1 million tons respectively. It is worth mentioning that more than 70 % of
the power gap is alleviated by the DSM measures in the year 2003 during the
national power shortage period [1]. From 2006 to 2010, more achievement had
realized. Calculated by the basic index of 2005, there has been over 43.50 TWh of
electricity saved by the DSM measures implemented by SGCC, while about
20 GW of peak load shifted, more than 15 million tce of energy saved, about
37 million tons CO2 and 1 million tons SO2 emissions reduced [2].
1.1.2 The Features and Advantages of IRP
Compared with the traditional resource planning, the IRP approach has made
significant improvements in resource choice, resource ownership, planning
guidelines and planning results which can be seen in Table 1.2.
The IRP has the following features and benefits:
1. It has changed the traditional concept about the resource, incorporated the
energy saving as a resource into the generator expansion planning, and placed
the energy development and conservation at the same place to participate in the
competition to distribute and use the energy resources more rationally and
efficiently. The innovative feature of the IRP lies with the fact that it takes into
account of a wide range of resources, expands the range of planning options and
overcomes weakness associated with the traditional resource planning which
only focuses on the power development and the tendency of ignoring the end
users. The resources that are involved include large power plants, user-owned
power plants, energy efficiency management, load management, strategic load
Table 1.2 Comparison of traditional resource planning and integrated resource planning
Project Traditional resource planning Integrated resource planning (IRP)
(TRP)
Resource Focus solely on the supply-side Take into account of the diversity
choice resource, such as large power of the supply-side and demand-side
plants resources
Resource Owned by power utilities Ownership diversity, power user, energy
ownership service company (ESCO), power utilities
Planning Electricity bill and reliability Taking into accounts of electricity bill, fuel
guidelines diversity, risk and uncertainties,
environment
Planning High cost/high risk; non-virtuous Flexible resource choices, low risk;
results circle improve the service quality, being
popular with the users; reduce
pollution; growth of the minimum cost
growth and power exchange. It is not to separate the power resource devel-
opment planning from the demand-side energy saving planning, and the energy
saving planning as one aspect of the power resource planning, it has placed the
energy development and conservation in the same position to participate in the
competition to distribute the energy resources more rationally. Therefore, the
energy saving is not only to make up the gap for power supply, the most
important thing is that it can make the best use of energy resources.
2. It has changed the traditional resource planning model and placed the overall
economic efficiency in a prominent position. IRP has overcome the disadvan-
tage that TRP only focused on the benefits of the individual sector and ignored
the benefits of the society as a whole. It gives a clear evaluation about the
interaction between all the aspects of the generator expansion planning. It
includes the power supply and end use into one planning system, with cost-
effectiveness as the criteria and social benefits as the major evaluation criteria,
paying attention to coordinate the contributions and interests of the supply party
and demand party to improve the overall economic environment. In fact, the
IRP is a resource planning integrating the development, energy conservation,
efficiency and operation.
3. It has changed the ambiguity existing in the traditional resource planning and
regards the implementation of energy-saving in the end users as an important
energy-saving program. The IRP has overcome the disadvantageous tendency
of taking the energy saving planning seriously and taking the implementation of
energy saving lightly, and of separating the planning from the implementation.
In the traditional generator expansion planning, the energy efficiency usually
focuses on the unit consumption of products in the industry or sector, lack of
transparency in energy saving, are more or less in the status of black box,
thus increasing the uncertainty of energy and bringing difficulties to the
implementation and effectiveness of the evaluation. The IRP focuses on the
specific technology and equipment in the end user, concerned about energy-
saving activities, adopting the much targeted policies and technologies and
operating strategies to make it easier for the energy plan to put into practice.
4. IRP gives more concerns on the cost composition when evaluating and
choosing the potential technologies. When evaluating and choosing the
potential technologies, the IRP not only takes into account of the cost and the
investment of the equipment, but also takes into account of the environmental
and social costs. In the economic analysis of this project, it analyses the costs
and benefits respectively from the respects of power users who are participating
in the project, power supply department, equipment suppliers, and the power
users that havent participated in the project, service agencies and the whole
society. We shall coordinate the costs and benefits for the parties involved in
the implementation program in a reasonable manner to encourage them to
actively participate in the DSM.
5. Under the same service providing condition, the cost of the program is the
least. TRP is only limited to provide the resources for the supply side, and
ignores the potential of the demand-side resources, but the cost incurred by the
implementation of the demand-side management is far lower than the unit cost
of setting up new power plants, under the same service providing condition, the
optimal program which can reduce the scale of power construction and
investment is the real program at the minimum cost. IRP programs can reduce
the consumption of power fuel, curb the deterioration of the environment more
effectively, protect human life space and ground environment and reduce the
emissions of CO2, SO2, NOx, soot and other pollutants.
6. To promote energy-saving activities in the whole society, and improve the
revenue of power system and promote the development of high-tech energy-
saving technology industry. The IRP puts emphasis on the demand-side
resources, and through the Demand-side Management, it can effectively stim-
ulate the users to change the behavior of the extensive energy consumption,
actively participate in the energy saving activities and achieve the relevant
benefits; can strongly promote the peak clipping and valley filling of the grid,
ease the contradiction between the supply and demand; improve the reliability
and the economy of the power system, improve the operation efficiency of the
power system; can promote the development of the high-tech energy-saving
technology industry to tap up the huge potential of the energy-saving market.
1.2 The Application of Integrated Resource Planning

and Demand-Side Management in the World
IRP/DSM have been successfully implemented in more than 30 countries and

regions including the United States, France, Germany, Korea, Canada and so on,
saving the investment in grid construction, improving the economy and reliability
of power system, bridling the increase of electricity bill l, reducing the expenditure
on the electricity bill for the user, saving energy resources and improving envi-
ronment quality [1]. For example: energy consumption per capita in the united
states in 2000 is almost equal to the consumption in 1973, but the GDP per capita
through the 27 years has increased 74 %; since 1994, the United Kingdom has
charged USD1.6 for each household with its annual electricity less than
12,000 kWh used as energy efficiency special fund each year, and it has raised
USD 165 million in March 1998 and used this fund to invest in more than 500
energy efficiency projects which has saved energy equal to 6.8 TWh [3], equiv-
alent to the annual electricity of 2 million households; since the 1980s, the GDP
growth of Denmark has increased about 50 %, while the energy consumption
(excluding the transportation industry) almost has made no growth, amount of
energy consumption per GDP (i.e. energy consumption intensity) annually reduces
1.9 %, and the CO2 emissions each year is almost constant; from 1990 to 2005, the
economic growth of Germany had increased 25 % during the 15 years, while the
total energy consumption falls 5 %; in 1993, Thailand set up a special DSM office
to develop many advanced projects, including the market-oriented transition of
domestic manufacturers and the pilot projects of ESCOs, and raised the first DSM
fund with the help of international aid agencies in the way of a surcharge for the
electricity bill. From 1993 to 2000, the first phase of DSM cost USD 60 million,
reduced the peak load of 570,000 kW each year and saved energy resources about
3.1 TWh. The 2004 report of International Energy Agency (IEA) shows that the
developed countries since the oil crisis, have decreased about 50 % of the energy
consumption intensity through the implementation of DSM and other measures.
1.2.1 The United States
The United States is the earliest country to carry out IRP/DSM and so achieve the
best results. There are a lot of experience and lessons that we can learn from USA.
Since the outbreak of 1973 Arab oil crisis, the measures taken to improve the
energy efficiency have made a great contribution to the economic growth of the
United States. The energy saving from energy efficiency has become the largest
and fastest-growing energy resource in America. The saved energy since 1973 is
four times the increase of domestic energy supply [4].
In the past 30 years, the United States formulated a lot of special laws, regu-
lations and policies. Many power companies take the IRP approaches to compare
the effectiveness of DSM and its incurred additional costs incurred. The IRP
includes the medium and long-term energy demand prediction, the comprehensive
assessment of all resources at the supply-side and demand-side, public opinion and
analyses from the regulatory agencies. The implementation of those IRP projects
can improve the power efficiency, reduce the load growth rate by 40 %, achieve a
total reduction of about fifty 600 MW generator sets [5], and bring considerable
social and economic benefits and environmental benefits.
Among them, since the late 1980s, more than 1,300 DSM programs has been
implemented to reduce peak load by 0.41.4 % and the load growth rate by
2040 %. In the decade years from 1985 to 1995, more than 500 power companies
had introduced DSM programs which reduced 29 GW of peak load.
In 1992, the United States Legislation Committee strongly urged to include the
IRP and DSM in the National Energy Policy Act. By the mid-1990s, the electric
power companies had increased the DSM investment year by year, increased from
USD 900 million in 1990 to USD 2.7 billion in 1994 and the proportion of total
sales increased from 0.7 to 1 %.
In the late 1990s, uncertainties caused by restructuring in the power industry
resulted in a significant decline in DSM programs and a more-than-half reduction
of the total expenditures on the DSM programs. But in 1999, the project expen-
ditures to improve energy efficiency still reached USD 1.4 billion [5]. Currently,
more than 20 states have restructured its power industry in the United States, and
most of the state government requires the power supply companies to raise fund to
improve the energy efficiency.
1.2 The Application of IRP and DSM in the World 17
1.0
Trend line of the amount of energy consumed
for every unit of economic output if the
average annual growth rate had maintained at
0.8 the average level (-0.4%) in the time period
of from 1949 to 1973
USD/kgce (price in 2000)
0.6
Curve of the actual amount of
energy consumed for every unit
of economic output
0.4 1973-1985,
Rate of actual amount of AGR:
-2.6% 1985-1997,
energy consumed
AGR: 1985-1997,
0.2 -1.2% AGR:
-2.4%
1973-2005, annually growth rate (AGR): -2.1%

0.0
1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
Year
Fig. 1.7 Trend of energy consumption intensity of America from 1949 to 2005 [5]
In 2000, the cost incurred by energy consumption of users and corporations in

the United States reached USD 600. If the energy consumption intensity has not
reduced since the year of 1973, it would have spent at least extra USD 430 billion
to purchase more energy in 2000 [6].
In 1973, the energy consumption intensity is about 0.6 kgce/USD (price in
2000). From 1949 to 1973, the average growth rate is about -0.4 %, and if the
average annual growth rate remains the same in the period of 19732005, the
energy consumption intensity is about 0.5 kgce/USD or so in 2005. Because of the
attention given to the IRP/DSM, the actual average annual growth rate of the
energy consumption intensity is -2.1 %, and it has dropped to 0.25 kgce/USD in
2005; compared with 1973, it has saved 50 % energy resources with significant
effect, and the specific information can be seen in Fig. 1.7.
California is the earliest region to carry out IRP/DSM, with the largest
investment and the best result in the United States. To ensure energy security and
ease energy demand pressure, Californians has engaged itself in improving energy
efficiency for 30 years, whereby these concepts took shape [5]: first, in terms of
meeting the electricity demand, the DSM program is the most preferred resource;
second, demand-side response (DSR or demand response for short DR); third, the
renewable energy, and lastly, conventional fossil energy resource. During the past
30 years, the total economic output of California has quadrupled and ranks the first
in America, and the electricity per capita has remained at 7,000 kWh per capita,
while at the same time period, the electricity per capita in the united state increases
nearly 50 % from 8,000 kWh per capita in 1973 to 12,000 kWh per capita in 2005,
as shown in Fig. 1.8.
From 2000 to 2001, due to low flow, the skyrocketing price of natural gas,
serious design deficiencies of power supply market system and other reasons,
California experienced a serious energy crisis and fell short of power supply.
14000
California
12000
The U.S.
The U.S.per capita power consumption
10000 increases 4200 kWh per capita, with
kWh per capita
average annual growth rate 1.31%

8000
6000
From 1973 to 2005, the California per
4000 capita power consumption increases 100 kWh
per capita, but the average annual growth
is 0.05%, almost unchanged
2000
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Year
Fig. 1.8 Comparison of growth in electricity demand per capita in California and the USA since
the 1960s [5]
However, it took DSM measures to reduce 10 % or more summer peak load. It not
only maintains sustained economic growth, but also reduces 6 % of the total
electricity in the whole society and avoiding annual blackouts about 50 to 160 h.
Over the years, implementation of IRP/DSM has achieved the following results:
(1) since the 1975s, implementation of energy efficiency standards for building
electrical appliances has reduced about USD 56 billion in energy expenditure for
California residents and corporations. (2) development of the energy services
industry creates about 30,000 job opportunities. (3) electricity load is reduced by
about 12 GW, accounting for 15 % of the total electricity load; in some sense, it
means canceling or postponing more than 20 large generator units, annually saving
power supply about 40 TWh and reducing about 17 % of greenhouse gas
emissions.
The Fig. 1.9 shows the Californias investments in energy efficiency since the
1976s. Since the outbreak of global oil crisis in 1973, California has increased the
investment in energy efficiency. There have been some fluctuations mainly
appeared during 19851990 and 19952000. The first fluctuation happened due to
a decline in energy price in 1985, the impetus driving the users to save energy
began to weaken, and the second fluctuation was due to the passion discouraged by
the uncertainties inherent in the power supply restructuring process. In the
20002001 Energy Crises, it once again showed the importance of IRP/DSM, and
in order to weather the crisis, the investments to IRP/DSM have increased again,
especially in 2001 the investment reaches USD 900 M (price in 2002), the highest
investment in the recorded history, 50 % higher than that of in 1984, less than
USD 600 million. There are many projects carried out during 20002001, and the
1000
The values are
900 predicted between
2006 and 2013
Million USD (price in 2002)
800
700
600
500
400
300
200
100
0
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Year
Fig. 1.9 Investment plan of energy efficiency in California during 1976 and 2013 [5]
investment in the subsequent years begins to decline, but the amount of investment
has steadily grown. In 2005, the California government made a plan to invest USD
2 billion in the time period of 20062008 (extract from additional electricity bill)
to improve energy efficiency and help Californian people cut energy costs [5]. The
main objectives of these investments include: to meet more than half of future load
growth, to avoid the construction of three large 500 MW generating units; in 2008,
to reduce more than 300 tons of greenhouse gas (GHG) emission per year, the
equivalent of eliminating exhaust emissions of 650 thousand cars in a year; in
2009, to save 2 % electricity bills for the user and so on. These points had been
carried in 2010.
The average cost of improving the energy efficiency is less than one half of that
of setting up new units [4, 5]. The report of the power utility shows that the
average cost of all the energy saving projects is 23 cents/kWh, while the cost of
unit generating capacity of the existing power plant is more than 5 cents/kWh [5],
and the cost of unit generating capacity of the nuclear power is 20 cents/kWh. We
can see that the energy-saving investment and cost of IRP/DSM cost-saving is
equivalent to only 2050 % of that of the additional power capacity and the
construction of new power plants.
Recently, the Department of Energy of the United States have predicted that if
IRP/DSM would not be taken into consideration, they have to build new gener-
ating capacity of 400 GW by 2020. But the United States plans to reduce the load
demand by introducing into the DSM, which can reduce 260 GW installed
capacity.
1.2.2 The Member Countries of International Energy

Agency
International Energy Agency (IEA), founded during the oil crisis period of
19731974, is an inter-governmental international organization, organized by the
countries which are totally net oil importing countries in the Organization for
Economic Cooperation and Development (OECD) in order to avoid the recurrence
of the oil crisis, and acts as the energy policy advisor for its 26 members countries.
It includes the United States and some of the major EU countries, Japan, Korea,
Canada, Australia and New Zealand, etc.
The initial objective of IEA is to coordinate the actions taken by the member
countries to promote reliable, affordable and clean energy security amongst its
member countries for the economic and social development. Since the 1990s with
the changes in energy market, IEAs missions have changed to the 3E principle,
namely Energy Security, Economic Development and Environmental Protection.
Currently, it is committed to the climate change policies, market reform and
energy technology collaboration areas, and has become the OECDs energy
security institute.
IEA member countries attach great importance to the IRP, and actively take
measures to improve energy efficiency and address the demand for energy in the
economic growth. The proportion of renewable energy in a countrys energy
supply primarily depends on the natural resources of this country, and is also
determined by its technical level, policy guidance and other factors. Since the
1973s, the demand for energy for IEAs member countries has been steadily
growing, and only in the 19731974 and 1979, the oil supply has negative growth
caused by the oil price crisis, while in other periods, it continues to grow. The
Fig. 1.10 shows the sharp increase of oil and natural gas prices in the two oil
crises.
Either at the primary energy supply side or at the final energy consumption side,
oil is the main source of energy. It is because the IEA countries attach great
importance to the potential of the demand-side and supply-side clean energy
resources that the oil supply and the proportion of consumption are in steady
decline, with the proportion of supply falling from the 51.9 % in 1970 down to
about 24 % in 2003, and the consumption percentage falling from 58 % in 1970 to
around 51 % in 2003. As seen in Figs. 1.11 and 1.12.
At the supply side, the amount of nuclear power and amount of renewable
energy supply are continuously rising from 0.5 and 4.9 % in 1970 to 16.5 and
8.6 % in 2003. At the consumption side, the proportion of the power consumption
in the total energy consumption gradually increased from about 12 % in 1970 to
19 % in 2003.
Since the 1973s, the economic growth rate of the IEA countries has exceeded
the growth rate of energy consumption. In 2003, the unit of GDP energy supply
TPES/GDP decreased one third in comparison with that in 1973, but the end unit
of GDP energy consumption TFC/GDP declined more greatly, and TPES/GDP is
500
Natural gas (Asia Pacific)
Natural Gas (Europe)
400 Natural gas (North America)
USD/toe(price in 2000)
Oil
Coal
300
200
100
0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Year
Fig. 1.10 Energy price changes in 19702000 [7, 8]
(a) (b)
Renewable Renewable
Coal Energy Coal Energy
22.6% 4.9% 25.4% 8.6%
Oil
Nuclear 24.0%
Oil Natural Power
51.9% gas 0.5%
20.1% Natural Nuclear
gas Power
25.6% 16.5%
Fig. 1.11 Comparison of the constitute of primary energy supply for IEA countries in 1970 and
2003 [7, 8] a 1970; b 2003
(a) Coal (b) Coal

8.0% 3.1%
Electri-
city Oil Electri-
12.0% 51.0%
Oil city
58.0% 19.0%
Natural Biomass
gas 3.0% Natural
19.0% gas Biomass
19.5% 7.4%
Fig. 1.12 Comparison of the constitute of end energy consumption for IEA countries in 1970
and 2003 [7, 8] a 1970; b 2003
120
110
100 TPES/TFC
90 TPES/GDP
%
TFC/GDP
80
70
60
50
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Fig. 1.13 Changes of energy consumption intensity for IEA countries from 1970 to 2003 [7, 8]
(100 % in 1973). Note TPES/GDPprimary energy supply per GDP; TFC/GDPunit energy
consumption per GDP; TPES/TFCprimary energy supply per GDP/end energy consumption
per GDP
always higher than the TFC/GDP, as shown in Fig. 1.13. This result is attributable
to many factors including the improved energy efficiency and the decreased energy
demand, etc.
We can find that the IRP/DSM makes a very significant contribution to energy
saving based on some estimates to national data. In 1973, the total primary energy
consumption for these countries is 2.8 billion tce. But if it had not implemented
energy efficiency, it would have consumed energy of 5.1 billion tce in 1998, while
the actual consumption is only 3.4 billion tce and the saved energy is 1.7 billion
tce. In other words, the energy saved from the energy efficiency accounts for
almost half of the energy consumption in 1998.
It is undeniable that, in the process of carrying out the IRP/DSM, these
countries also experienced some fluctuations. Before the year of 1973, the energy
prices were generally low. But from 1973, the energy prices began to rise, in
response to which energy efficiency improvement was of growing potential. But
from 1985, energy prices began to decline, so the impetus for the user continues
to save energy began to weaken, coupled with that energy efficiency has reached
a relatively high level and with very limited development space, all of which
resulting in the industrial enterprises and individuals decreasing their investments
to energy-saving. From the late 1980s, the rate of energy efficiency for most of
the IEA countries gradually decreases. In 19731990, the average annual growth
of energy efficiency is 2 %, but in 19901998, the growth rate of energy effi-
ciency is only 0.7 %. We can see it from the energy consumption intensity
which decreases rapidly in 19731990 and decreases slowly in 19901998, as
shown in Fig. 1.14.
1.3 Basic Concept of Integrated Resource Strategic Planning 23
110
100 EU
Japan
90
%
US
80
70
60
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
Fig. 1.14 Trends of the energy consumption intensity in the USA, EU and Japan from 1973 to
1998 [7, 8] (100 % in 1973)
1.3 Basic Concept of Integrated Resource Strategic

Planning
The Integrated resource strategic planning (IRP) was initially carried out by the
monopoly power utilities. The market-oriented reform of power industry had
broken the integrated business model of power companies, combining generation,
transmission, distribution, and sales. It separated the power plant from the grid,
introduced competition at the generation side and put into place government
regulation on all the natural monopoly aspects. Because the power generation
companies and grid companies were separated, neither the power generation
companies nor the power companies can fully develop the IRP, and the power
companies were no longer interested in carrying out the DSM. In a word, the DSM
had also lost the theoretical support. In the unbounded electricity market, the IRP
can no longer be used as a tool for individual power companies to implement a
power expansion plan.
Integrated resource strategic planning (IRSP) was developed based on the
traditional IRP. As mentioned in the literature, an IRP is applicable to an inte-
grated power system. However, it can work at the national level, because the
government has the power to regulate and influence both the supply- and the
demand-side power companies. The concept of the IRP can consequently be
extended to the governments macro-strategic planning. We call this the extended
concept of the IRP and approach the IRSP at the level of the national strategic
planning. This IRSP can be applied in developing the national energy source
strategy, and planning the power system with an objective to maximize the
national benefits, including all the possible national resources at both the supply-
and the demand-side [6, 9, 10].
1.3.1 Concept of Integrated Resource Strategic Planning
1.3.1.1 Integrated Resource Strategic Planning
Integrated resource strategic planning (IRSP) is based on the national energy

strategy for power development, integrating and optimizing the power resources at
the supply side in a nationwide scale (such as coal, gas, hydro, nuclear power,
wind power, etc.) with the various forms of demand-side resources like the effi-
ciency power plant (EPP), provided that it will meet the economic development
and load demand, and try to make the whole planning with the least investment
and the biggest benefits from a strategic perspective including the economic, legal
and administrative means.
The basic idea of IRSP: to fully represent the national energy and power
development strategy, make the generator expansion planning after taking into
account of both the supply-side and demand-side resources, and develop the
integrated planning program through the optimal combination with the biggest
social benefits at the minimum cost, which can also provide the same energy
services to guide the development of the power industry and DSM.
Figure 1.15 illustrates the IRSP framework and the approach of the government
regulation. The IRSP includes the traditional power plants, the energy efficient
power plants, and government policy regulation. By adjusting the ratio of the two
groups of power plants, one can reach an equilibrium point for the maximum of
economic returns and social benefits and the minimum of resource inputs for the
country. The optimization principles are straightforward. For example, within the
market mechanism, if the price of electricity is high, if the cost of energy-efficient
equipment is low, and the investment and costs of power generation are high, the
equilibrium point of system optimization will move from C to A [6, 9].
However, for a government-run system, this point will move from C to B under
the same conditions described above. The government, as a macro-regulation
agency, can design effective market mechanisms and incentive policies to adjust
the balance point to C. With a policy that raises the sale prices of power, the
system encourages more investment in energy-efficient power plants, pushing the
equilibrium point towards A, which allows for the full range of the IRSPs
capabilities in optimal resource allocation. By using the IRSP approach, the
government can guide power companies on how to meet the future electricity
demand of the country, and arrange the scale of the supply- and the demand-side
resources (common power plants for short CPPs and efficiency power plants for
short EPPs).
The counterpart of the IRSP is the traditional resource strategic planning
(TRSP); the difference between the two approaches is that the TRSP only involves
the supply-side resources while the IRSP involves both the supply- and the
demand-side resources. Mathematically, there is not much difference between
these two approaches. Modeling the IRSP will require more variables, parameters,
and constraints that are necessary for EPPs.
Fig. 1.15 The IRSP framework
The object of IRSP. By making the reasonable and effective use of supply-side
and demand-side energy resources, to optimize and distribute the energy resources
in the whole society, when reducing the cost of the whole society, at the same time
minimizing the consumption of energy resources and pollutant emissions, to
provide the energy service with the lowest cost and the biggest benefit for the
power consumers.
The implementation steps of IRSP. Confirm the planning objectives, forecast
electricity demand, assess the demand-side resources, assess the supply-side
resources, integrate and optimize resources, guide the planning and development
of power industry, guide the planning and development of the DSM, monitor and
evaluate. The specific process is shown in Fig. 1.16.
1. To confirm the object of the planning. What is different from the IRP is that:
IRP will reduce the investment of power utility to the least (with the biggest
revenue), while on the basis of meeting the requirements on pollutant emission,
the IRSP will reduce the investment of conventional power plant and efficiency
power plant to the least (the total of DSM projects). For example, it is the
objective of the planning to implement a national IRSP in 2020 and reduce the
social investment in the planning period to the least.
2. To forecast the load demand in the future. Same as the IRP, IRSP shall make
judgments about economic development trends according to a variety of
models and software systems, and then forecast the load demand and electricity
demand without taking into account of the demand-side resources in the future.
In the implementation process of the IRSP, it is unnecessary to forecast the load
indexes.
Fig. 1.16 The process of Confirm the planning

integrated resource strategic objectives
planning (IRSP)
Forecast electricity demand
Assess the demand-side Assess the supply-side

resources resources
Integrate and
optimize resources
Direct the planning and

Direct the planning and
development of power
development of the DSM
industry
Monitor and
Evaluate
3. To assess the supply-side resources (including the existing and future new
generating unit, fuel supply, etc.) and demand-side resources (including the
scales of various EPP). It is necessary to gather the investment costs of these
resources, operating costs and other related parameters (to gather fuel price,
cost for pollutant emission, generator capacity, annual generation capacity,
quantity of pollutant emission for the supply-side resources, and to collect
investment, quantity of energy and load saving for various EPP for the demand-
side resources).
4. To integrate and optimize resources. Based on the IRP model, it should inte-
grate and optimize the supply-side resources and demand-side resources and to
determine the program for future power resource development (conventional
power plant and efficiency power plant). What is different from the IRP is that
the IRSP is a process without taking into account of the constraints like the
production simulation, so just involved with simple calculation which also
necessarily requires the computer aid. This phase is the core part of the power
planning.
5. To direct the planning and development of power industry. Once the program is
confirmed, it can be used to direct the planning and development of power
enterprise and Grid Company.
6. To direct the planning and development of the DSM. What is the most
important is that the scales of the various EPPs confirmed in the IRSP planning
can be used to direct the planning and implementation of DSM projects and
make IRSP truly become the theoretical source of DSM.
7. To monitor and evaluate. At last, it shall compare the program with the actual
situation and evaluate the program. This phase is the post-assessment phase to
evaluate the original planning program against the actual situation that has
happened, and the main purpose is to continuously improve the planning level.
1.3.1.2 Efficiency Power Plant
By introducing efficiency power plant (EPP) into IRSP, the cost efficiency of
demand-side resources can be easily evaluated. Because of heavy workload of
DSM, especially the difficulty in efficiency evaluation and operation, it is essential
that projects of the same category should be classified into EPP.
EPP addresses that by adopting facilities and products with high-efficient power
utility and optimizing power consumption patterns, there should be an integrated
action plan in certain region, industry or company to undergo electricity-saving
reconstruction plan, thus achieving the same effect of building new power plant.
The reduced demand for electricity can be seen as the amount of electricity pro-
vided by a virtual power plant, realizing energy conservation and reduction of
major pollutants. The concept of EPPs vividly portrays the role of DSM, and
simplifies selection and comparison of power supply-side resources and demand-
side resources, thereby making low-cost DSM programs easier to be selected.
Compared with newly constructed power plants, EPP are generated from power
optimization of original power supply systems, and do not occupy extra land or
consume extra resources like coal, and can produce great social and economic
benefits. In order to be distinguished from the generated energy of the conven-
tional power plants, that of EPP is often named as negative power. As demand-
side resources, EPP shares the common ground with supplier side resources that
they both supply power. While the difference is that supplier side can survey at
any given time through measurement tables of the power system, but before the
tables reach EPP, the load curve shape has been changes as it can not be surveyed
by the tables.
In terms of electrical planning, by analyzing single facility or small number of
facilities, there will be always little efficiency, while by doing comprehensive
analysis for large number of facilities, large efficiency would be gained. So in order
to do comparison and survey easily for cost and efficiency, to make decisions and
operation, products of the same property are usually classified, collected and
defined as the same EPP. For example, DSM project promoting energy savings
lamp can be classified as lighting EPP. EPP are generally divided into lighting
EPP, motor EPP, speed control device EPP, peak-load-shifting equipment EPP,
efficient appliance EPP, interruptible device EPP, and energy-efficient transformer

EPP etc., especially as followed:
Lighting EPP
By classifying, collecting lighting equipment as a method of saving power, not

only can lighting equipment of a certain region be classified and collected, but also
that of multiple regions. In recent years, the nation has been adopting corre-
sponding policies and stimulating measures to promote the rapid development and
implement of green lighting technology. The quality of energy-saving lighting
products has been gradually improved and the effect and life span of energy-saving
have increased. Currently, China has developed several energy-saving luminaries,
and on the condition of the same illumination level (usually showed by lumen or
LM) and luminous efficacy as filament lamp, fractional energy savings can reach
6080 % or even above.
Experts have carefully measured that the electricity for lighting accounts for
1012 % of the total power generation nationwide [11]. Seen from this point, the
annual power consumption across the country is about 45 TWh, which is equal to
4.5 times of the output of Three Gorges Power Station every year. If 80 % of the
lighting devices in the country are changed into energy-saving ones, 25 TWh of
electricity can be saved. If simulated by the average efficiency of whole China in
2010 (the same below), in which net coal consumption rate of generating is
312 gce/kWh, auxiliary power ratio is 5.43 %, auxiliary power ratio of thermal
power plants is 6.33 %, net coal consumption rate of supply is 333 gce/kWh and
line loss rate is 6.53 % [12], about 90 million tce of coal could be saved, while
CO2, SO2 and NOx emission could be reduced by about 220 million tons, 1 million
tons and 590 thousand tons respectively. In this way, investments for power
construction can be saved and emissions can be reduced greatly. If simulated by
the average efficiency of whole China in 2000 or in 2005, the quantity saved or
reduced is much more.
As another example, lighting for ordinary family is usually the common fila-
ment lamp of 2540 W. If measured by 2,000 h operation, the consumption
should be about 5080 kWh. If all are replaced by energy-saving lightings of
58 W, load would be saved at 2032 W, and annual consumption would be saved
4064 kWh. If 100 million lighting equipments are classified and collected as
lighting EPP, then load and annual consumption would be saved about 23.2 GW
and 46 TWh. Correspondingly, about 1.42.1 million tce of coal could be saved,
CO2, SO2 and NOx emission could be reduced by 3.55.3 million tons, 1620
thousand tons, and 915 thousand tons respectively.
Lighting EPP refers to certain amount of lighting equipment to reform. Analysis
based on the same load demand can provide solution to implement or not. If the
answer is yes, it can be attribute into the unification consideration in integrate
resource planning.
Other than reducing energy consumption load, Lighting EPP can also reduce
load demands.
Motor EPP
There is relatively a wide range of motor applications, whose power consumption

accounts for about 60 % of the industry power consumption. Thus, it would be
1,900 TWh in 2010. Energy-saving targeted at motors is of large potential and
great value. There are mainly two approaches to achieve energy-saving in motor:
the first one, being the basis of improving the efficiency of operation and power
factor, is to replace ordinary motors of relatively low efficiency by efficient motors,
thus increasing the motor efficiency. This one is also the major method for quite a
long time. The second one is to improve the operating efficiency. By adopting
speed adjusting technology, the startup performance and operating property can be
enhanced, thus the improvement of system efficiency of electric traction can be
achieved.
The major motors in China are three-phase asynchronous motors of
0.55100 kWh, among which 70 % are Y series, and 10 % are Y2 series. The
efficiency of motors is below the average level of the developed countries by
35 %. If all of the Y2 series are replaced by high-efficiency motors, and the
efficiency are enhanced by 5 %, then about 9.3 TWh of electricity would be saved
every year, while about 3.3 million tce of coal could be saved, CO2, SO2 and NOx
emission could be reduced by 8.1 million tons, 40,000 tons and 20,000 tons
respectively.
Motor EPP is mainly aimed at the first approach. By classifying and collecting
the motor facilities that need reforming and improving, analysis based on the same
function and demand can provide solution to implement or not. If the answer is
yes, it can be attribute into the unification consideration in integrate resource
planning.
The major effect of implementing motor EPP is reducing load demand.
Speed Control Device EPP
Electric motor is a facility that can transform electricity into mechanical energy.
Each electric motor is connected with certain drag equipment, such as crane, water
pump, and machine tool etc. Certain electric motors, because of the operation duty,
show changes in input and output power, or need frequent start and intermittent
operation, constantly being in the period of uneconomic operation and low effi-
ciency. The aim of the speed control device is to improve the start and operating
property of the electric motor, increase the working efficiency especially by
changing supply frequency automatically. It possesses good speed-controlling
property and high efficiency, and is beneficial for integrated control and wide-
range application. For example, in cooling water pump system, the adjustable
speed system can maintain stable inward flow and preserve the demanded flow of
the cooling agent. When there is small amount of flow, load demand can be
reduced, thus in the whole operation period, energy can be saved.
In the last ten years or so, while we are keeping the development of high-
efficiency electric motors, we have also promoted speed control technology, for
example, fan pump can raise efficiency by 2530 %, and in about two to three
years initial investment can be attained. Currently, various industries, to certain
extent, have been adopting speed control technology.
For instance, a textile mill invested RMB 3 million Yuan in 2010 to adopt speed
control technology for 105 electric motors, totaling 1,575 kW. The effect was so
much that 1.5 GWh of electricity can be saved [13], and about 500 tce of coal
could be saved, while CO2, SO2 and NOx emission could be reduced by 1.3
thousand tons, 6 tons and 4 tons respectively.
For another example, there are about 20,000 electric motors whose capacity is
over 10 kW, total capacity being 1.7 GW and the annual power consumption
being 2.7 TWh. Among the 20,000 motors, 6,183 are fan motor, water pump and
compression engines, capacity being 530 MW, accounting for 31 % of the total
number. These are mainly distributed in industries and sectors such as metallurgy,
chemical, textile, building materials, chemical fertilizer, machinery and national
defense etc. According to statistics, there are about 1,855 motors suitable for speed
control, capacity being 160,000 and annual power consumption being 1 TWh. This
technology is applied in 105 motors, totaling 3,418 kW, thus realizing annual
energy saving by 6.15 GWh [14]. Every year about 2,200 tce of coal could be
saved, while CO2, SO2 and NOx emission could be reduced by 5.5 thousand tons,
25 tons and 15 tons respectively.
By speed controlled device EPP refers to the speed control devices classified
and collected to reform or renovate. Analysis based on the same function and
demand can provide solution to implement or not. If the answer is yes, it can be
attributed into the unification consideration in integrate resource planning.
Applying speed control device EPP is mainly to reduce demand for reducing
quantity of electricity, and cut down load demand for electricity in certain time
period.
Peak-Load-Shifting Equipment EPP
DSM is a kind of peak-load-shifting equipment by ways of accumulation of cold

and heat, thus achieving the effect of peak load shifting. Currently programs with
mature technology include:
1. Drainage system in coal and mining industry. The load of drainage system is
about 30 % that of the overall industry. So drainage in low power grid can be
fully achieved by making use of the abandoned tunnels and enlarging the
capacity of the impounding reservoir. A mining bureau, owing to the peak
valley price, can save electric charge by RMB 1.8 million Yuan every year.
2. Ore and crushing equipment clinker grinding machines in cement manufac-

tures, wood crusher and stuff grinder in pulp and paper sludge. These machines
are all key power consumption equipments, accounting for 3040 % of the total
load. If bins and pulp chest get proper enlargement, the load can be arranged
beyond the peak period, benefiting both the power system and consumers.
3. Electrolytic process in salt chemical engineering (chlor-alkali) and electrolytic
aluminum industries. By setting up a set of automatic control equipment to
make a little adjustment to certain processes, 1520 % of the highest power
load can be transferred into the grids low times.
4. Energy-storage air conditioning (AC) technology. Dating back to the oil crisis
in 1970s, the technology includes water storage, ice storage and compound
storage etc., applied in fields ranging from industrial cooling system to air
conditioning system in buildings and district cooling and heating. Since 1990s
when China began to introduce and study this technology, there have been
several project cases in various cooling storage, for example: water storage,
direct evaporation ice coil, mechanical ice making, melting ice in the coil,
completely frozen type plastic coil, not completely frozen type coil, ice ball,
cubic capsule and so on, the promoting and applying process attraction more
and more attention. For instance, an enterprise in Nanjing can save RMB 1.44
million Yuan in three years after transferring load of 1 MWh into grid low
times.
The installment and use of the peak-load-shifting equipment is to transfer the

power load demand in certain time period, usually that of the heavy-consumption
ones, into other time period. Although there is more electricity consumed, the rise
of valley load optimizes the property of the grid load and is good to increase the
efficiency of the power system and save coal as well. For example, during
20002005, a province promoted 654 various accumulative electric hot water
boilers and ice storage air conditionings, total capacity being up to 270 MW,
among which accumulator charging equipment being 140 MW, transferable load
about 100 MW after operation. If calculated based on 1,000 h of operation every
year, an extra of more than 275 GWh would be consumed [15]. For the power
system, 100 MW of installed capacity can be reduced. Despite the fact that an
extra of 275 GWh is needed, the overall operation efficiency can be enhanced by
raising the valley load, thus the consumption of fuel for generating electricity can
be reduced.
Peak-load-shifting equipment EPP refers to that by adopting cold storage and
heat storage, peak transferring can be classified and collected to analyze in same
demand conditions. Analysis based on the same functions and demand can provide
solution to implement or not. If the answer is yes, it can be attributed into the
unification consideration in integrate resource planning.
The aim of carrying out the peak-load-shifting equipment EPP is to reduce the
load demand in peak time but not to save electricity.
Efficient Appliance EPP
Besides household appliance such as lighting equipments, household appliance

here also refers to air-conditioner, fridge, water heater, washing machine, electric
fan, electric cooker, dish-washing machine, electric oven and so on. With the
development of science and technology, the efficiency of household appliances is
increasing, and there have been large number of household appliances with high
level efficiency, i.e., efficient appliances.
If ordinary household appliance is replaced by efficient appliance, power
conservation can also be achieved. For instance, the annual power consumption of
an ordinary fridge is about 400 kWh, if replaced by an efficient one which would
save 10 % electricity, then the annual savings would be 40 kWh. If 10 thousand
such fridges are replaced, then 400 MWh would be saved. Correspondingly, about
140 tce of coal could be saved, while CO2, SO2 and NOx emission could be
reduced by 350 tons, 2 tons and 1 tons respectively.
Efficient appliance EPP refer to that the air-conditioner, fridge, water heater and
electric cooker need to be upgrades can be classified and collected to analyze in
same demand conditions. Analysis based on the same functions and demand can
provide solution to implement or not. If the answer is yes, it can be attributed into
the unification consideration in integrate resource planning. The implement of
efficient appliance EPP can not only reduce load demand, but also reduce elec-
tricity demand.
Interruptible Device EPP
In recent years, many parts of the country have adopted interruptible load as a
satisfactory measure to reduce electric demand in peak period. It is more suitable
for big enterprise users, because there is certain load inside (part of the production
equipments or lines, non-production load and so on) that can be adjusted and thus
transferred in peak period, such as steelmaking EAF. By noticing beforehand
(usually 1 h ahead), 12 h suppressing wont bring any personal injury or
equipment damage, instead there will only certain losses in production value and
benefits. Most industrially advanced countries introduce this as an stimulate
measure into electricity price, while Jiangsu, Hebei, Shanghai and some other parts
of the country make certain proper policy of fiscal subsides.
In the process of current implementation, participants are given one YUAN as
the subsidy for load cut 1 kW with 1 h. An annual subsidy of 1,500 Yuan is
praised if the load of 300 MW is cut for 50 h every year. This approach can reduce
installed capacity by 300 MW. Calculated by cost of 5,000 Yuan per unit,
investment of power station construction can be saved by 1.5 billion Yuan, and if
the life span of the station is about 2030 years, the subsidies will be 300450
million Yuan. So we can see that, even we dont take the operating cost into
consideration, the subsidy cost is far less than the cost of investment of the station.
As a general rule, one participant wont contribute much to the peak load
shifting. However, if take all the participants together and classify and collect them
as interruptible device EPP, analysis based on the same functions and demand can
provide solution to implement or not. If the answer is yes, it can be attribute into
the unification consideration in integrate resource planning The implementation of
efficient appliance EPP can not only reduce load demand, but also reduce elec-
tricity demand.
Efficiency Transformer EPP
Owing to the limitation of such external conditions as economic development,

investment, and reform scale etc., there are a large number of gas-guzzling
transformers in China. For example, S7 and below gas-guzzling transformers still
occupy about 190 GVA, accounting for 28 % the distribution transformer
capacity. On the other hand, the advanced S11 and amorphous alloy transformer
account for 12.9 %, the proportion of gas-guzzling transformers takes up a large
part [16]. Thus the renovation and reformation of the transformer is a key work in
the future energy-saving project.
If the 5 GVA of the current S7 and below gas-guzzling transformers are
replaced by amorphous alloy transformers, the loss would be reduced by 40 % or
even above. Calculated based on 8,600 h no-load and 2,200 h equivalent full-load,
100 GWh would be saved. Correspondingly, about 36,000 tce of coal could be
saved, while CO2, SO2, and NOx emission could be reduced by 88,000 tons, 410
tons, and 230 tons respectively.
Energy-efficient transformer EPP refers to transformers that need to be
reformed and renovated and are classified and collected. Analysis based on the
same functions and demand can provide solution to implement or not. If the
answer is yes, it can be attributed to the unification consideration in integrate
resource planning.
The implementation of energy-efficient transformer EPP can reduce the load
demand.
Power Saving Conditions of Various Kinds of EPP
The overall target of various EPP is to achieve energy-saving and emission

reduction, however, they possess different functions and effects. Some can not only
reduce load, but also save electricity. Some are mainly aimed at saving power load.
Some save electricity but not load. Still others reduce load but consume more
electricity. For detailed information please see Table 1.3:
Table 1.3 Characteristic of electricity saving for each type of EPPs

EPP type Save electric load or not Electricity conservation or not
Lighting EPP Save electric load Electricity conservation
Motor EPP Electricity conservation
Speed control device EPP Save electric load in certain time Electricity conservation
period
Peak-load-shifting Save electric load in peak period No conservation
equipment EPP
Efficient appliance EPP Save electric load Electricity conservation
Interruptible device EPP Save electric load With minor electricity
conservation
Energy-efficient transformer Electricity conservation
EPP
1.3.2 Features and Advantages of Integrated Resource

Strategic Planning
Integrated resource strategic planning (IRSP) is the outreach of IRP theory. There
are similarities as well as differences between them. The differences are concluded
in Table 1.4.
1. IRSP effectively resolved the negative impact on IRP caused by the separation
of power generation and supply. IRP, as the generator expansion planning
method, was used to direct self-development in the era of vertically integrated
power industry. With the separation of power generation and supply, power
generation enterprises and power grid enterprises are parted, bringing great
impact to the theoretical ground and implement condition for the consolidate
resource planning. Although the original connection between power generation
and transmission has not changed at all, individual enterprises will pursue the
maximum benefit for itself in the process of management and development,
setting the overall social benefit aside. That is to say, IRP no longer serves as a
tool for power generation enterprises and grid enterprise. But in terms of the
nation, if the government adopts IRSP, the above-mentioned problem will be
removed and the overall social cost will be taken into consideration.
2. The final target of IRSP is to pursue the minimum social cost. In the process of
promoting IRP, though the power utilities take both the demand-side and the
supply-side resource into consideration, the ultimate goal they are pursuing is
the maximum individual benefits. By escalating the target of IRP to the level of
social maximum benefit, the goal pursued is also lifted to a higher level. Social
benefit, after all, should be set as the major evaluation standard, and contri-
butions and benefit allocation between supply and demand should be
coordinated.
3. IRSP realizes the integrated optimization of power generation, transmission,
and consumption. In the process of promoting IRP, the power utility has taken
Table 1.4 The differences between IRSP and IRP

IRP IRSP
Implementation Electric power monopolization Electricity market reformation
conditions (integration of generation,
transmission, distribution, and
selling)
Property Power utility planning National power strategic planning,
which can direct the planning of
the electric industry and consumer
energy-saving
Target Minimum total cost and maximum Minimum total cost and maximum
economic benefit in terms of social benefit in terms of the whole
enterprise society
Constitutor Power utility Government
Core concerns Focus on micro; power utilities, Focus on macro; the government
according to the load demand and should lay down such macro plans
feasible DSM, put forward the of various power units (such as
progress of power generation coal power, gas power,
installment and production hydropower, nuclear power and
simulation and lay down specific wind power etc.), and EPP as to
plans detailed to the start, overall scale, amount of demand
construction, production and for resources, and influence on the
operation of every machine environment
Scale of the Achieve optimal allocation of Achieve optimal allocation of
resource demand-side resources in the demand-side resources nationwide
optimization management area of the
enterprises
The A small part Better embody the policy and
embodiment guideline of the country
of the
national
policy
full consideration of the factors in generation, transmission, distribution, and

selling, but only a limited number of factors in demand-side resource, DSM
concerning power utilities, and the involving users have been taken into con-
sideration. While the government, when developing IRSP, can take different
measures to boost the influence on DSM, to achieve the true integrated opti-
mization of the whole process. What is more, IRSP can more effectively
allocate resources nationwide, reaching the target of saving energy and
resource.
4. The concern of IRSP focuses on a more macro aspect. What IRP needs mainly
to concern is the microcosmic restriction which includes not only the indices
such as load demand and electricity demand, but also the load curve of the
generation unit, energy, and electricity-saving curve of demand-side resources.
However, what IRSP needs mainly to be concerned is the macroscopical
restriction, for example, whether the overall power development can satisfy the
load demand and electricity demand (a little spare should be left), whether the
pollution is cut into a scope. Inspection from a macro view should be taken for
the future power development, but not the generation process and energy and
electricity-saving curve of demand-side resources.
5. IRSP provides a basis for the planning and development of power generation
enterprises and power grid enterprise. To maintain the healthy development of
the power industry, electric grid and source should develop coordinately. The
separation of power generation and supplement brings this coordinate devel-
opment certain difficulty. However, the government can make IRP from a
higher level to guide the programming and development of power generation
enterprise and grid enterprise, thus settling the problem.
6. IRSP introduces EPP, thus providing basis for various DSM planning. Owing
to the fact that EPP is an aggregation of DSM projects with the same properties,
by taking EPP into resource, demand-side resource can get better evaluation,
for example, in the economic analysis of demand-side resource. It can provide
proof for setting various DSM projects by taking power supplement sector,
energy-saving service company, equipment supplier, power user, and the whole
society.
7. IRSP can more effectively emerge national policies and guidelines. IRP is a
kind of production management planning in the period of vertical integration,
and it pays more attention to the maximum benefit of itself. It can fully
represent the national policies and guidelines if the government is to set IRSP.
1.3.3 The Construction of Integrated Resource Strategic

Planning Model
As with IRP, the integrated optimization of resource is the most important link.
The major task is to set up an IRSP model and make the final IRSP plan. The
model can be represented in Fig. 1.17.
As mentioned above, the goal of IRSP is to minimize the cost of the whole
society so as to meet the future electricity demand in comprehensive consideration
of power supply-side resources and demand-side resources, which is the objective
role of strategic planning. The main concern is to minimize the cost of the whole
society (including the power supply construction, operation, EPP, environmental
protection, etc.). Costs that IRSP should consider mainly include investment of all
types of social new units, operating costs of existing units and new units, the
residual value of all kinds of units at the end of the planning (such is income),
investment in carrying out energy-efficient power plant, subsequent running costs,
etc.
The goal of the plan is to minimize the sum of investment costs and operating
expenses, expressed as
Supply-side Demand-side
data data
IRP Model
Object: to take into account of the supply side
resources and introduce the efficiency
power plant of the demand-side resource,
to reduce the total cost to the least in the
planning period, and to meet future load
demand
Constraints
1 load demand constraint
2 scale of the new units constraint
3 resource supply constraint
4 pollutant emission constraint
5 demand-side resources constraint
......
Optimal Planning
Amount of power generation in
different types of units
Scale of new different
Investment cost and
Pollutant Emission
operating cost
types of units
Fig. 1.17 Model of integrated resource strategic planning (IRSP)
The goal of the plan = Minimum total cost = Minimum sum of investment
costs and operating costs
The total cost includes all investment costs and operating costs, which can be
subdivided into the following items:
Total cost = (investment costs of all new units in the planning period-the
residual value of all new units at the end of the planning) ? operating costs of all
new units ? operating costs of existing units ? costs of purchasing external

power source ? investment costs of all EPP ? operating costs of all EPP
IRSP is a plan to minimize the total cost under certain constraints and what
makes it different from the IRP is that the IRSP focus on some of the macro-
economic constraints, including future electricity demand constraints, generating
unit capacity constraints, the maximum number of new units constraints, coal and
other fuel resources supply constraints, emissions constraints, external constraints,
demand-side resource constraints, and so on.
By optimizing with the IRSP model, the optimal planning results that meet the
constraint conditions can be derived, including the installed capacity and elec-
tricity generation of various types of units in the future years at different levels.
The investment costs and operating costs during the planning period, emissions of
various pollutants, etc., and other relevant indicators can also be calculated.
According to the construction principles of the above-mentioned model, we
programmed an IRSP model software, the goal of which is to seek the optimal
scheme to meet the future demand (such as 2020) that combines the fossil gen-
eration, the renewable generation, such as hydropower, wind power etc., and EPPs.
Here the optimal plan is characterized by the fact that the fixed costs and variable
costs of new types of units (including the efficiency power plants) are the mini-
mum in the 20112020. The objective function is:
min Z minfGF BF CZ g 1:1
where
Z total cost of electric power construction
GF sum of the fixed costs of production units of each year during the planning
period (considering the time value of capital)
BF sum of the operating costs of all units of each year during the planning
period (considering the time value of capital)
CZ residual value of production units of each year in the end of the planning
period(considering the time value of capital).
The three sub-items are expressed by the formula respectively as

" #
XY XM
GF Cy;m Fy;m by 1:2
y1 m1
where
Y timescale of the planning period, in this example, the planning period is
from 2011 to 2020, so the Y is 10
Y the year
M the number of unit types, in this example, the number of unit types is 12
m the serial number of unit type 1, 2, 3,, 11, 12 represent coal, gas,
hydro, nuclear power, wind power, and other renewable power generation,
lighting EPP, motor EPP, speed-regulating device EPP, peak load shifting
device EPP, efficient household electrical appliances EPP, interrupt device
EPP, energy conservation transformer EPP respectively. The first five are
conventional power supply and the last seven are EPPs
Cy;m new installed capacity of the m kind of unit in the y year
Fy;m cost per unit capacity of the m kind of unit in the y year
by coefficient of time value of capital.
(" # )
X Y X
M1 XM
BF Ey;m Vy;m Ey;m Vy;m by 1:3
y1 m1 mM11
where
Ey;m total generating capacity of the m kind of unit in the y year
Vy;m variable cost per unit of the m kind of unit in the y year
M1 the number of the type of conventional power supply, for example, it is 5
(namely coal, gas, hydro, nuclear power, wind power etc.).
X
Y
CZ Ry;m bY 1:4
y1
where
Ry;m the residual value of the new m kind of unit in the y year at the end of the
planning period (in the example namely 2020 year)
bY coefficient of time value of capital in the Y year.
Furthermore, Ey;m the expression (1.3) can be determined by the annual average
number of hours that can be used of the m kind of unit in the y year, namely

0
Ey;m Cy;m uy;m Cy;m Hy;m 1:5
where
0 installed capacity of the m kind of unit in the y year at the beginning of
Cy;m
the planning period.
uy;m coefficient that new capacity is converted into an equivalent average
capacity of the m kind of unit in the y year.
Hy;m the annual average number of hours that can be used of the m kind of
unit in the y year.
The constraints include:

1. Electricity demand constraints. Total generating capacity after deducting losses
of conventional power supply and EPPs should be not less than the predictive
value of the electricity demand.
X
M
Ey;m 1 gy Ey 1:6
m1
where
gy the loss rate between generating capacity and power consumption
Ey the predictive value of the electricity demand of the y year.
2. Installed capacity constraints. The annual installed capacity of conventional
power supply and EPPs should not exceed certain limits.
0 max
Cy;m Cy;m Cy;m 1:7
where
max
Cy;m the largest limit of installed capacity of the m kind of units in the y year.
3. Fuel resources constraints. Annual consumption of a certain kind of fuel
resources should not exceed the amount of the resources available.
by;m Ey;m Xy;m 1:8

where
by;m the amount of resources consumed by the generating capacity per unit of
the m kind of units in the y year
Xy;m the maximum supply amount of the resources that the m kind of units
correspond to in the y year.
4. Pollutant emission constraint. Annual amount of CO2, SO2, NOx that coal-
fired, gas fired units emissions should be less than the set value.
Ey;1 Oy;1 Ey;2 Oy;2 Oy;max 1:9
Ey;1 Sy;1 Ey;2 Sy;2 Sy;max 1:10
Ey;1 Ny;1 Ey;2 Ny;2 Ny;max 1:11

where Oy ; Sy ; Ny represent respectively the emission amount of CO2, SO2, NOx in

the y year. The subscript 1 of the variable represents thermal power units, 2
represents gas turbine units, and max represents the maximum emissions.
1.4 IRSP for Chinese Economic Development
With Chinas rapid economic development, rising living standards, and the con-
tinuous rising proportion of final energy consumption, the position and role of
electricity in energy are becoming increasingly important. Due to the extensive
development of the Chinese economy, power supply and demand face the chal-
lenges of energy shortages and environmental pollution. Although the energy
consumption intensity shows a declining trend overall, there is still a large gap
with developed countries. Environmental degradation caused by the high energy
consumption will be at risk to undermine the comprehensive achievements of
economic growth. The implementation of DSM is an important way to improve the
efficiency of electricity supply and demand, to reduce resource consumption, to
optimize energy consumption structure, and to change the extensive economic
growth pattern. It is also an important choice to promote a resource-saving and
environment-friendly society.
1.4.1 Present Situation of Economic Development
Since 1978, Chinas economy has developed rapidly and successfully, imple-
menting two main achievements: first, overall well-off has been achieved and
peoples living have improved greatly, moving into building a moderately pros-
perous society; second, the turning from the planned economy to a market-based
economy has been basically achieved, and the market mechanism has gradually
improved the role of market demand for economic growth which has enhanced and
economic growth has turned to be jointly promoted by investment, consumption,
import, and export from government investment. Gross domestic product (GDP)
reached RMB 40 trillion Yuan (current prices) in 2010, ranking the second in the
world only after the United States [1723]. The GDP growth since 1978 is as
shown in Fig. 1.18.
Chinas GDP increased by 19.6 times and the average annual growth rate
reached 9.9 % from 1978 to 2010, of which the primary industry increased by 3.2
times and the average annual growth rate was 4.6 %; the secondary industry
increased by 31 times and the average annual growth rate was 11.4 %; the tertiary
industry increased by 26.6 times and the average annual growth rate was 10.9 %
[1723]. The growth trend is shown in Fig. 1.19:
35 16
14
GDP (RMB trillion Yuan, price of 2005)
30
12
25
Growth rate (%)

10
20
8
15
6
10
4
5
2
0 0
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
GDP Growth rate
Fig. 1.18 Trend of Chinese GDP growth since 1978 (price in 2005)
25
20
15
Growth rate (%)
10
0
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-5
GDP primary industry secondary industry tertiary industry
Fig. 1.19 Trend of Chinas three industries growth rate
Since China joined the WTO in 2002, driven by industrialization, urbanization,

mercerization, and internationalization, the economy has undergone sustained,
steady, and rapid development. The economic growth rate remained more than
10 % for five consecutive years from 2003 to 2007. The development of the
secondary industry was faster than the other industries, resulting in its proportion
in GDP increasing continuously, from 44.8 % in 2002 to 47.3 % in 2007, while the
proportion of the tertiary industry declining to 41.9 %. The secondary industry is
the main driving force for the economic growth, which is a major impetus to the
1.4 IIRSP for Chinese Economic Development 43
4500 18
4000 16
3500 14
Consumption (TWh)
3000 12
Growth rate (%)

2500 10
2000 8
1500 6
1000 4
500 2
0 0
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
electricity consumption of all the society Growth rate
Fig. 1.20 Trend of the total society electricity consumption since 1978
GDP, usually accounting for 5060 % and there is still an upward trend in recent
years. The industrial growth shows the characteristics of accelerated development
of the heavy industry and proportion of heavy industry added value in total
industrial added value increasing from 60.9 % to about 70 % [1723].
1.4.2 The Current Situation in Electric Power Development
With the rapid economic development, the electricity has also shown a rapid
growth tendency (as shown in Fig. 1.20). Since 1996, Chinas total installed
capacity and the annual power generation volume has ranked second in the world.
In 2011, the total electricity of the entire society reached 4,693 TWh; and total
installed capacity reached 10.56 GW; among this the installed thermal capacity
reached 765 GW, accounting for 72.5 % [1723].
From 1978 to 2011, total installed capacity increased by 17.5 times, of which
hydropower increased by 12.3 times, and thermal capacity increased by 18.2 times.
The rapid growth period of installed capacity started from 2002, which unveiled
the fastest-growing stage since the foundation of China. Because of a new round of
power construction boom in the whole country, the installed capacity has devel-
oped at an unprecedented pace, mainly due to the rapid growth in electricity and
the impact of increasingly tension between supply and demand. The total new
installed capacity reached 198 and 449 GW during the period of the 10th Five-year
Plan (20012005) and the 11th Five-year Plan (20062010), while the average
annual growth rate was 10.1 and 13.3 % respectively [1723]. The new installed
Table 1.5 Installed capacity and its structure in China in major years since 1978 [1723] GW
Years Installed capacity Hydropower Thermal power
Installed capacity Proportion (%) Installed capacity Proportion (%)
1978 57.12 17.28 30.3 39.84 69.7
1980 65.87 20.32 30.8 45.55 69.2
1985 87.05 26.41 30.3 60.64 69.7
1990 137.89 36.05 26.1 101.84 73.9
1995 217.22 52.18 24.0 162.94 75.0
2000 319.32 79.35 24.9 237.54 74.4
2005 517.18 117.39 22.7 391.38 75.7
2006 623.70 130.29 20.9 483.82 77.6
2010 966.41 216.06 22.4 709.67 73.4
2011 1,055.76 230.51 21.8 765.46 72.5
Note Nuclear power, wind power, and other installed capacity are not listed in the table
capacity in 2006 exceeded 100 GW, and reached 107 GW. The situation of
installed capacity is shown in Table 1.5.
From 1978 to 2011, total electricity increased by 17.8 times. The characteristics
during many periods are different. The electricity increased rapidly before 1995,
and it had been in short supply situation for a long time. In the period of the 9th
Five-year Plan (19962000), influenced by the Asian financial crisis and the lack
of domestic demand, electricity growth rate reduced year by year. In the period of
the 10th Five-year Plan (20012005) and 11th Five-year Plan (20062010), driven
by rapid economic growth, especially the heavy industrialization of economic
structure, electricity had maintained a rapid growth, where the average growth rate
reached 13.0 and 11.1 % respectively, faster than the earlier periods since 1978.
In the structure of electricity, due to the large proportion of industries elec-
tricity, secondary industry electricity always occupies the dominant position. In the
period of the 8th Five-year Plan (19911995) and the 9th Five-year Plan
(19962000), the proportion of secondary industry electricity decreased to some
extent; In the period of the 10th Five-year Plan (20012005), due to the rapid
growth in industrial electricity, in the proportion of secondary industry electricity
occurred the trend of escalation. In 19982001, the proportion of industrial elec-
tricity was the lowest, yet it was more than 70 %. After 2002, accompanied by the
heavy industrialization trends of the economic structure, and driven by the fast-
growing electricity in four high-energy-consuming industries: ferrous metals,
nonferrous metals, building materials, and chemical industry, the proportion of
industrial electricity began to rise. Although the proportion of industrial electricity
in 2011 decreased by 4.9 % than that in 1990, it was still more than 70 %, in
addition, the proportion of high-energy-consuming industries was also back to the
level of 30 % around 1990, driving the unit output of electric energy in recent
years to keep on rising, as shown in Fig. 1.21.
90
80
proportion (%) 70
60
50
40
30
20
10
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Industry High-Energy-Consuming Industries
Fig. 1.21 The proportionate trend of electricity consumption of Chinas industrial and high-
energy-consumption industry in total social electricity consumption
1.4.3 The Situation of Energy Resources
As we know, the territory of China is so vast that the types of energy are complete
and the energy reserves are relatively abundant. However, from a structural point
of view, the resource of coal is rich while the total resources of oil and natural gas
are poor; from the perspective of geographical distribution, a regional imbalance
of resources is evident; from the perspective of per capita, China is a resource-poor
country with resources per capita being less than half the world average level (only
about 40 %).
Tables 1.6 and 1.7 show the ratio of total energy resources and per capita of
China in the world. In 2010, the recoverable reserve of coal is shared 13 % of
global, ranking the third in the world, while the recoverable reserves per capita is
60 % of the world average value; the recoverable reserve of crude oil and liquefied
natural gas is only shared 3 % of global, ranking 12th in the world, while the
recoverable reserves per capita is about 67 % of the world average value; the
situation of water resources is similar, although the total amount is rich, the
amount per capita is very poor, below the world average value.
In 2010, Chinas coal production accounted for 76.5 % of the total energy
output, oil accounted for 9.8 %, natural gas accounted for only 4.3 %, and hydro
and nuclear power accounted for only 9.4 %. It shows that the proportion of
Chinas water resources development is not commensurate with its resources and
that the percentage of energy production from coal resources is larger.
China has become a net oil importer since 1993 and has become a net importer
of crude oil since 1996. In 2010, Chinas net oil imports reached 230 million tons,
with foreign dependence up to 55 % or so [2123], which will rise with economic
development. Besides, the contradictions that some important mineral resources
are in shortage has become increasingly prominent and some important raw
materials require long-term imports. It is predicted that the gap in Chinas future
energy supply will grow more obviously. Energy supply gap and environmental
Table 1.6 Ratio of energy resources of China in the world (2009 and 2010) [17, 2123]
Kind 2009 2010
Amount of Shared Amount of Shared Reserve-
resources proportion of resources proportion of production
global/ % global/ % ratioa
Coal remaining 204 billion 22.3 114.5 13.3 35.34
recoverable ton billion
reserves tonb
Crude oil remaining 2.026 1.08 2.020 1.07 9.95
recoverable billion billion
reserves ton ton
14.83 14.78
billion billion
barrel barrel
Natural gas 2.75 trillion 1.47 2.81 1.5 29.02
remaining cu m trillion
recoverable cu m
reserves
Developable 401.8 GW 15.6
hydropower
resources
Freshwater resources 2,418 5 3,090
billion billion
cu m cu m
Arable land 122 million 9 122
ha million
ha
a
Recoverable reserve refers to the quantity explored from the demonstrated reserves; b refers to
technical developable amount
Table 1.7 Per capita Shared proportion

occupation of some resources of global/ %
in China in recent years
(20092010) [17, 2123] Per capita coal remaining 60.0
recoverable reserves
Per capita crude oil remaining 6.2
Per capita natural gas remaining 6.7
constraints have become important factors that restrict the future sustainable
economic development.
The coordination of the scarcity of energy resources and sustainable develop-
ment lies in achieving energy conservation, improving energy efficiency, and
promoting sustainable development of electrification and modernization by energy
demand-side management of terminal energy. In order to solve the countrys
resources strategy and energy security issues, China cannot adopt the old way of
400 180
electricity consumption intensity MWh /Million Yuan (2005

energy consumption intensity (tce / Million Yuan (2005 350 160
140
300
120
comparable prices)
comparable prices)
250
100
200
80
150
60
100
40
50 20
0 0
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
energy consumption intensity electricity consumption intensity
Fig. 1.22 Trend of energy consumption intensity and electricity consumption intensity since
1978 (2005 comparable prices)
excessive resources and energy consumption in the developed countries and China
must vigorously carry out energy-saving and emission reduction and take a new
road to industrialization; only in this way China can achieve sustainable
development.
1.4.4 Situation of Energy Consumption Index
1.4.4.1 The Trend of Chinas Energy Consumption Index
With the optimization of industrial structure and development of science and

technology, both energy consumption intensity and electricity consumption
intensity of China show an overall downward trend. They were 374 tce/million
Yuan (2005 comparable prices) and 163 MWh/million Yuan respectively in 1978,
while they declined to 103 tce/million Yuan and 134 MWh/million Yuan,
respectively, in 2010, which is shown in Fig. 1.22. There is still a big gap com-
pared with that of developed countries.
Analyzed by periods, the electricity consumption intensity shows a ladder-like
decline trend, while there were some rebounds in 1982, 1990, and 2000. It is the
lowest in 1999, reaching 113 MWh/million Yuan. Because of the driving of rapid
development of high energy consumption industries, there has been a substantial
increase in the electricity consumption intensity, which reached 137 MWh/million
Yuan in 2007. Due to the development of science and technology, and energy
saving strategy, electricity consumption intensity has declined to 134 MWh/
Table 1.8 The electricity consumption intensity since 1978 (2005 comparable prices) MWh/
million Yuan
Years Total Primary industry Secondary industry Tertiary industry
1978 163.5
1990 142.3 24.2 330.1 28.6
1995 128.8 29.2 228.6 31.8
2000 116.0 28.9 186.7 32.4
2005 134.4 33.7 213.9 33.7
2010 133.5 34.9 202.7 34.1
350
power consumption intensity (2005 comparable prices,
300
MWh /Million Yuan)
250
200
150
100
50
0
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Total primary industry secondary industry tertiary industry
Fig. 1.23 Trend of electricity consumption intensity (2005 comparable prices)
million Yuan in 2010, which is about 18 % less than that in 1978. The electricity
consumption intensity is higher than that of developed countries, because both the
electricity consumption intensity and the proportion of secondary industry are
large. The electricity consumption intensity is shown in Table 1.8.
Chinas load demand and economic growth are closely correlated and also
associated with the structure of Chinas electricity consumption. The secondary
industry plays a major role in Chinas electricity consumption. The secondary
industry has been the leading factor all through, whether the proportion of energy
consumption of secondary industry is in decline or on the rise.
In Fig. 1.23, the electricity consumption intensity of primary and tertiary
industries shows an overall rising tendency, as shown in Fig. 1.24.
From 1990 to 2010, electricity consumption intensity of the primary industry
fluctuated greatly, but with the overall trend upward, rising from 24 MWh/Million
Yuan to 35 MWh/Million Yuan, while the net increase was 11 MWh/million
Yuan, average annual growth rate was 1.9 %. The electricity consumption inten-
sity of tertiary industry was also of an upward trend, rising from 29 MWh/million
Yuan to 34 MWh/million Yuan, while the net increase was 5 MWh/million Yuan,
power consumption intensity (2005 comparable prices, 40
35
30
MWh /Million Yuan)
25
20
15
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
primary industry tertiary industry
Fig. 1.24 Trend of power consumption intensity of primary and tertiary industries (2005
comparable prices)
and the growth rate was 0.9 %. Same as the total, the electricity consumption
intensity of second industry declined ladder-likely, from 330 MWh/million Yuan
to 203 MWh/million Yuan. We need to enhance the energy-saving management
and guidance for the second industry electricity, work earnestly on the energy
saving and emission reduction and technical progress, in order to promote sus-
tainable economic development.
1.4.4.2 Production Electricity of Chinas Main Products
At present, the electricity level of chinas major electricity industry product is

uneven, the electricity levels of some new companies have already reached or
approached the advanced international standard, while in the electricity levels of
some products have still a large gap with the advanced international standard due
to the small size, outdated technology, and equipment and other reasons. The
power consumption levels of some typical high energy-consuming products are
shown in Table 1.9.
The overall electricity intensity of Chinas major industrial products is higher
than that of advanced countries worldwide; about 20 % higher in average, elec-
tricity intensity is close to the average level of moderately developed countries in
the early 1990s.
The overall efficiency of Chinas motors is still lower than the international
advanced level. In the early twenty-first century, three-phase asynchronous motors
with 0.55100 kW power were adopted primarily, 70 % of which were series Y
and 10 % series Y2. The efficiency of the former is equivalent to the late 1970s
Table 1.9 Output, energy consumption, and the intensity of high energy consuming products in China [17, 2325]
50
China The international

advanced level
2000 2005 2007 2008 2009 2010
Coal mining and washing
Coal production/Mt 2,350 2,692 2,802 2,973
Overall energy consumption intensity/kgce/t 38.2 32.0 33.4 34.3
Electricity consumption intensity/kWh/t 29.0 25.1 23.6 24.0 23.4 17.0
Crude oil production
Production/Mt 181.4 186.3 195.1 189.5
Electricity consumption intensity/kWh/t 142 154 150 129
Oil refining
Crude oil processing capacity/Mt 286.2 326.8 342.0 374.6
Overall energy consumption intensity/kgce/t 118 114 110 108 106 100 73
1
Electricity consumption intensity/kWh/t 60.0 60.3 60.2

Thermal power generation
Power generation/TWh 2,047.3 2,722.9 2,707.2 2,982.9
Generation coal intensity/gce/kWh 363 343 332 322 320 312 298
Supply coal intensity/gce/kWh 392 370 356 345 340 333 310
Steel
Crude steel production/Mt 353.2 489.3 503.1 572.2
Industry-wide overall energy consumption intensity/kgce/t 1,475 1,019 976 975 973 950
Large- and medium-scale enterprises of overall energy 906 760 733 729 717 701
consumption intensity/kgce/t
Large and medium scale enterprises of electricity consumption 452 433 445 434
intensity/kWh/t
Large and medium scale enterprises of comparable energy 784 732 718 709 697 681 610
consumption intensity/kgce/t
Aluminum
Production/Mt 7.79 12.34 13.17 12.89
Alternating current electricity consumption intensity/kWh/t 15,418 14,680 14,488 14,323 14,171 13,979 12,900
Copper
Copper smelting overall energy consumption intensity/kgce/t 1,227 780 549 509 500 360
Cement
Production/Mt 1,068.9 1,361.2 1,423.6 1,644.0
Basic Theory of Integrated Resource Strategic Planning
(continued)
Table 1.9 (continued)
advanced level
2000 2005 2007 2008 2009 2010
Overall energy consumption intensity/kgce/t 181 167 158 151 139 126 118
Electricity consumption intensity/kWh/t 92 91 91 90
Brick and tile
Overall energy consumption intensity/kgce/Kilo. standard 86 58 60 30
bricks
Architecture ceramics
Overall energy consumption intensity/kgce/m2 8.6 6.8 5.7
Plain glass
Overall energy consumption intensity/kgce/weight cases 25.0 22.0 16.6 16.5 16.3 15
Ethylene
Production/Mt 7.56 10.48 9.98 10.73
Overall energy consumption intensity/kgce/t 1,125 1,073 1,026 1,010 976 950 629
Electricity consumption intensity/kWh/t 124.5 126.4 126.1
Synthetic ammonia
1.4 IIRSP for Chinese Economic Development
Production/Mt 52.20 57.87 49.95 51.34

Overall energy consumption intensity/kgce/t 1,700 1,702 1,661 1,591
Electricity consumption intensity/kWh/t 1,280 1,202 1,184 1,172
Caustic soda
Production/Mt 12.40 17.59 19.26 18.32
Overall energy consumption intensity/kgce/t 1,439 1,297 1,124 1,040 1,006 910
Diaphragm 1,448 1,272 1,351 1,293 1,250
Ion-exchange membrane process 1,067 937 922 916 910
Electricity consumption intensity/kWh/t
Diaphragm 2,364 2,340 2,309
Ion-exchange membrane process 2,213 2,201 2,186
Soda ash
Overall energy consumption intensity/kgce/t 406 396 355 323 310
Calcium carbide
Production/Mt 8.95 13.63 13.61 15.03
Electricity consumption intensity/kWh/t 3,475 3,450 3,465 3,440 3,395 3,340 3,000
51
(continued)
Table 1.9 (continued)
52

advanced level
2000 2005 2007 2008 2009 2010
Yellow phosphorus
Electricity consumption intensity/kWh/t 14,600 14,350 13,830 14,416 13,870 13,050
Chemical fiber
Electricity consumption intensity/kWh/t 2,276 1,396 1,094 1,091 967 900
Paper and paperboard
Production/Mt 62.05 77.92 84.04 89.65
Industry-wide overall energy consumption intensity/kgce/t 912 528 476 440 395 390
Industry-wide electricity consumption intensity/kWh/t 745 605 578 567
Overall energy consumption intensity of the pulp 1,540 1,380 1,225 1,153 1,090 1,080 610
1
companies/kgce/t
Notes
1. International advanced level refers to the mean value of the countries in the world advanced level
2. In the product comprehensive energy consumption intensity at home and abroad over the years, the electricity consumption intensity is converted to standard coal according to the coal
consumed in power generation
3. The international advanced level of electricity consumption intensity of coal mining and washing refers to USA. In 2009, the ratio of strip mines of USA was 69.0 %. In China, the number
was 8.4 %. The electricity consumption intensity of each ton of coal obtained from strip mining was 1/5 of that of the mine shaft
4. The coal consumed for power generation and supply of thermal power plants in China involves units with the power above 6 MW. The international advanced level refers to the mean value
of 9 major power companies of Japan. The auxiliary electricity consumption intensity rate and thermal intensity of power supply of oil and gas power plants are relatively low. In 2006, in the
power supply structure of China, coal, oil and gas took up 81.23, 1.46 and 0.51 % respectively. While, in Japan, coal, oil and gas took up 26.03, 10.58 and 24.1 % respectively
5. The output of large and medium sized iron and steel enterprises in China in 2010 took up 86.2 % of the total output of the state. The international advanced level refers to Japanese level
6. The AC electricity consumption intensity of electrolytic aluminum of Alma (a Canadian company) is 12,900 kWh/t
7. The energy consumption intensity of China is 13 kgoe/t while the international advanced level is 10 kgoe/t
8. The production of ethylene of China mainly adopts naphtha as the raw material. The international advanced level of comprehensive energy consumption intensity refers to the mean value
in Middle East where ethane is mainly used as the raw material
9. The comprehensive energy consumption intensity of caustic soda refers to the weighed mean value of diaphragm process and ionic membrane method
10. The comprehensive energy consumption intensity of paper and paper boards in 2010 was estimated
Basic Theory of Integrated Resource Strategic Planning
Table 1.10 Comparison of motor efficiency between some countries

Rated power/kW China Y China J02 U.S. XE/ % U.S. MAC/ % France
series/ % series/ % MLE/ %
1.5 79.0 81.584.0
5.5 85.5 86.0 88.590.2 88.590.2
7.5 87.0 87.0 88.590.2 88.590.2
22 91.5 89.5 91.795.0 91.393.0 92.5
55 92.6 91.5 94.195.0 93.094.1 94.4
75 92.7 92.0 94.195.0 94.195.0 95.0
90 93.5 94.195.0 94.195.0 95.4
world level; the latter is equivalent to the late 1980s world level. Compared with
the international advanced products, Chinas electric motors are still behind in the
energy efficiency, lifetime, reliability, materials consumption, noise, etc.
Table 1.10 shows that the efficiency of Chinas motor is 35 % lower than the
average level of developed countries.
The data described above indicate that the electricity consumption intensity of
some industrial products in China approach the international advanced level,
however, generally speaking, there is still a considerable gap between China and
the developed countries as far as power consumption of most high-electricity-
consuming products is concerned. The prospect for electricity conservation is
extremely promising, as the overall energy-saving potential estimated can be
150350 TWh, and the shift load potential is in 3060 GW by 2020.
1.4.5 Status of Greenhouse Gas Emissions
Currently, very few countries energy consumption is dominated by coal, and the
vast majority is undeveloped countries or underdeveloped countries. China is the
biggest country of coal consumption in the world, and to change the coal-dominated
energy structure in the short term is difficult. The large proportion of coal
consumption in China is one of the main reasons for environmental pollution
problems.
Energy and environmental problems are mainly due to two aspects: first, CO2
emissions from fossil fuel combustion lead to the global climate change; second,
SO2 emissions from fossil fuel combustion causes acid rain pollution. At present,
China is the second largest pollution source of CO2 and SO2, in the world. The
ecological situation is very severe. According to statistics, 80 % or more of
Chinas CO2, SO2 and other pollutants are caused by coal, in which CO2 emissions
of coal consumption from power generation and heating is about 35 % of total
emissions, SO2 emissions is about 52 % of total emissions. Environmental damage
from energy supply and consumption is key factors of Chinas environmental
problems. The nationwide acid rain area covers more than 30 % of the total land
area; the annual average concentration of SO2 of 63.5 % cities exceeds the
national secondary standard.
In 2010, the national energy consumption reached 3.25 billion tce, in which the
consumption of raw coal accounts for 68 %; SO2 emissions reached about 21.9
million tons, about half of which came from the power sectors [21, 22]. It indicates
that there is a great potential for energy-saving, electricity-saving, while the
emissions reduction is also a great pressure. When it comes to greenhouse gas
(GHG) emissions, it is necessary to mention the Kyoto Protocol, namely the
United Nations Framework Convention on Climate Change. The Convention
aims to limit global CO2 and other greenhouse gas emissions. In 1992, govern-
ments of various countries adopted the United Nations Framework Convention
on Climate Change, after eight conferences, in 1997, finally forming a written
law case on the limitation of CO2 emissions. The discussion and consultation of
the content of this bill became the main topic of the third Conference of the
Establish Parties and finally the convention was called the Kyoto Protocol.
According to the principle of common but differentiated responsibilities, the
Kyoto Protocol provided specific, legally binding greenhouse gas (GHG)
emission reduction targets for developed countries and for countries in economic
transition. These countries emission level should be reduced by an average of
5.2 % during 20082012 than that in 1990. As the response of many countries
efforts for years, the Kyoto Protocol became effective officially on 16 Feb 2005.
It indicated that humanity is a big step forward in environment protection.
Although China should not assume the obligation to quantify emissions of CO2,
she has made great progress on energy-saving and emission reduction.
1.4.6 Response to the Challenges in Economic Development
It is expected that for a long period in the future, development of Chinas economy
will continue to be rapidly. When large population and rapid economic develop-
ment are taken together, the energy consumption will be large and will affect the
ecological environment inevitably. We should realize that environmental degra-
dation is bound to undermine the comprehensive outcomes of economic growth.
Since reform and opening up, Chinas social and economic development has
achieved a lot, but has paid much more on the natural environment. To address the
environmental issues inevitably needs to increase investment on environmental
protection, transform the energy consumption structure progressively, and truly
attach priority to and gradually strengthen energy-saving and renewable energy
development.
Carrying out the IRSP can take full advantage of both the supply-side and
demand-side resources, to meet future electricity demand with the minimum social
costs. It can also be used to guide the sustainable development of electric power
enterprises and the planning and development of DSM programs. After the
introduction of Demand-side Management in China, the government and relevant
organizations attached great importance to it, did a lot of work, and achieved
certain results. During 1991 and 2010, by carrying out Demand-side Management,
Chinas total saved electricity was about 280 to 300 TWh, shifted peak load was
20 GW, saved energy 100 million tce, reduced CO2, SO2 emissions reduced about
330 million tons, and 3.3 million tons respectively. This made a positive contri-
bution to the national economy and the sustainable development of power
industry, and made a positive contribution to carrying out the target made by the
Governmentthe energy consumption intensity should decline 20 % during
20062010.
With the development of economic and the improvement of peoples living, the
proportion of energy in Terminal consumption keeps on rising, status and function
of electrical energy is more and more important in energy. In order to strengthen
the electricity conservation work, the government not only attaches importance to
the development of supply-side resources, but also the mining of demand-side
resources. Power demand-side management is currently advocated, to effectively
mobilize the enthusiasm of the participants, and effectively tap Chinas huge
energy saving potential of the terminal through the implementing of DSM.
Improving the efficiency of electricity supply and demand, reducing con-
sumption of energy resources, especially reducing coal, oil, natural gas and other
non-renewable energy consumption, they are important in promoting the con-
struction of resource-saving and environment-friendly society, promoting Chinas
economic and social sustainable development. Therefore, IRSP/DSM is an
important choice to respond to the challenges of the economic development.
1.5 Application of IRSP Model
China is now in the middle and late process of industrialization, and it is predicted
to finish the industrialization period around 2020 [2628]. Many people wonder
how much the electricity demand in China at that moment would be, and how
much the installed capacity and supported transmission grid would be. By the
imitating analysis based on the history data of about 195 countries or regions, we
conclude that the sign of a country or region completing the industrialization is as
follows: the electricity consumption per capita is around 4,500 kWh, household
electricity consumption per capita is 900 kWh, power installed capacity per capita
is 1 kW; For the electricity consumption structure, the proportion of the secondary
industry is lower than 55 %, the proportion of the tertiary industry is higher than
18 %, and the proportion of the household consumption is higher than 20 %.
Assume that Chinas industrialization process will be completed around 2020,
and then in 2020 the total in China will be more than 7.6 trillion kWh [29, 30]. At
this point, how can the power supply meet the requirements of economic
development?
In the following part, the model of TRSP and IRSP will be used to analyze and
calculate the capacity demand, investment, coal consumption, pollutant emissions,
and energy-saving potential in 2020.
1.5.1 Traditional Resource Strategic Planning
Measured according to the generator expansion planning and potential analysis,

several constraints are the capacity upper limit of gas, hydro, nuclear, and wind
power which are 45, 30, 40, 50 GW, respectively; there is no upper limit of coal-
fired power plant capacity, and no emissions constrains.
Using Traditional resource strategic planning (TRSP) model which just has
supply-side resources to meet the future electricity demand, the resources that take
part in optimization only include coal power, gas power, hydropower, nuclear
power, wind power, other renewable energy power generation, etc. The power grid
invesment is also taken into total power industry Investment to participate in
optimizing. Carried on the optimized plan according to the process in Fig. 1.16,
the results are shown in Table 1.11 (price of 2005, below this section is the same).
According to the optimal results of TRSP, to meet the electricity demand in
2020, the need total capacity will be 2,123 GW, in which the coal, gas, hydro,
nuclear power, wind power, and other renewable energy capacity should be 1,430,
70, 364, 80, 160, and 20 GW respectively. The total capacity will increase about
2.2 times of that at the end of 2010, requiring an average annual increase of
115 GW from 2011 to 2020.
Power generators and grid construction need investment of RMB 2.29 trillion
Yuan, and the total operating costs need RMB 14.9 trillion Yuan, so the total is
RMB 17.2 trillions Yuan.
Table 1.11 Results of TRSP

Years New Installed capacity Fixed Operating cost Total cost
installed end of the year or investment (RMB billion (RMB
capacity period (GW) (RMB billion Yuan) billion
(GW) Yuan) Yuan)
2010 966
20112020 1,157 2,123 2,290 14,860 17,160
In which: 747 1,430 1,380 14,020 15,400
Coal
power
Gas power 44 70 50 400 450
Hydropower 148 364 190 150 340
Nuclear 69 80 150 260 410
power
Wind power 130 160 340 30 370
Solar power 19 20 190 10 200
1.5 Application of IRSP Model 57
In 2005, there was 53 GW coal-fired units installed desulfurization equipment

[16]. The average desulfurization rate was more than 85 %, with the increasing
desulfurization efforts. Ever since 2005, China has made great effort to install flue
gas desulfurization equipment and by 2010, coal-fired units equipped with flue gas
desulfurization equipment had accounted for 89 % in total installed capacity of
coal-fired units; compared with that in 2005, both thermal power generation
quantity per unit and SO2 discharge witnessed a decrease of more than 60 %.
Considering the gradually increasing of denitrification efforts, intensity of NOx in
electric power will be reduced.
In 2020, thermal power generation needs energy about 1.7 tce. The emissions
of the CO2, SO2, NOx will be 4.2 billion tons, 21.5 million tons, and 14.4 million
tons respectively.
1.5.2 Integrated Resource Strategic Planning
Constraint data of power installed equipment is the same with TRSP, in addition,
the maximum size of seven kinds of EPP are all 30 GW, emission constrains of
CO2, SO2, NOx in 2020 are all taken 93 % of the emissions data from TRSP
scheme.
Using the IRSP model for planning, not only the supply side of the coal, gas,
hydro, nuclear power, wind power, and other renewable energy power generation
participate in the resources optimizing, but also demand-side energy-efficiency
power plants and other resources. The continuous optimized plan is according to
the process in Fig. 1.16, the results are shown in Table 1.12.
Considering the EPP and other DSM measures, the optimizing results show that
total capacity (including EPP) will reach 2.1 TW by 2020, the same as TRSP
scheme. However, the conventional unit is only 1.88 TW, and it will save 247 GW
than that of TRSP scheme, and the installed capacity declined to 24.7 GW. EPP is
247 GW. Investment on power generators, power grids, EPP, and other DSM
project will reach RMB 1.96 trillion Yuan in total, and operating cost RMB 14.16
trillion Yuan. The sum of investment and operating cost will be RMB 16.12 trillion
Yuan.
Among them, the EPP and other DSM projects need to invest RMB 110 billion
Yuan in total. However, due to savings in power plants, power grid investment and
operating costs, the IRSP scheme can save RMB 1.04 trillion Yuan more than that
of the TRSP scheme, and mitigate CO2 emission reduction at about 5.4 %.
Because the EPP and other DSM projects are involved in planning as resources,
the cumulative electricity savings are about 2,000 TWh during 2011 and 2020,
shown in Fig. 1.25, equivalent to the electricity consumption of the year 2011.
At the same time, since energy-efficient power plants have integrated into the
planning, and the demand for conventional power correspondingly has reduced.
Figure 1.26 shows the reduction of new installed capacity of IRSP scheme
Table 1.12 Results of IRSP

Years New Installed Fixed Operating Total
installed capacity investment cost cost
capacity end of the (RMB (RMB (RMB
(GW) year or billion billion billion
period Yuan) Yuan) Yuan)
(GW)
2010 966
20112020 total (not including EPP) 910 1,876 1,930 14,090 16,020
In which: Coal power 500 1,183 1,010 13,190 14,200
Gas power 44 70 50 420 470
Hydropower 148 364 190 160 350
Nuclear power 69 80 150 280 430
Wind power 130 160 340 30 370
Solar power 19 20 190 10 200
The total number compared with the -247 -247 -370 -780 -1,150
TRSP scheme (not including EPP)
EPP 247 30 80 110
Total number (including EPP) 2,123 1,960 14,160 16,120
The total number compared with the -340 -700 -1,040
TRSP scheme (including EPP)
Fig. 1.25 Electricity savings 40

of IRSP scheme comparing 35
1.7
with TRSP scheme 30
trillion kWh
0.3
25
20
15
10
5
0
2011-2015 2016-2020
Year
Fig. 1.26 Postponed 300

capacity of IRSP scheme 247
250
comparing with TRSP
scheme 200
GW
150 137
100
50
0
2015 2020
Year
1.5 Application of IRSP Model 59
200
150
million tce 100
50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Fig. 1.27 Comparing with TRSP scheme, annual saved coal of IRSP scheme
500
400
million ton
300
200
100
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Fig. 1.28 Annual mitigated CO2 of IRSP scheme comparing with TRSP scheme
comparison with TRSP scheme. By 2020, conventional installed capacity defers

247 GW.
By 2020, as IRSP planning results indicate, the total coal consumption of
thermal generation will be 1.69 billion tce, saving 188 million tce or 10 % lower
than that of TRSP planning results; while the net emissions reductions of CO2,
SO2, NOx are 448, 2.4, and 1.5 million tons, respectively, and reduction rates are
9.7, 10, and 9.6 % respectively.
During 2011 and 2020, IRSP planning results indicated total consumption of
thermal power generation needs of 14.5 billion tce, saving 910 million tce or
5.9 % lower than that of the TRSP planning results; while the net emissions
reductions of CO2, SO2, NOx are 2.2 billion tons, 11.7, and 7.6 million tons,
respectively, and reduction rates are 5.7, 5.9, and 5.3 %. Details are shown in
Figs. 1.27, 1.28, 1.29, and 1.30.
As seen from the comparative analysis, on the one hand, application of IRP can
save investment, reduce installed capacity, and reduce energy consumption; on the
other hand, it can reduce greenhouse gas emissions and achieve significant eco-
nomic, social, and environmental benefits. If the government continues to improve
the establishment of the market mechanism of demand-side management,
attaching increasing importance to the price, taxation, capital, and other fiscal
policies, then the benefits will be more obvious.
3000
thousand ton
2000
1000
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Fig. 1.29 Annual emission reductions of SO2 of IRSP scheme comparing with TRSP scheme
1800
1500
thousand ton
1200
900
600
300
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Fig. 1.30 Annual emission reductions of NOX of IRSP scheme comparing with TRSP scheme
At present, the increasing dependence on electricity in the entire society has

placed a higher demand on the quantity of the electric power supply. Thus, on the
one hand, social development objectively requires that the electric power industry
must develop on a certain scale and at a certain speed; on the other hand, electric
power industry development will further be restricted by the resource constraints
and environmental factors, and this problem will persist and get even worse.
Therefore, the IRSP and DSM are the strategic choices for the sustainable
development of Chinas electric power.
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Chapter 2
Basic Theory of Demand-Side
Management
2.1 Theoretical Frame of DSM
DSM is a product from a combination of energy economy and power economy,

and a set of theoretical frames have been formed.
2.1.1 Core Concept Group of DSM
DSM has established a new concept that energy saved at the demand-side is taken
as a kind of substitutable resource of the supplier between energy development and
energy conservation as well as between modern business profit mode and envi-
ronmental protection. That means DSM also a kind of resource as the fifth electric
power energy [14] excluding hydraulic power energy, thermal power energy,
nuclear power energy, and renewable energy. The core concepts in DSM theory
can be classified into basic concept type, evaluation index type, and evaluation
method type, referred to in Table 2.1 [16].
2.1.1.1 Basic Concept Type
1. Demand-Side Management (DSM) refers to leading power users to scientifi-

cally and rationally use power and save power by taking effective measures to
improve power energy utilization efficiency, optimize resource allocation,
protect environment, and accomplish power consumption management activi-
ties carried out with power service at the lowest cost. DSM is a kind of
important energy conservation and emission reduction path, which mainly
includes Energy Efficiency Management (EEM), Load Management (LM), and
Orderly Power Utilization (OPU). It aims at accomplishing energy conservation
and environmental protection and promoting sustainable economic and social
development through effective utilization of power energy. To accomplish its

64 2 Basic Theory of Demand-Side Management
Table 2.1 Core concepts in DSM theory

Basic concept type Evaluation index type Evaluation method type
DSM Avoidable cost DSM Cost-benefit
analysis
Energy efficiency Avoidable electricity and its cost
management
Load management Avoidable peak load capacity and its
cost
Orderly power utilization Unit power saving cost
Load demand response Net income per year
Electricity price response Power saving benefit
User characteristic Investment recovery period
Energy efficiency auditing Rate of benefit on power saving
Long-term mechanism of Rate of return on DSM Project
DSM investment
Benefit-cost ratio
target, it is required to design corresponding incentive mechanism and policy.

Mechanism design is the core of DSM. A good mechanism can arouse the
enthusiasm of every participant, actively exploit energy conservation potential,
improve energy efficiency and accomplish scientific power consumption. Under
the precondition of establishing a scientific and effective mechanism and with
corresponding supporting incentive means, the DSM work can be successfully
developed.
2. Energy Efficiency (EE) management refers to improving terminal power utili-
zation efficiency through planning, organization, incentive, and control and by
taking various advanced technologies, management means, and highly effective
equipment to decrease energy consumption intensity. It aims at decreasing the
supply of energy for equivalent energy service.
3. LM refers to improving power utilization mode by enhancing management or
taking energy storage technology to decrease power consumption load,
accomplish peak clipping, peak shift and peak load shifting and valley filling
and reduce or postpone the demand for power generation and supply resources.
Improving management means generally should rely on LM system which can
monitor the terminal power consumption equipment in the power system
through a series of measures to achieve the goal of adjusting the load curve.
4. OPU refers to regulating load demand by taking administrative, economic, and
technological and other means, guiding users to effectively utilize power
through principles with guarantee and limitation in the condition of power
supply shortage. The main purpose is to ensure balance of power supply and
demand, guarantee social order, and decrease power shortage loss to the
maximum extent.
5. Demand-side Response (DR) refers to the change in load demand (including
load and electricity) under the influences of various factors after implementing
DSM measures and also refers to load demands feedback effect to DSM.
2.1 Theoretical Frame of DSM 65
6. Electricity price response refers to users demand behavior selection to power

in different electricity price modes. DSM implementers arouse users enthusi-
asm in scientific and rational power consumption as well as power saving by
designing different factors and types of electricity price to achieve the social
benefit goal of Integrated Resource Planning (IRSP) and IRP.
7. User characteristic mainly refers to the characteristic of power energy con-
sumption by users. For example, industrial users take basically stable and
continuous load demand as the characteristic while residential users possess the
characteristic of using peak power in power grid, whose price elasticity is
comparatively small and electricity price increase at small amplitude can hardly
play the function of long-term adjustment to residents power consumption
demand. Study on the power consumption characteristics of DSM objects is the
start point for implementing DSM. Aiming at different users means like single
electricity price, combined electricity price as well as relevant technical mea-
sures and others can be used to implement DSM.
8. Enterprise energy auditing is the general term of enterprise energy accounting
system, energy consumption evaluation system, and energy consumption con-
dition auditing mechanism. User participation condition, DSM scheme design
as well as energy conservation efficiency share and others all need to be con-
firmed by energy auditing, which is a kind of important energy efficiency
evaluation method. In practical application, this is an opportunity and a path for
selecting users to participate in implementing DSM projects.
9. Long-term mechanism of DSM refers to accomplishing rational allocation of
demand-side resources and changing load characteristics in the long term by
means of effective system construction and mechanism establishment and
others to make power saving become a common behavior mode of the whole
society.
2.1.1.2 Evaluation Index Type
1. Avoidable cost refers to some cost that can be avoided when the decision
scheme changes or the cost that does not to be paid according to the selected
scheme rather than the other schemes when there are several schemes can be
selected.
2. Avoidable electricity and its cost are the specified concepts in IRSP and IRP.
According to the different analysis points, avoidable electricity can be classified
into avoidable electricity of power users and avoidable electric energy of power
system. Thereinto, the avoidable electricity of power users refers to excessive
electricity avoided being used by users due to power saving; the avoidable
electricity of power system refers to newly generated electricity avoided by the
power system due to power saving. It should be pointed out that not all DSM
projects shall enable power users or power system to get avoidable electricity but
some peak load shifting and valley filling projects also require increasing elec-
tricity supply by the system. Correspondingly, avoidable electricity cost can also
be classified into avoidable electricity cost of power users and avoidable elec-
tricity cost of power system, which respectively refer to newly increased electric
cost expenditure avoided by power users and newly increased electricity cost
avoided by the power system due to power saving. Generally, it often refers to the
avoidable electricity of power system and its cost.
3. Avoidable peak load capacity and its cost are also the specified concepts in
IRSP and IRP. Avoidable peak load capacity refers to newly increased installed
capacity avoided by the power system as the peak load is decreased due to
power saving and peak shift. It is equal to the avoidable peak load of the power
generation end plus its corresponding system reserve capacity. Avoidable peak
load capacity cost refers to the cost of newly increased installed capacity
avoided by the power system due to power saving.
4. Per unit saving cost refers to cost paid for saving unit electricity in the life
period of DSM projects. It is equal to power saving cost divided by total power
saving quantity.
5. Net income per year refers to the difference between the income and cost of
implementing power saving project and is the index for evaluating whether the
project can make profit. Only in the condition that the net incomes per year of
the users, power utilities and project implementers are all more than zero can
the implementation of the power saving project be taken into account.
6. Power saving benefit refers to advantages of implementing a power saving
project. It can be the decrease of electric cost expenditure or output value
increase or others compared with the condition without implementation of this
project.
7. Investment recovery period refers to the number of years required by the power
saving project to pay off the original investment with all profits. To decrease
power saving investment risk and get comparatively high investment return, the
project investor(s) always expect(s) the invested project to have a compara-
tively short investment recovery period. This index is often used in cooperation
with net income per year.
8. Rate of return on DSM project investment refers to the ratio of power saving
income of implementing DSM project and total energy conservation project
investment.
9. Benefit-cost ratio refers to the ratio of output capital after the technical scheme
pension is discounted in the DSM project and the input cost. This is the ratio of
the present value of energy conservation net cash flow obtained in the DSM
project in economic operation period and the present value of operation cost.
2.1.1.3 Evaluation Method Type
DSM cost-benefit analysis is a method that evaluates the feasibility of DSM

projects by comparing cost with benefit. Its result can be expressed in many
modes, including the comparison of indexes like avoidable cost, avoidable peak
load capacity, internal rate of return on DSM project, net present value, investment
recovery period, and benefit-cost ratio, etc. This kind of method usually needs to
consider the time value of money, so it is required to calculate the present value
discounted according to time value of different kinds of cash flow generated from
the project cost and benefit.
2.1.2 Correlation Between DSM Concept and Method
At present, only some external and operable means of DSM are promoted in
China. How to establish a set of system that can provide incentive for economic
subject of DSM through mechanism design has become a core issue in contem-
porary power economic research.
DSM which is a kind of system design and a system project can greatly improve
energy efficiency through planning and effective dispatch to demand-side resource.
It or part of it should become a kind of self-interest behavior bound on the interests
of dominator and implementer; otherwise it only can stay at promotion level
instead of being implemented actually.
Figure 2.1 shows the correlation between DSM concept and method in China,
which is the logic relation model of all basic factors in the theoretical frame of
DSM. It reflects the relation among the target level, decision level, and method
level of DSM.
The target level mainly embodies the social target of DSM projectsmaximum
social benefit and minimum energy conservation cost. It includes the social benefit
pursued by the government which is the dominator of DSM and commercial
interest cost saving pursued by power grid enterprises, Energy Service Companies
(ESCOs) as well as power users and others who are implementer and participant.
The decision level mainly shows the selection process of DSM decision scheme
and its evaluation means.
The method level mainly shows every participant can select and combine
energy conservation method according to the respective target and energy effi-
ciency condition so as to form a pertinent DSM scheme. For example, to a power
project with new users, IRSP and IRP idea should be carried out and DSM project
budgeting technology should be applied to its power supply or electric planning,
and energy conservation and environmental protection evaluation should be car-
ried out in advance; to old users, DSM is implemented to carry out energy auditing
and power saving technology reform with the support of combining electricity
price scheme design to lead the users to accomplish pertinent load regulation and
power saving.
Government
Maximum Energy Efficiency
"
Target Level
and Minimum Cost Target
Power Users' Implementer's

Benifit Target Benifit Target
User's Load Shape Prediction
Cost-benefit Evaluation of
Decision Level
DSM Project
Environment and Resource

Evaluation of DSM Project
DSM Project Selection
Information Technology
Budgeting Technology
Energy Conservation
EnergyConservation
Energy Managment
Electric Planning
Energy Auditing
Electricity Price
Combination
Method Level
Technology
Service
Fig. 2.1 DSM concept and method correlation diagram
2.1.3 DSM Technologies and Methods
2.1.3.1 Main DSM Technologies
The DSM technologies mainly refer to critical technological means involved

during implementing DSM project, which mainly include the following aspects
according to the classification of DSM resources:
1. Common DSM technologies used by industrial clients. The DSM technologies
used by industrial users mainly include the process of power saving recon-
struction, such as electrolysis and heating; green lighting such as energy-saving
lamp; motor updating such as replacement of old motor equipment; motor
reconstruction such as AC frequency conversion reconstruction of fans, pumps
as well as compressors and others, parallel operation of multiple transformers
Cost-benefit Method Resource Evaluation Method

Environmental Treatment
Statistical Inference Method Cost Method
Project Management Method Risk Evaluation Method
Environment and Resource

Economic Method Evaluation Method
DSM
Arbitration Supervision
Law Enforcement Hearing
Lawsuit Instruction and Guidance
Legal Method Administrative Method
Fig. 2.2 Main DSM methods
or updating energy-saving transformers and installing reactive power com-

pensation devices, etc.
2. Common DSM technologies used by commercial clients and public service
department. The DSM technologies used by commercial users mainly include
green lighting technology, energy reserve technology for AC such as central air
conditioning reconstruction and building energy- saving refrigeration, heating
and energy reserve projects and energy-saving motor technology, etc.
3. Common DSM technologies used by residential clients. The DSM technologies
used by residential users mainly include green lighting technology, air condi-
tioning energy-saving technology and application of household appliances with
high energy efficiency labels.
2.1.3.2 Main DSM Methods
The methods and flow of DSM are one of the important contents that decide the
cost and benefit of DSM projects.
Seeing from Fig. 2.2, DSM methods mainly include four types which are
administrative method, economic method, environment and resource evaluation
method, and legal method. The former two types focus on economic benefit
evaluation of DSM projects while the latter two types focus on guarantee, eval-
uation, and supervision to social benefit.
With the increasing deepening of energy conservation and emission reduction

work advocated by the government, people have paid more and more attention to
implementing DSM and the methods emerges in an endless stream. It is con-
ductive not only to the security and reliability of power system but also the peak
load shifting. Moreover, it is better for inhibiting energy price fluctuation, pro-
tecting climate and environment, decreasing system cost and promoting sustain-
able economic and social development. We shall further decompose the main
DSM methodsadministrative method, economic method, environment and
resource evaluation method, as well as legal method, refered in detail in Table 2.2.
In the actual management process, these methods might be used at the same time
or in a cross way.
As the electricity price has not been marketed yet and the overall level is on the
low side in China, the users response to the price is not sensitive so that it is very
difficult for DSM scheme and energy conservation technology to play their
functions. Thus, to implement DSM, DSM concept and power saving technology
only can be promoted to the market through industrialization to accomplish energy
conservation target. That is to say, on one hand, embody the commercial interest in
price to regulate, control, and inspire terminal users energy conservation behav-
ior; or on the other hand, return the incentive point of DSM to the implementers
organization internal through the implementers own commercial operation and
transfer the energy conservation efficiency to the users in commercial result,
namely, new DSM operation modes like energy conservation commission
threshold setting and benefit sharing proportion and others, through competition of
ESCOs plus government funding so as to accomplish the promotion of energy
conservation technology and advance the users participation in DSM. Otherwise,
even if some incentive systems are set up, the real functions cant be played at all.
This is called Incentive Incompatibility in institutional economics, that is to say,
the respective interests of the constitutor, implementer and beneficial owner in the
system proceed in opposite directions. In this way, it is very difficult to transfer
DSM concept to get performances actually. DSM expensing and DSM capitali-
zation mentioned in Table 2.2 are explained as follows:
DSM expensing refers to DSM value formed in energy conservation service
planning by means of collecting DSM cost through one-time billing from users.
This kind of DSM service price may easily increase users cost and result in
electricity price rise.
DSM capitalization refers to DSM value formed in energy conservation service
planning by means of converting it to cash flow to be recovered year by year. The
government supervision department can define the DSM investment recovery
period as 57 years so as to make the organizer, implementer, and users not to
have impediment and fund pressure on DSM project and its implementation. In
fact, to DSM project, the DSM project investment also can be accomplished
through bank loan to obtain social benefits.
Table 2.2 Classification of specific methods for implementing DSM
Method classification Content Example Suitable object
Administrative method Energy conservation planning Necessary rate of return on the lowest performance Government supervision
target supervision payback department
Expected energy conservation rate of sharable benefit Consumer consultation
threshold association
Target responsibility agreement Volunteer agreement Energy service
Energy conservation technology support companies (ESCOs)
Energy conservation management consultation Power users
Government authorization Central government agency Governments
2.1 Theoretical Frame of DSM
Independent energy conservation Provincial government Power users

Municipal government
Signing target responsibility agreement Power users
Compulsory certification of energy efficiency center Energy service
companies (ESCOs)
Economic method Demand price response user Tax collection and tax reduction Energy service
Price elasticity (Demand response) companies (ESCOs)
DSM expensing Power users
Non-demand price response user White certificate Benefit sharing Energy service
Power grid energy efficiency service method companies (ESCOs)
Promoting energy conservation with Power grid enterprises
energy efficiency labels Power generation
DSM capitalization enterprises
Power users
Environment and resource Resource depletion evaluation Emission reduction algorithm Power users
evaluation method Carbon index transaction method
Environmental pollution risk evaluation method
Environmental compensation and pollution treatment cost
method
Legal method Energy conservation rules Law-abidingness and law enforcement All participants
Energy efficiency label Arbitration
Lawsuit
71
2.1.4 Tariff Mechanism of DSM
The new institutional economics studies the incentive mechanism design whose
general principle is Incentive Compatibility. The main function of institutional
design is helping to ease information asymmetry problem by confirming an
effective incentive structure so as to provide effective incentive for each institu-
tion-related member. The transaction cost standard and incentive compatibility
raised in the institutional economics is applied to judge whether an institution is
good, namely, judge the consistence degree of Transaction Cost of imple-
menting this new institution, institution implementation members target, and
institution target. Thus, to improve the incentive compatibility of DSM institution,
it is required to develop DSM institution construction in China from five aspects:
energy conservation incentive structure, different kinds of energy conservation
information disclosure, energy conservation culture, property right definition of
energy conservation assets (including fixed energy conservation assets, current
assets of energy conservation and intellectual property rights of energy conser-
vation, etc.) and DSM implementers risk guarantee. In more than 10 years of
DSM promotion in the past, it can be seen easily that two great targetsthe
economic benefit and the social benefit are combined and integrated in the whole
process of introducing the DSM mode. As for these two great targets, the
importance, advantages and period comparisons and period choices used should be
taken into consideration. Thereby, to design the DSM incentive mechanism is a
complex system work.
According to the famous economist Adam Smiths theory about market
mechanism, the essence behavior of people in the market takes self interest as the
feature. For example, enterprises in pursuit of commercial profits and employees in
pursuit of material interests and others are all rational behavior expressions in
pursuit of self interest. First, the design of DSM incentive mechanism is a real
difficulty in the institutional economics. We can only form a complete set of
research methodology which respects objectiveness and science by establishing an
institutional frame and gradually complete it starting from understanding the
essence behavior of human beings, thus the institution established shall have
strong vitality. Second, the market institution consists of three great mechanisms:
price, competition as well as supply and demand, so the internal law for promoting
DSM development in China must be designed through certain organization and
information process to ensure and promote the formation of these three great
mechanisms. The unification of Responsibility, Right and Benefit of DSM
would be realized through the mechanism innovation.
Tariff mechanism is one of the most important and effective lever for imple-
menting DSM. It can enable DSM business to be combined pertinently to regulate
and control users demand behavior to achieve the goal of user energy conser-
vation. The electricity price can be classified as:
1. Average electricity price level. It is the basis of improving energy efficiency as
well as energy conservation and emission reduction. The average electricity price
refers to the average value of price of power commodities in the corresponding

power business area, so it is also called annual average electricity price. As we
know, the formation of any kind of commodity price is a dynamic process that the
market supply and demand at various price levels are relatively balanced. Elec-
tricity price is not only a type with comparatively strong specialization and
integration in national economic price system and price variety but also an
important part of energy price. The concept as comprehensive average electricity
price is usually used to show user electricity price level or electric charge income
level of power grid enterprise during balancing electricity price level. The
important effect of electricity price is to regulate demand and promote the balance
between power supply and demand. With the sustainable development strategy,
electricity price also can become the regulation lever for IR-SP and IRP.
Therefore, scientific power consumption and energy efficiency improvement
need to be regulated and controlled through electricity price.
In public product regulation means, price level regulation has become an
important selection. At present, energy conservation and emission reduction has
become one of the important regulation means for power industry development by
the society and government. Average electricity price is not only the interest
balance lever of investor, producer, and consumer but also the precondition for
encouraging demand-side energy conservation, attracting energy conservation
funds, and rationally compensating DSM investment.
In different countries, due to different national conditions, there are usually two
kinds of average electricity price levels: high electricity price level and low
electricity price level.
Seeing from the government DSM capital resources of countries with lower
electricity price like United States and countries with higher electricity price like
the European Union countries, different electricity price levels mean different
DSM capitals channels. In a country with higher electricity price, the DSM capital
supported by the government comes from tax brought by high electricity price and
user energy conservation price space brought by it; in a country with lower
electricity price, the government supports DSM project with other capital
resources got from finance and tax revenue excluding the electricity price.
2. Time-of-use price. It is the lever for promoting scientific power consumption
and plays an important regulation and control function in implementing DSM.
For many years, a number of accurate exploration and application have been
carried out in the academic field. However, in the large environment of energy
conservation and emission reduction and in the precondition of power market
competition, electricity price marketization becomes more important.
In the power market environment, electricity price marketization mechanism
has been forming gradually. Time-of-use price is not fixed as the terminal power
sales price list any more. As the formation mechanism of power generation market
and power consumption market balance price, it conveys the meaning of Peak
and Valley at the demand-side. This means electricity price is not the persistent
list price in many years any more, and load demand can be regulated through the
selectivity and flexibility of electricity price to achieve the goal of DSM to make
the power industry keep consistent.
3. Combined electricity price. It is the tool for mining demand-side resources.
Combined electricity price refers to achieving the goal of balancing power
supply and demand at different periods, promoting effective utilization of
energy resources and dredging the capital bottleneck of whole circulation link
of power energy. Combined electricity price is generated from combined power
demand, such as coexistence and corise of power consumption of tourism,
transportation, entertainment industry, and residents. The balance mechanism
of combined load demand and combined electricity price needs to get the
purpose of not only meeting the demands but also balancing peak and saving
power by matching power consumption characteristics of users pertinently
through combined electricity price. Thereinto:
Decompose the combined load through peak electricity price to shift the load
with peak shift capability to the non-peak period to achieve the goal of peak
shifting or peak averting.
Regulate and control peak load to turn to valley through the effective com-
bination of peak electricity price and valley electricity price to achieve the
goal of peak shift; besides, seeing from price angle, the price elasticity of peak
load demand is higher than that of common power energy demand, so peak
electricity price has comparatively significant effect on peak load; for
example, typical peak power consumptionwashing machines, video
recorders as well as thermal storage and cool storage in residential and
commercial power consumption can be shifted to power consumption after
midnight to obtain expense saving of three to five times price difference.
Seeing from the implementation effect, small power consumption peak is
formed in some areas after midnight after peak-valley price is used. This is the
regulation and control effect obtained from designing tariff mechanism
meeting new balance between power supply and demand of power grid
economy operation.
Decrease peak load through interruptible load electricity price to get peak
averting effect.
The cultivation of power saving habit can be promoted through multistep
electricity price.
Generally, the power market has several different types as follows: single power
purchase type, wholesale competition type and retail competition type. In different
market modes, DSM has different price mechanisms and DSM function and its
benefit shall be generated at different market link like power generation, trans-
mission, distribution, or retail, etc. In different market fields, the methods for
operating DSM also shall be different.
2.2 DSM Object and the Decomposition 75
2.2 DSM Object and the Decomposition
The Practice of Management published by United States management scientist

Drucker in 1954 raised the famous thought of Management By Object (MBO) for
the first time, which was developed to a kind of system making object and effective
method for management. It is widely used in the world. The basic concept of MBO
is People Centeredobject setting and self-control by the participants together.
Its essence is The Combination of Object Expectation and Object Decomposi-
tion. This concept and the method throughout it have very important practical
significance to innovation practice of DSM. The accomplishment of DSM effi-
ciency mainly depends on users participation, which is consistent with the basic
theory of MBO. Facts show that using MBO method to carry out DSM shall
enhance scientific property, planning property, and enforceability.
2.2.1 Object Design of DSM
The objects of DSM can be classified into three types:

1. Type one: the technological object. The technological object refers to the object
for accomplishing technological improvement in DSM project and is the index
for describing DSM efficiency, such as high efficiency motor, high efficiency
lighting, AC motor frequency conversion technology and process technics
advanced, etc. The technological indexes also can be divided into econom-
ization type as well as regulation and control type, shown as Fig. 2.3.
Technological Object
Regulation and Control

Economization Type
Type
User: Implementer : Society: User: Implementer :

Quantity of Electricity Quantity of Avoidable Quantity of Pollutant Quantity of Load Quantity of Avoidable
Saving annually Electricity Emission Reduction Saving Annually Peak Load Capacity
AC Frequency
High Efficiency High Efficiency Advanced Process
Conversion
Motor Lighting Technics
Technology
Fig. 2.3 Design diagram for implementing technological indexes of DSM

Thereinto, technological object of economizing type mainly focuses on power

saving while regulation and control type mainly focuses on adjustment of power
load demand. In practice, these two saving types cannot be separated entirely. For
example, technology selection, cost estimation, and promotion stage selection can
be emphasized particularly during DSM planning. In a developed country, the
electrification level is comparatively high and the proportion of motor power
consumption in the industry power consumption is higher than that of a developing
country. The preliminary processing industry like electrolysis and electric heating
processing and others in China is transforming to the modernized processing
focusing on motor driving. However, seeing from the trend, the electric heating
processing industry share brought from high energy consumption industry trans-
ferred to China by the developed countries is more than the deep processing
industry share of high additional value of motor driving. Therefore, industrial
enterprises shall pay more attention to saving type technology in DSM projects.
2. Type two: benefit object. Benefit object refers to evaluation index of benefits
brought by the DSM project and it is the core index of DSM plan. It can be
classified into a srt of absolute index and a set of relative index, shown as
Fig. 2.4.
The absolute index mainly shows the physical quantity performance of DSM
projects, such as power saving quantity, DSM investment cost and avoidable peak
load capacity. The relative index shows the efficiency feature of DSM projects,
such as rate of return on DSM project investment and rate of return on power
saving, etc.
Benefit Object
Absolute Index Relative Index
User: Implementer : Society: User: Implementer: Society:

Total Power Saving Implementer Cost; Social Cost; Per Unit Power Per Unit Power Quantity of Pollution
Cost; Benefit of Cost for Treatting Saving Cost Saving Cost Emission Reduction
Annual Benefit for Implementer; Pollution; Rate of Benefit on Rate of Benefit on Per Unit GDP, Electricity
Power Saving; Investment Return Quantity of Emission Power Saving Power Saving or Area
Investment Return Reduction Rate of Return on Rate of Return on
Investment Investment
High Efficiency AC Frequency Advanced Process

High Efficiency Motor
Lighting Conversion Technology Technics
Fig. 2.4 Design diagram of economic benefit indexes of DSM

3. Type three: DSM promotion (application) object. DSM promotion (application)

object reflects the DSM equipment application proportion after the DSM pro-
ject implemented by a single user or a group of users. This is not only an index
for describing a kind of promotion effect of DSM but also the basis of
accomplishing DSM project benefits. It mainly shows the promotion of DSM
technology. The index can be divided into DSM equipment utilization rate and
the ratio of energy-saving equipment increased after promoting DSM plan.
N0
g0 100 % 2:1
M
where,
g0 Static promotion of DSM
N0 The number of the operating equipment after the implementation of a DSM
project
M Total number of the available equipment for DSM project.
Static promotion means that energy conservation is accomplished through

technological renovation or optimization to the original equipment without pur-
chased equipment when users participate in DSM project plan. Thus, this is the
static effect index for implementing DSM.
N1
g1 100 % 2:2
M
where,
g1 Dynamic promotion of DSM
N1 The number of the purchased operating equipment after the implementation
of a DSM project.
Dynamic promotion shows there is energy-saving equipment increased when

users participate in the DSM project and its capability.
Practices show that DSM promotion shall be improved gradually when both
of the government and DSM implementer have complete incentive policies and
stimulation measures. For example, after establishing special capital of DSM or
increasing the electricity price, a piece of capital space for implementing DSM
and promoting energy conservation will enable users to enjoy the power saving
benefits; the lease management mode of energy consumption equipment is
convenient for promoting the DSM energy-saving equipment and direct data
monitoring of energy-saving management information of power consumption
equipment and others are all good paths for improving the DSM market pro-
motion strength.
2.2.2 MBO Process of DSM
Applying the concept of MBO to DSM object decomposition has four processes:
1. Joint agreement and making general object. According to the analysis on users
load shape, the DSM organizer and implementer discuss repeatedly and design
the pilot object of the DSM project, and then confirm the technological and
benefit objects of a DSM project; and analyze and estimate aiming at the
prediction result so as to get the DSM project planning object.
2. DSM benefit object decomposition and acceptance process. First, establish
complete and coordinated DSM project object system including avoidable
electricity and capacity, sharable benefit, construction period and investment
recovery period, etc. and outline the schedule, responsibility of each department
and person, respectively. Second, personnel, technical route, and department
acceptance should be carried out on every object. Third, distribute DSM
resources aiming at the drafted object system structure; these resources include
energy efficiency capital support by the government or other investors, per-
sonnel, equipment and materials, etc.
3. Object implementation. Each participation party performs the responsibility
respectively around the object.
4. Object evaluation of DSM performances. Evaluate the achievements, namely,
DSM performances through regular inspection, such as energy-saving quantity
(rate), benefit share and social benefit after the implementation of a DSM
project. To DSM projects which have investment losses due to improper
measures and failed benefit achievement, it is required to analyze the causes.
Fulfill reward and punishment according to the performance evaluation result.
For example, the California government in the United States connects the
benefits after the implementation of DSM closely with the release of DSM
energy efficiency capital supported by the government and will stop the support
if the requirement is not met.
2.2.3 Index Decomposition Method of a DSM Project
The DSM objects are generally embodied with some indexes. The index decom-
position method is introduced as follows.
2.2.3.1 Index Decomposition Method Overview of DSM
DSM index decomposition methodology is the method collection for evaluating

DSM performances. The effective methods usually used exist in two types:
decomposition method according to quality (qualitative analysis) and decompo-
sition method according to quantity (quantitative analysis).
The qualitative analysis is often a subjective analysis method such as expertise

consultation. The quantitative analysis is the method that analyzes the quantity of
research object. The details are as follows:
Qualitative Analysis Method of DSM Performance Index
1. Expertise consultation. The work is developed depending on the experts

instinct and experiences, and the subjective and artificial factor takes up the
dominant role.
2. Benchmarking method. This is a kind of very practical management method.
Generally, the relevant index of the most excellent enterprise is searched and
taken as the object to carry out comparison to search the difference and correct
disadvantage to obtain the best performance. During DSM project performance
evaluation, the international or domestic enterprise with the best DSM project
performance can be taken as a benchmark to compare with corresponding
energy conservation object values one by one, analyze the differences and
modify the process to fulfill equivalent energy conservation effect.
Quantitative Analysis Method of DSM Performance Index
1. Energy conservation share conversion method. This decomposition method is

the index decomposition according to the Share-Index-Plan. For example,
the energy conservation object of Chinas 11th Five-year Plan that the energy
consumption intensity is decreased by 20 % was decomposed to each province
and city by referring to the share of their GDP in the total GDP of the whole
country.
2. Fixed coefficient deduction method. This is a kind of time series analysis
method that recursion is carried out to the future energy conservation perfor-
mance according to the DSM energy conservation performance in the history.
3. Energy-saving quantity estimation method. Energy-saving quantity is also
called energy conservation quantity that refers to the quantity of energy con-
servation in a certain period. It is the important index for making energy
conservation object and evaluating energy conservation work performance,
including the following contents:
Theoretical energy-saving quantity. It is the saved energy quantity by taking
specified theoretical calculation method. It is decided by the theoretical limit.
The energy conservation technology and capital investment shall be greatly
increased if this limit is exceeded.
Actual energy-saving quantity. It refers to energy-saving quantity with fea-
sible technology, rational economy, accepted by the environment and society,
and allowed by time and construction period.
Direct energy-saving quantity. It refers to the energy quantity saved by
improving energy management level, reforming energy conservation
technology, equipment and processes to have the energy consumption per unit
production decreased.
Indirect energy-saving quantity. It refers to the energy quantity saved by
decreasing the unit output value (product) energy conservation due to industry
structure and product structure adjustment and others.
The calculation of energy-saving quantity can be in many forms. No matter
which kind of form is used, the energy-saving quantity is a relative value, which
can be confirmed according to the base year, the corresponding period of last year,
the plan and actual condition of the current year as well as design standard, etc.
The energy conservation comparison basis can be the energy-saving quantity of
the product yield and energy-saving quantity of output value (or net output value).
Formula (2.3) shows the energy- saving quantity calculated based on the unit
output value energy consumption of base period and report period.

E0 E1
DE G1 2:3
G0 G1
where,
DE Quantity of energy-saving
E0 Energy consumption in the base period
G0 Total output value in the base period
E1 Energy consumption in the report period
G1 Total output value in the report period.
This index is generally compared with the product unit consumption index. It is
the energy conservation consumption calculated according to magnitude of value.
The application range of this energy-saving quantity calculation method is wide,
which can be used by macroscopic layer, industry layer, enterprise layer, or a
certain production department.
[Case 2-1] The electricity per GDP in an area is 82.85 MWh/Million Yuan in
2010 and 81.92 MWh/Million Yuan in 2011 (GDP in this Case is the comparative
price in 2010); the GDP of this area in 2011 is RMB 772 Billion Yuan, then the
energy-saving quantity is as follows:

Energy saving quantity 82:85 81:92 772 103 7:2 105 MWh
720GWh
4. Energy-saving rate estimation method. The evaluation index is energy-saving

rate that indicates the energy-saving potential and is the ratio of the energy-
saving quantity to the original power energy consumption. Usually, the fol-
lowing expressions are used.
Expressed with unit product (output value) energy consumption

De e2 e1
j 100 % 100 % 2:4
e1 e1
where,
j Energy-saving rate
De Decrease quantity of unit product (output value) energy consumption
e1 Unit product (output value) energy consumption at the early stage of
comparison period (base period)
e2 Unit product (output value) energy consumption at the final stage of
comparison period.
[Case 2-2] The net coal consumption rate of generating of some area is 333 gce/
kWh and 327 gce/kWh in 2010 and 2011, respectively, then the energy-saving rate
of the thermal power plants in 2011 relative to 2010 is

327 333
j 100 % 1:8 %
333
Expressed by energy utilization efficiency

At present, Energy Efficiency is generally used to replace Energy Con-
servation raised after the energy crisis in the 1970s all over the world. Thus, it is
required to achieve the goal of improving energy efficiency from exploitation,
processing and conversion, transmission, distribution to terminal utilization. In this
way, the energy conservation effect can be expressed through the energy efficiency
at a certain link.
Dg g g1
j 100 % 2 100 % 2:5
g1 g1
where,
j Energy-saving rate
Dg increase value of energy efficiency at the final stage of comparison period
corresponding to that at the early stage
g1 energy efficiency at the early stage of comparison period
g2 energy efficiency at the final stage of comparison period.
[Case 2-3] The efficiency of power generation and heat supply of some area is
43.46 % and 43.87 % respectively at the beginning of and end of 2010. Thus, the
energy-saving rate of power generation and heat supply in the area in 2010 is
43:87 43:46
j 100 % 0:94 %
43:46
If the original efficiency value is comparatively high, the difficulty for further
improving energy-saving rate shall be comparatively high. That is to say, more
effort is required for improving a same Dg value comparing with the low efficiency
product.
Average energy-saving rate
It is a kind of method for estimating annual energy-saving speed in the planning

period, that can be denoted as the following.
p E
j 1 n 2:6
E0
where,
j Average energy-saving rate
n The number of interval years between the base period and report period

E Energy consumption per output in the report period
E0 Energy consumption per output in the base period.
[Case 2-4] The net coal consumption rate of supply of a power generation
enterprise is 350 gce/kWh in 2010; under the promotion of energy conservation
and emission reduction work by the government, it is estimated that the net coal
consumption rate of supply of this enterprise would be 330 gce in 2015; its annual
average energy-saving rate is calculated like this:
p 330
j 1 5 1 0:9883 1:17 %
350
5. Structure energy conservation and efficiency energy conservation. Since power

grid enterprises are the window of the power industry and can master the power
consumption information of terminal users and power saving behavior laws of
users, so DSM has become one of the core businesses for accomplishing
national energy-saving strategy in power industry. In DSM implementation
process, its energy-saving potential is very important.
The meaning of energy-saving potential contains two aspects:
Total energy-saving potential. The technological limit of total energy-saving
potential depends on the existing or new technology that can be applied to
business in a certain period according to estimation and theoretical limit value
calculated according to the thermodynamics. This index is the basic object
constraint of an ESCO.
Realizable energy-saving potential. It refers to energy-saving quantity with
mature technology and rational economy and estimated to be realized in a
certain period. The realizable energy-saving potential depends on factors like

technology used for DSM implementation, investment, the society, environ-
ment, and other policies. During prediction, it is required to carry out complete
investigation and analysis.
The energy-saving potential can reflect the relation between energy consumers
and output value increase. All economic activities for increasing output such as
DSM can get energy-saving effect, and the energy-saving potential can be ana-
lyzed from the view of industry structure and technical efficiency for forming
output, so the energy-saving potential can be estimated in multi-factor analysis
method. In DSM process, the energy-saving effect also can be obtained from three
aspects as technology, structure, and system. In this way, the multi-factor analysis
method is shown as formula (2.7).
Structure share of electric consumption intensity is calculated by the formula:
P 0 k
ei xi x0i
eks P ik P 2:7
ei xki e0i x0i
i i
where,
eki Electric consumption intensity of a certain industry or area k in the ith year
xki Value added of a certain industry or area k in the ith year.
The structure share of electric consumption intensity shows the contributing

part due to structure change in industry increase value created by power con-
sumption. Different structure parameters can be introduced to the structure here to
get different structure effects, such as various power consumption structure.
Efficiency share of electric consumption intensity is calculated by the formula:
P n
ei e0i xni
ene P in P 2:8
ei xni e0i x0i
i i
The efficiency factor of electric consumption intensity refers to the influencing

degree resulting from the unit consumption change value of different kinds of
power consumption to the electric consumption intensity.
Through multi-factor analysis, the intensity influencing power saving efficiency
factor and structure factor can be analyzed out so that DSM planning can be made.
This is the research method about energy efficiency and economic growth
originating from macroeconomic analysis. However, how to dig out the multiple
comprehensive benefits of DSM in structure and efficiency aspects? The ESCOs
need to make a comprehensive balance combining DSM planning and obtain
relevant investigation data to carry out analysis and judgment.
2.2.3.2 Energy Conservation Analysis of a DSM Project
A DSM project can get energy-saving benefit from the following main aspects.
Peak Load Shifting and Valley Filling
Peak load shifting and valley filling can achieve avoidable capacity cost and
electricity cost by improving load factor. DSM encourages users to install heat
storage electric boilers and construct or reconstruct ice storage air conditioners
through valley electricity price to achieve the purpose of shifting peak load and
improving load factor.
With the economic growth and improvement of peoples living standard in
China, the power peak-valley difference has increased gradually, thus the power
grid load factor has been decreased gradually. To ensure reliable power supply, the
power grid enterprises can shift peak load through DSM to improve the main
power grid load factor in China and improve the power system efficiency steadily.
According to the observation on the domestic power consumption market, the
phenomenon centralizing on peak power consumption is also very prominent.
Energy-intensive industry power consumption, air conditioning power consump-
tion, resident power consumption as well as computer consumption, and others are
all important causes for continuous rising of peak load in the summer. To settle
this kind of power consumption convergence behavior, the main countermeasure is
the price regulation. Only if these measures are applied comprehensively can peak
shifting power consumption be realized so as to achieve the goal of scientific
power consumption.
Green Lighting
The lighting power consumption of developed countries accounts for 2025 % in

the total power generation. China has 1.3 billion people and the annual lighting
power consumption accounts for about 1015 % of the total power generation. The
proportion in China at present is far lower than the level of developed countries
and the lighting power efficiency is also far lower than that of the developed
countries. It indicates that the lighting technology energy conservation is one of
the important contents for promoting terminal power saving.
The prophase evaluation of energy-saving lighting
The implementation of energy-saving lighting is a large system engineering.
From the view of power utilities, Forward Integration strategy should be carried
out on the marketing business to provide DSM services of lighting power con-
sumption for various users. That is to say, analyze and estimate the light sources
and power of different rooms for users, at the same time, recommend and design
the positions and quantity of energy-saving lamps by aiming at the lighting room
area, light source intensity and lighting quality requirements of users and taking
energy-saving and consumption reduction as well as economic cost as the con-

straint conditions.
Popularize energy-saving fluorescent lamps to cover with every user. Promote
lighting fixture updating and replacement strategy in a full powercarry out the
energy-saving lamp replacement measures to every user practically and eliminate
high energy consumption lighting fixture and production line strictly through
policy taxation and laws.
Popularize energy-saving ballasts. The energy-saving potential of lighting power
consumption market in China is great. Only ballasts can save 900 GWh in peak load
period every year; correspondingly, 330,000 tce can be saved; CO2, SO2, and NOx
emission can be reduced to 313,000 ton, 33,300 ton, and 28,800 ton, respectively.
From the view of the prophase cost of users, the price of energy-saving ballast is 1.8
times of that of traditional ballast, but its service life is 26 times of that of the
traditional one and the investment can be recovered in about 1 year.
Household Appliance with Green Energy Efficiency Label
With the improvement of life quality, the air conditioner, and the refrigerator have
become the main force of city power consumption in residential household
appliances. The energy efficiency labeling system can generate great energy
conservation and environmental protection benefits. First, energy efficiency label
can provide a performance index of household appliance energy efficiency grade
for users and guide consumers to use energy-saving commodities. Second, an
uniform label by the government and the formation of an uniform product catalog
provide possibility for power grid enterprises to encourage users and government
to buy energy-saving electric appliances. Third, implement it in a compulsory
manner; form marketing energy-saving self-discipline ability and intensify users
energy efficiency consciousness. Finally, the energy efficiency label supervision
can promote the formation of a full energy-saving system of household appliance
production, selling and application, which can guide the power users easily to
identify the energy efficiency of electric appliance products and correctly orient
the energy efficiency grade to make DSM have a firm basis for object
accomplishment.
Demand-Side Response Classification Elecric Price and Sharable Benefit of DSM
This is a new research view of DSM theory and practice. The sharable benefit of
DSM is estimated and calculated mainly according to the classification of lighting
load and its demand elasticity.
1. The sharable benefit generated from residents energy conservation is calcu-
lated with the avoidable electricity cost index. The adjustment is basically
carried out with the aid of residents response to time-of-use price. The
avoidable electricity generated from residents energy conservation changes

with the residential electricity price elasticity, the residential electricity price is
comparatively single, making it not easy to calculate the avoidable capacity
cost of resident power consumption load. Its decisive factors are peak-valley
price ratio and energy efficiency label guidance.
2. The sharable benefits of industrial and commercial users can be considered
from two aspects. First, the avoidable cost can be calculated according to the
saving value of its capacity price, namely, accomplished by means of technical
power saving measures and technical improvement. Thus, the sharable benefit
can be calculated according to the energy-saving quantity of the energy-saving
equipment increased. Second, the industrial and commercial electricity has
time-of-use price; it is required to make statistical data analysis of electricity
price and electricity aiming at different users, research its elasticity value dis-
tribution rule and get this type of users price responsively on electricity so as to
work out the avoidable electricity cost of industrial and commercial users and
get the sharable benefit value of this DSM project.
2.2.4 Evaluation Index System of DSM
Evaluation of DSM projects is essential, and a basic path for developing DSM
project functions, promoting energy conservation, and emission reduction.
Although DSM projects are not same as power generation installed capacity and
power grid construction project which has great investment and long period, it is
necessary to make comprehensive quantitative evaluation on DSM projects
through a series of indexes to actually improve DSM to the comprehensive balance
height of demand-side resources under IRSP and IRP.
The DSM evaluation indexes convert decentralized information to easy
understandable form, help people to conveniently analyze regularity problems
relating to effective achievement, consumption, investment benefit and environ-
ment in DSM implementation process.
The evaluation index system of DSM refers to a complete set of data, a method
system used to reflect the basic contents, an implementation effect of a DSM
project through the logic classification and combination and summarization of a
series of indexes.
This evaluation index system is composed of three parts: user evaluation index,
organizer and implementer evaluation index, and government (social) evaluation
index. These three indexes evaluate the DSM implementation effect respectively
from different view of interest, shown as Fig. 2.5.
The user evaluation indexes include reducible electricity charge, acceptability
of users, energy-saving potential and user energy conservation market share, etc.
The DSM planning and decision object can be found out through the evaluation on
these indexes.
Evaluation Index System of DSM
Evaluation Index for User Evaluation Index forOrganizer and Implementer Evaluation Index for Government
Reducible Electricity Price Avoidable Cost (Electricity and Load) Pollutant Emission Reduction Quantity
Users Participating in and Popularizing Energy Conservation Regulation and

System Load Factor Rise
Energy Conservation Supervision Effectiveness
Financial Policy---Reducing or Remitting

Security and Reliable Intensifying Competitiveness
Taxes
Improving Cash Annual Increase Rate of Government

Market Share Prediction
Flow/Fixed Cost Recovery Supporting Fund
User's Load Shape User Satisfication Decreasing System Cost Energy Efficiency Evaluation
Power Generation Decreasing Demand for

Improving User Relation
Company's Investment Fossil Fuel
Available DSM Scheme
Fig. 2.5 Evaluation index system of DSM
The organizer and implementer evaluation indexes include avoidable cost,

namely, avoidable electricity cost and avoidable capacity cost, energy auditing
made by the energy conservation company at the early stage to get energy-saving
potential of users, obtained cash flow and investment return to decrease cost and
obtained market share and profit, etc.
The government evaluation index is mainly the evaluation of mechanism
establishment in the aspect of promoting DSM by the government. The evaluation
indexes include pollutant emission reduction due to power saving, completion
degree of regulations relating to DSM, the implementation proportion of financial
tax reduction and exemption policies during the development of the dominance
function of DSM by the government, energy conservation load supportiveness,
investment fund of energy conservation culture cultivation and annual growth rate
of DSM fund by the government, etc.
2.3 DSM Operation Under Different Tariff Mechanism
The DSM operation mode under different tariff mechanism aims at guiding people
to select a DSM project which is suitable for the environment in which they stay
the economic condition, accomplish energy conservation, decrease installed
capacity, utilize resources in a highly effective way, and protect environment.
Nowadays, DSM has become an international advanced energy management
activity and an important mean for sustainable development strategy of developed
countries. It has been implemented successfully in more than 30 countries and

areas such as United States, France, Germany, South Korea, Canada, and others.
The policies and management systems used by all the countries in implementing
DSM are not completely same and the methods and incentive means are also
different. However, through the analysis of DSM experiences of each of these
countries, there are two large DSM promotion modes used by every country,
namely Low Electricity Price Fund Support Mode and High Electricity Price
Taxation Promotion Mode. These two modes both are strategic types, and the
specific strategy and tactics need to be integrated with the specific energy con-
servation object.
2.3.1 Low Electricity Price Mode and Its Adaptability
Low electricity price fund support mode means that DSM fund is mainly obtained
from channels excluding electricity price as the countrys electricity price level is
comparatively low. It is used mostly in developing countries and countries with
comparatively abundant energy resources, such as China, United States, and
Canada. This kind of low electricity price level directly leads to insufficient
constraints to power consumption by users and very low incentive effect on power
saving by users. When the society faces the environmental pressure of energy
conservation and emission reduction, and it is difficult to change the low electricity
price situation, the government is required to carry on DSM practically by means
of administration and cooperation with special fund support for energy conser-
vation. As mentioned in Chap. 1, since the oil crisis in the 1970s, United States had
the energy consumption intensity decreased by about 50 % due to the application
of measures like DSM and through various incentive policies and DSM fund
support; the primary energy consumption in 2000 was almost equal to that in 1973,
Cent/kWh
Year
Residential Electricity Industry Electricity

Price Price
Fig. 2.6 Schematic Diagram of US Resident and Industry Electricity Price in 19602000
2.3 DSM Operation Under Different Tariff Mechanism 89
but the GDP in 2000 was increased by 74 %. Figure 2.6 reflects the low electricity
price development condition in the United States.
Low electricity mode refers to the mode that the average electricity price level
is relatively low but the corresponding investment of DSM is subsidized through
other charging modes excluding the price. It is the supplement to the insufficiency
of price mechanism. Usually, the investment for saving every 1 kW capacity is
only 20 % of the cost for increasing 1 kW capacity; the investment for saving
1 kWh electricity accounts for about 40 % of the cost for 1 kWh power genera-
tion. Internationally, some countries are in energy shortage situation; compara-
tively low electricity price level development mode is used due to the historical
reason; considering the national energy security and the inertia rise urgency of
international market energy price, promoting the government energy conservation
fund with additional energy efficiency evaluation and supervision becomes more
and more important to support DSM.
The national energy conservation regulation action plan in the United States is
providing full, timely and stable project fund for the energy efficiency project with
good cost benefit so as to make energy resource to get the best allocation. The
experience accumulated during several decades in the United States shows policy-
related actions must be taken for promoting DSM and implementing energy
conservation work. The energy conservation object cant be realized only by the
market itself.
The national energy conservation action plan in the United States was
announced in the conference of the United States Public Utilities Commission on
July 31, 2006. The purpose of the plan is to accomplish sustainable and powerful
national energy efficiency object through the cooperation of the power and natural
gas companies, government supervision department, and its related departments.
This plan suggests:
1. Identify with the idea that energy efficiency should be a very important
resource;
2. Energy conservation promise should be treated as a very important resource in
long-term;
3. The benefits and opportunities brought by energy efficiency should be widely
propagandized;
4. Full, timely and stable project funds should be provided for energy efficiency
project with good cost benefit;
5. The incentive mechanism and energy efficiency project for accomplishing cost
benefit should be unified to change charge rate making policy and stimulate
energy efficiency project investment.
It can be seen from this that the economic lever regulation, administrative
incentive, and legal regulation of DSM are accomplished in the way that the
government establishes fund source channel in low electricity price mode to
promote power saving and scientific power consumption for the whole society.
Remarkable achievements can be achieved in the aspects of decreasing and
slowing down power construction investment, improving economical efficiency
and reliability of power grid operation, controlling electricity price rise amplitude,
reducing users electricity expenditure, decreasing energy consumption ,and
improving environmental quality, etc. Therefore, this is a kind of DSM operation
mode that can be combined with the national situation in China.
2.3.2 High Electricity Price Mode and Its Adaptability
High electricity price taxation promotion mode refers to the mode that the elec-
tricity price level is comparatively high as the taxation proportion in the electricity
price of a country is comparatively high, and the government obtains funds by
means of taxation to subsidize DSM project and carry out energy conservation and
renewable energy research. The DSM energy conservation fund of high electricity
price taxation promotion mode comes from taxation of the government so that it is
easy to accomplish marketing operation of a DSM project. The comparatively
successful example that puts stress on EEM and DSM is European Union member
countries. They generally think ensuring energy security, improving energy effi-
ciency and protecting ecological environment are important motives for imple-
menting DSM. Therefore, two paths are mainly used to promote this high
electricity price DSM mode.
1. Stimulate users to implement DSM and improve energy efficiency by
increasing energy usage cost, raising electricity price and taxation;
2. Provide proper interest subsidy for DSM project through financial investment
of the government to reduce its energy efficiency investment and input so as to
decrease the project risk and promote the enthusiasm of participants.
The mode which takes European Union countries as representative stands for
the DSM mode of consumers in high cost.
Many European Union countries levy taxes on pollutant emission of high
energy consumption industry. Apply energy tax collected from users to public
energy conservation planning funds, encourage energy efficiency improvement
activities like DSM, improve energy management, and decrease energy con-
sumption through the investment that users consciously increase equipment with
high energy efficiency. For example, Denmark levies a high tax on CO2 emission,
for 3.3 Euro/t, from households and industry departments, and the tax for users
who have signed voluntary agreements on energy conservation can be reduced to
0.4 Euro/t. These taxes all may bring comparatively high growth to energy con-
sumption cost so as to increase energy consumers cost and constrain their energy
consumption behavior. However, the governments promote taxation through
energy conservation incentive policy channel and provide subsidize for energy
conservation behavior in the high electricity price mode, through the prevention
and treatment of taxation support environment deterioration and with taxation
2.3 DSM Operation Under Different Tariff Mechanism 91
formed by comparatively high power consumption cost promotes the successful

development of energy conservation and emission reduction in European Union
countries. Therefore, this kind of electricity price level and DSM operation mode
is the basic energy policy of these developed countries and also one of the
important factors for promoting sustainable economic development.
2.4 Cost-Benefit Analysis of DSM
2.4.1 Basic Theory of Cost-Benefit Analysis of DSM
The cost-benefit analysis of DSM refers to a method that compares and estimates
the DSM project system benefit (the avoidable cost after implementation of a DSM
project, generally expressed with E) and energy conservation investment (gener-
ally expressed with I) based on the compound interest cash flow and taking cur-
rency value as the uniform evaluation standard. It can be analyzed and confirmed
whether the DSM project can be implemented through effective criterion
conditions.
The cost-benefit analysis of DSM is mainly divided into two layers: one is the
economic cost and benefit of DSM and the other is the social cost and benefit of
DSM. Due to different evaluation layers, the evaluation methods are also different.
The economic cost-benefit analysis takes economic growth and profit maximiza-
tion as the target, so Economic Cost and Benefit evaluation method is applied to
its evaluation, which is single. While the Social Cost and Benefit evaluation
method is applied to the social cost-benefit analysis which takes fair distribution,
environment sustainability, national welfare maximization as the target; to DSM,
its implementation has a part in social public benefit property, but the external cost
and benefit formed due to this has no calculation boundary and it is required to
internalize the external cost and convert the environmental cost to the imple-
menters economic benefit to accomplish the maximization of its social benefit
with the governments incentive subsidy. The different points in the aspects like
purpose, object, shadow price, DSM service price calculation and application, and
others when cost-benefit analysis of a DSM project is carried out at different layers
are summarized in Table 2.3.
Whether a DSM implementer selects a certain kind of a DSM project, it mainly
consists of four aspects: economy, technology, environment, and market potential.
These four aspects are the implementation of cost-benefit analysis of a DSM
project. While the cost-benefit analysis mainly pay more attention to the cash flows
in compound interest of various energy conservation schemes of DSM such as
cost, benefit, and profit.
Table 2.3 Differences between economic cost-benefit analysis and social cost-benefit analysis
Method Purpose Object Shadow price DSM User
type service price
calculation
Economic Making limited power Profit Financial Opportunity Power grid
cost resources get most increase efficiency cost enterprises;
and effective approach Power
benefit distribution generation
enterprises;
Energy service
companies
(ESCOs);
Power users
Social cost Improving power Economic Sustainable Social value Governments
and energy resource growth economy judgment
benefit allocation Social Environmental
justice carrying
capacity
2.4.2 Cash Flow Analysis of DSM
Generally, cash flow is the term used to describe the currency result of a trans-
action behavior. The cash flow of a DSM project (also called net cash flow) refers
to the difference between cash-flow input and cash-flow output in the imple-
mentation process of a DSM project. It is mainly shown as the cash flow in the
implementation process of each DSM business. This kind of cash flow has many
cash forms: present value (P), future value (F), and annuity of a DSM project cost
benefit. The distribution in different periods is shown as Fig. 2.7.
The cash flow is a critical factor in the DSM project decision model. The DSM
investment decision model refers to making rational selection in various DSM
schemes according to the cash flow formed by various DSM investment schemes
and the obtained returns.
2.4.2.1 Main Factors Influencing the Cash Flow of DSM
The cash flow of a DSM project is a kind of cash flow distribution of cost benefit of
this project in time sequence. It is the basis of calculating investment, valuation,
economic benefit, and social benefit of the DSM project. Its influencing factors
specifically including the following ones:
Fig. 2.7 Schematic diagram

of cash flow of a DSM project
2.4 Cost-Benefit Analysis of DSM 93
Energy Conservation Cost
Energy conservation cost is the decision discrimination standard of a DSM project

fund utilization as well as the important precondition for a DSM project decision
making. If constraint cost exceeds the benefit evaluation value, it is difficult to
implement the DSM project. Besides, it is related to the type, quantity, and
intensity of the constraint condition. For example, the biggest cost constraint is
energy-saving (power) quantity object, and the energy efficiency level can be
achieved through electricity price conversion. In California, United States, the
government established a very stable system benefit charge so as to ensure the
minimum financial source of energy efficiency projects, renewable energy projects
and their researches. However, every power utility will have to accomplish strict
energy conservation objects due to this. For example, the annual energy conser-
vation object of Pacific Gas and Electric (PG&E) to accomplish the increasing
year by year through two financing paths is 744 GWh/year. It is equal to 11.5 %
of the sold electricity and can get to 1,277 GWh/year by 2013. The estimated
annual average energy conservation cost calculated based on this is 3.02 cent/
kWh. Corresponding system benefit charge supported by the government can be
achievied only when this kind of constraint object is accomplished. At the same
time, the important avoidable cost in DSM project is a kind of cost constraint in
fact.
Interest Rate (or Discount Rate) Design
In the formation process of DSM scheme, the avoidable cost is the maximum cash
flow, but it is required to select the interest rate for estimating this cash flow. The
interest rate design is also an important content in cost-benefit analysis of DSM.
During benefit analysis of a DSM project, there are many interest rate choices.
1. Necessary rate of return. It refers to the lowest rate of return that people are
willing to invest. Generally, this is a decision discrimination standard of ES-
COs. When an energy conservation service cannot meet the requirements of
necessary rate of return after the company makes a decision on the imple-
mentation of a DSM project, it will be very difficult to accomplish the
implementation of this project; besides, this is also an important and sensitive
factor influencing the formation of cash flow of a DSM project.
2. Expected rate of return. It refers to the rate of return that the investor expects to
obtain. It is the rate of return that makes the net present value (NPV) to become
zero, so it is also called internal rate of return. This is a kind of original rate of
return of a DSM project and an important index for judging the internal
profitability of a DSM project as well as the starting point of project investment
and load cost. If the expected rate of return cannot be achievied, then the energy
conservation project does not have the economic feasibility. In addition, when
evaluating the social benefit, it is necessary to internalize the external factors

like environmental cost.
3. Actual rate of return. It refers to the rate of return actually obtained in a DSM
project in a specific period. This index is related to the operation and decision-
making ability of the DSM project implementer.
The relation between interest rate design and necessary rate of return, expected
rate of return, and actual rate of return depends on the decision makers judgment
and the view of evaluation on DSM project. In the cost-benefit analysis process of
the project, the expected rate of return is similar to the actual rate of return, but
risks are not taken into account for it. That is to say, the difference between the two
is the interest rate difference resulting from risks.
Demand-side Resource
The demand-side resource is mainly shown as the reduction of demand-side load

and reduction of load demand. This is the basis for each party of DSM to share
energy conservation benefit.
Power Market
The power market bidding transaction provides the real conditions for the
development of DSM, because only in comparatively normative market transac-
tion process can an energy efficiency project really form the benefit drive of energy
conservation services, can the power utilities (power grid enterprises and power
generation enterprises) really have motive power to implement DSM, can an
energy conservation company have enthusiasm to implement DSM and can the
cash flow of a DSM project have relative stability. For example, each private
power utility in California must make an investment plan which is fair to power
supply source and demand source and can prove that the company does not go
against the tenet of California Energy Plan, and is required to provide low cost
demand scheme before constructing the new power supply. It is required to esti-
mate the benefit of a DSM project for this scheme. If the load demand can be met
through demand-side management energy conservation, the power supply con-
struction investment plan shall not be approved. These are all market bases for the
accomplishment of IRSP or IRP and DSM, otherwise, the cost and benefit cannot
become the real interest lever of energy conservation service.
Power Distribution System Regulation
The regulation comes from the administrative intervention of the government. It is

mainly the supervision policy on energy efficiency of power distribution
companies. If the government supports the implementation of DSM with special

fund, there certainly will be correspondingly strict energy efficiency evaluation
system. If the energy efficiency object cannot be achieved, the corresponding
energy conservation supporting fund will be cancelled consequently.
Reliability and Risk Management
The reliability and risk management is a kind of guarantee for DSM energy
conservation business. For example, to confirm the reference value of energy
conservation benefit share is 50 %, that is a kind of reliability and risk prevention
regulation for guaranteeing the energy conservation contract to be accomplished.
2.4.2.2 Cash Flow Decomposition of a DSM Project
The cash flow decomposition is like this: classify the capital inflow and outflow of
multiple selected DSM projects in the accounting period, compile an income
statement and draw a cash flow distribution diagram; then select different interest
rates to estimate the time value of capital; finally, provide the appropriate DSM
project.
[Case 2-5] Table 2.4 is a simple capacity conservation cash flow list by Effi-
ciency Vermont of the USA.
The data of this case shows that the DSM project of 20022004 saved elec-
tricity charge of about USD 94 million for the industrial and commercial con-
sumers and the residents when it brought social benefit of USD 100 million.
During the actual implementaton of a DSM project, the two large parts, namely,
cash-flow input and cash-flow output, must be separated out from the cash flow in
detail.
Cash-flow Input of a DSM project
It is the base for forming the sharable benefit of DSM planning, including the
following items.
1. Benefit fund inflow of a DSM project. It can be shown specifically as the saved
annual electricity charge after the implementation of a DSM project. It also
includes capacity conservation magnitude of value, called the avoidable
capacity cost, energy efficiency testing cost collected from the users and the
cost invested by the participant and the third party. However, seeing from the
view of social benefits, it also includes resource benefit compensation (in the
full life cycle) and environmental benefit compensation expenditure (0.007
dollars/kWh), etc.
Table 2.4 Energy and capacity conservation cash flow decomposition list by energy efficiency
utility of Vermont, USA
No. Social cost testing input Formula Industrial and Residents All items
and result commercial
departments
Thousand % Thousand % Thousand %
dollars dollars dollars
1 Annual conservation 78,414 58 57,538 42 135,952 100
load (converted to
capital)
2 Energy efficiency 20,356 53 17,808 47 38,164 100
testing cost
3 Participant and the 15,046 60 10,207 40 25,253 100
third partys cost
4 Management cost 757 50 757 50 1,514 100
5 Total risk-free cost [2] ? [3] ? [4] 36,159 56 28,772 44 64,931 100
6 Total cost for risk 32,543 56 25,894 44 58,437 100
discrimination
7 Benefit of resource 63,429 62 38,670 38 102,099 100
conservation
8 Environmental benefit 549 58 403 42 952 100
9 Total benefit [7] ? [8] 63,978 62 39,073 38 103,051 100
10 Electricity (GWh) 1,523.2 1,395.4 2,918.6
11 Net social benefit of [9]/[10] 42.0 28.0 35.3
unit electricity
(thousand dollars/
GWh)
12 Public utilities cost 2.7 3.8 3.2
testing; cost saving
of unit electricity
(thousand dollars/
GWh)
13 Reduction income of 10 12 4,113 5,302 93,400
power utilities
14 Benefit-cost ratio (-) [9]/[6] 1.97 1.51 1.76
Note The data are filed according to the data on the website of energy efficiency utility of
Vermont, USA
2. System Benefits Charges (SBC). This is a kind of the minimum cost source for
ensuring demands of energy efficiency project, renewable energy projects, and
research and development projects. This income must be undertaken by all
users and has the same charging standard. In California, United States, all the
investment sources of energy efficiency, renewable energy projects, and the
research and development are ensured in accordance with withdrawing 0.025
dollars SBC [7] from every kWh electricity charge.
3. Fixed fund inflow of a DSM project. This refers to the value of fixed assets
formed due to the implementation of a DSM project and energy conservation
project. The actual value includes the annual depreciation of energy-saving
equipment accomplishes the value transfer in a form of cash-flow input.
4. Circulating fund inflow of a DSM project. This mainly refers to the one-time
valuation recovery mode in the implementation process of energy conservation
project and the mode of withdrawing benefit funds in a balance manner in the
full life cycle of a DSM project. The former cash-flow input mode is one-time
recovery which can easily cause financial unbalance while the latter is a kind of
cash flow balance withdrawal mode.
5. Residual value fund inflow of a DSM project. It is usually withdrawn according
to 35 % of the original value of energy-saving equipments.
6. Sponsoring funds of a DSM project. It should be a kind of important cash-flow
input or even the cash-flow input in a comparatively great proportion of a DSM
project. It includes social and individual endowments, the donation of power
generation enterprises and support of green organizations, government of every
country or international organizations.
Cash-Flow Output of a DSM Project
It refers to the total cost payout after considering the risk of a DSM project. It
includes the investment like prophase feasibility analysis cost of a DSM project,
energy-saving reconstruction materials, equipment and labor and other investment
and management costs. Thereinto, the management cost includes plan control fund
of a DSM project (fund expenditure required by plan management work for
implementing DSM project), cost control (expenses including cost budget, control
and its statistical analysis expenditure, etc.), financial control (expenses including
financial cost, interest expense, and loan selection, etc.). These daily expense parts
such as material costs, labor costs, interest expenses and management costs, etc.,
are necessary fund expenses to ensure the successful implementation of energy
conservation projects.
While carrying out social cost-benefit analysis of a DSM project, there is also a
total interest. Its calculation is different from the common analysis of corporate
financial net cash flow. The calculation boundary of this cash flow is the whole
society and environment and others, so it is called the social benefit which spe-
cifically is the improvement of environmental treatment cost, fairness, and welfare,
etc. It is very difficult to evaluate this part. Especially, it is very difficult to show
the external cost and long-term benefit with the financial cash flow indexes.
The main indexes of cost-benefit analysis of DSM and their functions are shown
as Table 2.5.
Table 2.5 Main indexes of cost-benefit analysis of DSM and their functions
Index Expression Main index applied to cost-benefit Remarks
analysis and its function
Present 1 Investment analysis of a DSM project PPresent value
P F 1in
value Ph 1
i FFuture value
(P) P Rt 1i t
AAnnuity
P A ADFi; n RtCash flow of
Future F P 1 in
Evaluating the economic benefit and the year
P
value F Rt 1 int social benefit of a DSM Project ADFAnnuity
(F) F A ACFi; n discount factor
Annuity A F SFF i; n Calculating the annuity cost of a DSM ACFAnnuity
(A) A P CRFi; n project compound
factor
SFFSinking
fund factor
CRFCapital
recovery factor
2.4.2.3 Analysis of Future Value (Expressed with F) of the DSM

Benefit
The analysis of the future value of DSM costs and benefits mainly studies the value
of cost input and benefit output which are shown with cash flow in DSM project
calculated till the project is finished.
General Future Value of DSM
The future value of a DSM project is expressed with F. The basic analysis model
for calculating future cost-benefit value of a DSM project is
X
n
1
F Rt Ct 2:9
t0 1 int
where,
F Future value
Rt Annual benefit of the tth year after implementing DSM project
Ct Investment cost of a DSM project in the tth year
i Time value rate of capital (discount rate, rate of return on investment and
capital cost, etc.)
n Service life of the implementation of a DSM project.
Formula (2.9) is suitable for the condition that the income and cost cash flow of
a DSM project is inconsistent, cash-flow input and cash-flow output is irregular.
Therefore, this is a cost and benefit evaluation formula that has general meanings.
To any complicated energy conservation cost and benefit as well as annual

expenditure and cost, formula (2.9) can be used to uniformly calculate the sum of
future value of a DSM project. As the result of formula (2.9) is the sum of capitals
in the future years, this method is suitable for evaluating the value of social
resources.
Future Annuity Value of a DSM Project
When DSM project investment is carried out in a form of equivalent net cash flow
every year or the annual input and output being comparatively stable, the annuity
final value can be expressed with the equivalent annuity value A, and the future
annuity value of a DSM project is
1 in 1
FA 2:10
i
Generally, the factor is shown with ACF (i, n) which is calculated as the
formula:
1 in 1
ACFi; n 2:11
i
[Case 2-6] The total investment at the early stage of a DSM project for imple-
menting energy conservation reconstruction of an enterprise is RMB 1.2 Million
Yuan. After implementing DSM project, the estimated sharable benefit of energy
conservation returned in the future 3 years after the implementation is RMB 1
Million Yuan per year, and the rate of return on investment is 10 %. Then, how
much is the total sharable benefit of this project after the project is finished?
Answer: the investment present value I of this project is RMB 1.2 Million
Yuan and the sharable benefit of energy conservation returned after the imple-
mentation is RMB 1 Million Yuan per year. It is a question about the summation of
the future annuity value.
Fig. 2.8 Cash flow 1 1 1

distribution diagram
The benefit future

value of DSM:
RMB 1.71 Million
Yuan
RMB 1.2
Million
Yuan
1 in 1
FA I 1 in
i
1 10%3 1
1 1:2 1 10%3
10%
3:31 1:5972
1:7128 RMB Million Yuan
Therefore, the total sharable benefit of this project is RMB 1.71 Million Yuan,
shown as Fig. 2.8.
Redemption Annuity of a DSM Project
When it is required to evaluate the final benefit of a DSM project, it can be carried
out by allocating the final amount of investment of the project for every year and
the expenditure is paid in annuity mode. If the investment is carried out, the
annuity generally can be calculated through formula (2.12) and then the annual
standard value of benefit evaluation can be received.
i
AF 2:12
1 in 1
Formula (2.12) is often used after the loan of a DSM project is implemented.
The bank loan F is required to be paid in the future. Or F can be the energy
conservation benefit promise to the investor. From the view of loan, F is equivalent
to a debt, namely, the equivalent benefit value accomplished year by year through
DSM project.
[Case 2-7] An energy conservation company and the users signed an agreement.
The total sharable benefit of the project after 5 years is estimated to be RMB 5.87
Million Yuan. If the capital cost of this company is 8 %, it is estimated that the
DSM project starts to recover benefit year by year in the implementation process.
If capitalization mode rather than expensing mode (the capitalization is returned
year by year according to annuity while the expensing is the one-time return) is
taken for the project implementation, how much is the sharable benefit of energy
conservation returned every year in the late 5 years of this energy conservation
company?
Answer: according to the known conditions, the final value after 5 years is
estimated to be RMB 5.87 Million Yuan. If it is capitalized, the annual benefit
value will be:
i 8%
AF 5:87 1 RMB Million Yuan 2:12
1 in 1 1 8 %5 1
Thus, the annual sharable benefit of this project will be RMB 1 Million Yuan.
Obviously, formula (2.12) is comparatively suitable for the calculation of

annual sharable benefit when an energy conservation company negotiates with the
users about a DSM project.
2.4.2.4 Analysis of Present Value (Expressed with P) of DSM Benefit
General Present Value of a DSM Project
X
n
1
P Rt Ct 2:13
t1 1 it
Formula (2.13) is the formula that discounts the cash of a DSM project year by
year to get the sum. It is generally used for discriminating the present values of the
investment cost and future benefit of the DSM project and often used for invest-
ment estimation, budgetary estimate, and budget of a DSM project.
[Case 2-8] The prophase investment on the implementation of a DSM project is
RMB 100.000 Yuan in the first year, 140,000 Yuan at the end of the second year,
and 200,000 Yuan at the end of the third year; the bank loan interest is 10 %. Then,
how much will the investment need to be paid for DSM reconstruction of the three
phases?
Answer: in the previous three years income of this project R = 0, so the sum
of investment present value is
n
X
1
P 0 Ct
t1 1 it
1 1 1
0 100 0 140 0 200
1 10 %1 1 10 %2 1 10 %3
356:7 RMB thousand Yuan
Case 2-8 shows that formula (2.13) can be used for calculating the total
investment present value of the project when the benefit and investment cash flow
of the DSM project have been known and it is required to calculate the total
investment present value of the project. This calculation method generally is
applied to the prophase investment budget of a DSM project.
Cost-Benefit Analysis of Annuity Present Value (Expressed with APV) of DSM
This is the special example of present value formula. That is to say, when the
annual input and output of a DSM project are equal, formula (2.14) can be directly
used to calculate the cash present value of the project.
1 in 1
PA 2:14
i1 in
Table 2.6 Summary table of cost-benefit analysis parameters of DSM [8]

Name Known To be Conversion factor Calculation
calculated formula
Compound factor P F CFi; n 1 in F P CFi; n
Discount factor F P DFi; n 1 in P F DFi; n
n
Annuity compound A F ACFi; n 1ii 1 F A ACFi; n
factor
Sinking fund factor F A SFFi; n 1iin 1 ACF1i; n A F SFFi; n
n
Annuity discount A P ADFi; n 1i 1 P A ADFi; n
i1in
factor
n
Capital recovery P A i1i
CRFi; n 1i n 1
ADF1i; n A P CRFi; n
factor
Annual Cost-Benefit Analysis Method of DSM
When the scheme decision making and financing of a DSM project are carried out
and it is required to compare multiple schemes with each other, using the annual
cost method to carry out the comparison is an important method for cost-benefit
analysis of a DSM project.
i1 in
AP 2:15
1 in 1
This is the formula used for calculating the return on investment of a DSM
project and mainly for calculating the investment evaluation and benefit forecast. It
is also a comparatively important and practical parameter, which can be used to
calculate the investment recovery benefit of DSM projects of ESCOs.
[Case 2-9] An Energy Service Company (ESCO) which has a sum of fund as
RMB 39.93 Million Yuan hopes to carry out the next rounds rolling development
of a DSM project by means of annuity recovery. The rate of return on investment
of this kind of project in the history is 8 % and the investment period is 5 years.
Then, how much is the annuity benefit required every year so that the DSM
investment benefit of the ESCO is better?
Answer:
i 1 i n 8 % 1 8 % 5
AP n 39:93 10 RMB Million Yuan
1 i 1 1 8 %5 1
2:15
Case 2-9 shows that when an ESCO is looking for DSM projects, the invest-
ment owned by the ESCO has been known and it is required to calculate how
many sharable benefits can be got every year in these projects and judge whether it
is worth investment, the formula (2.15) can be used for the calculation.
In a word, analyzing the cost and benefit of DSM is the financial basis for
project evaluation and decision. According to different decisions, different cal-
culation methods are used. For example, when it is required to calculate the
financial profit of an ESCO, the future annuity value formula is suited; required to
calculate the loan repayment fund of a DSM project and evaluate the social benefit
brought by DSM to resource conservation, the future value formula is needed.
For the convenience of application, the previous formulae are summarized in
Table 2.6.
2.4.2.5 Net Present Value (Expressed with NPV) of DSM Benefit
The net present value decision is the method used for making the DSM project
decision. Here, the compound interest rate mode of project benefit is used.
Therefore, the sharable benefit of DSM can be calculated through formula (2.16).
Net present value of the sharable benefit of DSM = future benefit present value
of a DSM projectinvestment present value of a DSM project
X
n
1
NPVDSM Rt C t 2:16
t1 1 it
where, NPVDSM - net present value of a DSM project; the other variables are the
same as those of formula (2.9).
Criterion condition:
When NPVDSM [ 0; the DSM scheme can get sharable benefit and the scheme
is available.
When NPVDSM 0; the DSM scheme is breakeven or makes a loss and the
scheme is unavailable.
[Case 2-10] An Energy Service Company has two DSM investment schemes, but
only one of them can be selected as the fund is limited. The investment of scheme
A is RMB 200 Million Yuan and the annual avoidable cost that can be recovered is
RMB 40 Million Yuan; the investment of scheme B is RMB 250 Million Yuan and
the annual avoidable cost that can be recovered is RMB 42 Million Yuan. The
economic operation period of the two schemes is 10 years and the rate of return on
investment is 10 %. Which scheme should be selected so that the DSM investment
benefit of this Energy Service Company is better?
Answer: obviously, it is required to calculate the net present values of the two
schemes and compare them with the investment, respectively, and then make
decision judgment.
1 in 1
P A ADFi; n A
i1 in
1 10 %10 1
PA 40 200 45:80 RMB Million Yuan
10 %1 10 %10
1 10 %10 1
PB 42 250 8:07RMB Million Yuan
10 %1 10 %10
According to this, scheme A is better for the ESCO.
2.4.2.6 Analysis of Present Value Index (Expressed with PI) of DSM

Benefit
n h
P i
1
Rt 1i t
t1
PIDSM Pn h i 2:17
1
Ct 1i t
t1
where, PIDSM - present value index of a DSM project; the other variables are the
same as those of formula (2.9).
As it shows the absolute number of energy conservation benefit and the benefit
only can be obtained usually based on a large sum of investment, in order to
analyze the profitability of a DSM project, it is required to calculate the relative
ratio of cost and benefit. This kind of analysis method is called present value index
method.
When PIDSM [ 1; the DSM scheme is available.
When PIDSM 1; the DSM scheme is unavailable.
2.4.2.7 Analysis of Internal Revenue Rate (Expressed with IRR)

of DSM Benefit
Using the internal revenue rate method to evaluate the cost and benefit of a DSM
project means selecting the break-even point of the cost and benefit, which is also
the critical value of the corresponding i0 when the net present value is zero.
X
n
1
NPVDSM Rt Ct 2:18
t1 1 IRRDSM t
Where, IRRDSM - internal revenue rate of a DSM project; the other variables are
the same as those of formula (2.9).
When IRRDSM is greater than the bank loan interest rate, the DSM scheme at
least has profitability of repaying the loan and it shows the scheme is available.
When IRRDSM is not greater than the bank loan interest rate, the financial cost
cannot be paid adequately after the implementation of the DSM scheme and it
shows the scheme is unavailable.
2.5 Cost-Benefit Analysis of Each DSM Participants
The government, power utilities (power grid enterprise and power generation
enterprise), Energy Service Companies (ESCOs), power users, energy conserva-
tion technology/equipment production suppliers, and financial institutions, etc., are
involved in the implementation of DSM. At present stage in China, the roles of the
four main participants can be described like this: the government is the leader of
DSM; the power grid enterprise is the main implementer of DSM; the energy
conservation company is the core force in the implementation of DSM; the power
user is the main participant in DSM. The implementation of any DSM project can
only be taken into account when the benefit is more than the cost and when the
investment can be recovered in rational time.
To be specific, the users use advanced technology and equipment to save
power, change the power consumption mode to decrease load demand, expecting
to reduce electricity expenditure in the service life, and recover the investment in a
short time. To the power utilities, the power saving not only decreases the
expenditure of increased electricity, it but also decreases the sales income due to
the reduced electricity sale; it is beneficial only when the decreased expenditure is
higher than the decreased income. To the society, only if the unit power saving
cost is lower than the increased power cost, or the capacity cost for saving peak
load is lower than the cost of the newly built power plant, can the overquick
increase of marginal cost be inhibited, the electricity price be stable and the social
fund input be decreased; only if the pollutant emission is lower than certain limit,
can the harmonious and sustainable development of the society be promoted. To
the non-participating users, although their power consumption is not reduced, they
also can get benefits from the decrease of electricity expenditure because the
electricity price is lower than the prospective electricity price. In the following
parts, how these main participants analyze and evaluate the cost and benefit of a
DSM project are introduced, respectively.
2.5.1 Social Cost-Benefit Analysis of the Government
The power grid enterprises in China can accomplish the fair distribution of
electric energy value and the improvement of social benefit to the maximum
extent with the help of the governments macroscopic policy. The fairness
Table 2.7 Social cost and benefit evaluation index system of DSM implementation of the
government
Evaluation Social target DSM effect index
Energy benefit Implementing power saving through Unit GDP power consumption decrease
DSM to improve energy Rationality of power/energy elasticity
efficiency coefficient
Promoting consumers to meet their Power utilization rate
demands with less energy input
Ensuring high quality and security
of energy supply
Resource Quantitative reduction of non- Power supply share of fossil fuel
allocation renewable resources and Renewable power supply construction
improving comprehensive power and grid sale share
efficiency Lighting power saving and energy-
saving motor promotion proportion
Atmospheric Ensuring environmental protection Annual emission quantity of main
environment quality of demand-side resources pollutants
pH and frequency (%) of acid rain
Ecological Ensuring the harmoniousness of Ensuring ecological sensitive
protection load demand and ecology protection area air quality, security
and newly-built DSM project noise
pollution proximity
Land used for DSM project
construction
Protection to water resource by power
generation and power grid quantity
reduction
Energy-saving Energy-saving technology Power saving technology promotion
technology innovation and security degree
and Operability of energy-saving Power saving equipment
management management mode popularization degree
International acceptability of DSM
mode
Social Ensuring energy efficiency Ensuring fairness, justice and openness
responsibility authenticity and excellent of energy efficiency certification
service after DSM promotion
Energy conservation service credit
mainly is embodied in the electricity price design to different beneficial people

and different users, such as differential electricity price, multistep electricity
price and time-of-use price, etc. The improvement of social benefit is mainly
shown in the low electricity price level and the friendly environment. The cost
benefit in social benefit aspect is the DSM project that can be in pursuit of
Pareto optimum. It refers to the ideal object that strive to make all peoples
benefits to be optimized in this kind of system. From the governments angle, the
macroscopic benefits like energy conservation and environmental improvement
can make the public benefits of the whole society come true through the opti-
mized allocation of DSM resources. For example, the system benefits charging
established by the California government of the USA is a kind of system design
2.5 Cost-Benefit Analysis of Each DSM Participants 107
which not only achieves energy efficiency object but also shows fairness, so the
SBC paid by the users who use more power are correspondingly more.
2.5.1.1 Evaluation Index of the Whole Society Public Benefits of DSM
The general method for promoting the evaluation on the whole society public
benefits of DSM is resource and environment benefit evaluation, energy utilization
efficiency and its evaluation on the public product manufacturers social respon-
sibilities,is as shown in Table 2.7.
2.5.1.2 Emission Reduction Calculation and Social Benefit of DSM
At present, fossil fuelscoal, petroleum oil and natural gas are mainly used in the
traditional thermal power plants in China, and the main pollutants are CO2, SO2,
and NOx. Saving load demand may decrease power generation as well as saving
coal and decreasing pollutant emissions, so the benefits brought to the society by
implementing DSM is shown as the resource optimization allocation under the
goal of the minimum social cost. It is specifically embodied in the decrease of
damage to the environment due to the fossil energy combustion. In addition to
power saving quantity (avoidable electricity) and energy- saving quantity, it also
can be shown in the reduction of pollutant emissions. Therefore, the social benefit
brought due to the implementation of a DSM projectpollutant emission reduc-
tion estimation is important content in the social benefit evaluation of DSM.
Calculation of Coal Conservation
1. Calculate the coal equivalent conservation according to the power saving

quantity, and can be described as the formula (2.19) and (2.20).
X DWi
DW 2:19
ih
1 a 1 b
DWi
fa0 b DW 106 b 106 2:20
1 a 1 b
where,
fa0 Coal equivalent conservation (tce)
b Coal equivalent consumption for power generation (gce/kWh)
DWi Avoidable electricity of user, namely, power saving quantity (kWh)
DW Avoidable electricity of power system (kWh)
a Power grid line loss rate (%)

b Auxiliary power consumption rate of the power plant (%).
2. Calculate the coal equivalent conservation according to the peak load shifting
and valley filling effect.
Through peak load shifting and valley filling, even though there is no power
saving, the coal consumption for power generation shall also be reduced due to
increasing the power grid load factor so that the benefit of energy conservation and
emission reduction can be achieved. The coal conservation due to load factor
rising can be calculated through formula (2.21).
t
fcoal r Ptmax Tmax 8760Drn 2:21
where,
t
fcoal r Section during the reporting period to improve load rate of coal.
Ptmax The largest load during the reporting peroid.
Tmax Base the largest load using the hours.
Dr Load rate increased value during the reporting period.
n The grid power supply coal consumption rate.
3. Conversion relation between coal equivalent and raw coal
Power saved by the coal-fired power plant, then the saved coal quantity
equivalent can be converted to raw coal quantity, like formula (2.22).
fa kfa0 2:22
where,
fa0 Coal equivalent conservation (ton)
fa Raw coal conservation (ton)
k Coefficient of coal equivalent converted to raw coal (coefficienct differs due to
different coal quality of each area; generally, it can be 1.4 or so).
Calculation of Pollutant Emission Reduction
1. Calculation of SO2 emission reduction
MSO2 l fa 2:23
l hS sSO2 1 u
S 2:24
where,
MSO2 SO2 emission reduction (ton)
l SO2 emission reduction coefficient
hs Sulfur content of fuel (100 %)
sso2 Coefficient of sulfur converted to SO2
u
s Average desulfurization rate of the power system (100 %).The formula is
shown as formula (2.25)
S 1 r 1 uS 1 r
u 2:25
where,
r Proportion of unit provided with desulfurization equipment (100 %)
us Average desulfurization rate of unit provided with desulfurization equipment
(100 %).
The value of each parameter is related to the power supply structure, coal
condition, desulfurization equipment installation condition, and desulfurization
condition.
[Case 2-11] Suppose that the thermal power generation units in an area are all
coal-fired units. Thereinto, the proportion of unit provided with desulfurization
equipmentr is equal to 15 %; the average desulfurization rate of the desulfur-
ization equipment us is equal to 85%; the average sulfur content of coal hs is equal
to 1.0 %; the coal consumption equivalent for power generation b is equal to
340gce/kWh; the auxiliary power consumption rate b is equal to 6.5 %; the line
loss rate a is equal to 6.3 %; the other conversion coefficient values are sso2 1:6
and k 1:4: Try to calculate the SO2 emission reduction in the condition that the
power saving quantity DWi is equal to 200 GWh.
Answer:
According to formula (2.19), formula (2.20) and formula (2.22),
2 108
DW 2:28 108 kWh
1 6:3 % 1 6:5 %
fa0 340 2:28 108 106 77; 520ton
fa 1:4 77520 108; 528ton

According to formula (2.25),
s 1 15 % 1 85 % 1 15 % 12:75 %
u
l 1:0 % 1:6 1 12:75 % 0:01396

MSO2 0:01396 108; 528 1; 515 ton
2. Calculation of CO2 emission reduction
MCO2 v f 0a 2:26
v vCO2 C sCO2 2:27

or
MCO2 C vCO2 C fa0 2:28

where,
MCO2 CO2 emission reduction (ton)
MCO2 C CO2 emission reduction based on carbon (ton)
v CO2 emission reduction coefficient
vCO2 C CO2 emission reduction coefficient based on carbon
sCO2 Conversion coefficient of carbon converted to CO2 (taking 3.667).
[Case 2-12] If the annual coal equivalent conservation of an area gets to 77,520
tce through the implementation of a DSM project and vCO2 C 0:799; try to
calculate the CO2 emission reduction.
Answer:
10 Additional DSM
Investment
5
DSM
0
Trillion USD
Power
-5 Utility
-10 Avoidable
Investment of
-15 Supply Side
-20
Fig. 2.9 Comparison diagram of investment on DSM and corresponding avoidable investment
brought
v 0:799 3:667 2:93

MCO2 2:93 77; 520 227; 108 ton
The data calculation results show that the social benefits due to DSM emission
reduction are obvious. The power saving quantity which is 200 GWh in [Case 2-
11] and [Case 2-12] might only be the power consumption of an area in one day.
However, when people neglect the calculation of this part, they might ignore an
important factnatural environment and ecological harmony, which actually lies
in the daily savings by us.
2.5.2 Cost-Benefit Analysis of Power Utility
World Energy Outlook 2004 by the International Energy Agency points out that
the world generation, transmission and distribution investment demand from 2003
to 2030 is conservatively estimated to be 10 trillion dollars. However, 10 %,
namely, 1 trillion dollars can be saved through DSM. What Fig. 2.9 shows is that a
little investment in DSM can avoid large scale investment in the power supply
link.
2.5.2.1 Cost-Benefit Analysis of DSM Projects Implemented

by the Power Grid Enterpise
The most direct benefit after the DSM project being implemented by a power grid
enterprise shall be shown in the fixed asset investment cost and circulating funds
saved due to the avoidable capacity and avoidable electricity.
The benefit of the implementation of DSM by the power grid enterprise is
shown as the difference between the total revenue (R) and total cost (C). Thereinto,
the total revenue R of DSM for the power grid enterprise is equal to the avoidable
capacity cost of reserve capacity considered for the power grid plus the reduced
power sale income subsidized to the power grid enterprise by the government due
to the implementation of DSM, which can be shown in formula (2.29).
" #
Igrid X k Xm
DQij DPij Fij Cij Igrid
Egrid Rs Fij j Is
1x i1 j1 1 kg 1 x
2:29
where,
Egrid Power saving benefit of the power grid enterprise in the economic
operation period of a certain DSM project
Igrid Power grid capacity expansion investment reduced due to terminal power
saving of the power grid enterprise (incuding corresponding reserve
capacity)
x Proportion of reserve capacity of the power grid
Rs Energy conservation service revenue of the power grid enterprise (this is
power saving benefit with threshold limit, and the power grid line loss
reduction is included in it due to the implementation of DSM, which is
ignored in this formula.)
Is The present value of one-time investment of the power grid due to the
power saving project (if the investment is provided in multiple steps, the
calculation method is the same as that of the discounted return; the
common DSM investment Is of the power grid enterpise mainly includes
LM device, DSM information system and energy storage projects
encouragement to users, DSM demonstration project, peak-valley meter
installation and power saving, or variable-frequency motor purchase and
installation, which is not completely consistent.)
Fij The fund subsidized for the power sale loss of the power grid enterprise in
the jth year by the government
Cij The current operating expense in DSM business of the power grid
enterprise, such as the expenses of the power grid enterprise including
interruptable electricity expenditure and others as well as depreciation
charge of DSM information system, etc.
DQij The electricity of the regional power grid saved in the ith DSM project in
the jth year due to the implementation of power saving project (it can be
got through the statistical data.)
DPij The difference between electricity prices (buying-in wholesale and
terminal retail) of the power grid enterprise in the ith DSM project in
the jth year due to the implementation of power saving project (which can
be received through the statistical data, including the power saving expense
got through peak power shifting, etc.)
kg The necessary rate of return in the power saving project (bank discount rate
also can be used)
k The quantity of power saving technologies or power saving projects used
or implemented by the user
m The economic operation period of the power saving project.
The cost for the power grid enterprise to implement DSM project also should
include publicity expenses, instruction expenses, promotion expenses, etc. For
example, the incentive supporting cost of Shanghai power grid enterprises in DSM
demonstration projects accounts for 10 % of the total investment of DSM projects.
DSM has been applied to large industrial users, commercial users, colleges and
universities as well as other users; the peak-valley price has been applied to the
users; the investment of every piece of peak-valley meter is RMB 200 Yuan; in
recent years, the relevant total investment of DSM has been achieved several
hundred thousand Yuan. Thus, the economic and social benefits for ensuring safely
power supply on summer peak, peak load shifting and valley filling and energy
efficiency improvement have been brought. The expression of cost for a power grid
enterprise to implement DSM is shown as formula (2.30):
Ct Cs Cm Ca 2:30
where,
Ct Total cost on DSM of the power grid enterprise;
Cs DSM project supporting cost
Cm DSM project management cost
Ca DSM project assistant cost.
The direct costs for the power grid enterprise to implement DSM project
include the DSM project supporting cost and DSM project management cost.
The indirect or assistant costs include the following contents: (1) Investment on
high efficiency power transmission and distribution equipment; (2) Investment for
optimizing the power grid structure, power supply structure, and power con-
sumption structure; (3) The financial risk loss cost for the power grid enterprise to
implement DSMpeak load shifting electricity price reduction risk of peak-valley
price, interruptible electricity price compensation risk, and DSM project risk, etc.
Therefore, the power grid enterprise should share the benefits of a DSM project
with the users. According to the experience data of California of the USA, the
share proportion of the power grid enterprise accounts for about 3040 % of the
net benefit [9].
2.5.2.2 Cost-Benefit Analysis of a DSM Project of Power Generation

Enterprises
The benefit in the power generation link of DSM is mainly embodied in the
avoidable cost. The avoidable cost is the saving on the installed capacity that the
power generation enterprise should invest. The amount of this investment can be
transferred as other investment, so it is a kind of opportunity cost. The avoidable
cost is classified as fixed avoidable cost and variable avoidable cost. The fixed
avoidable cost refers to the investment on installed capacity of the power gener-
ation enterprise reduced due to DSM; the variable avoidable cost refers to the coal
consumption for power generation, unit labor cost ,and unit environment cost
(desulfurization and denitration) reduced by the power grid enterprise, etc. The
avoidable cost is
Ia DL F DE CV CP 2:31
where,
Ia Annual avoidable cost of the power generation enterprise.
DL Power consumption load reduction

F Unit cost of installed capacity of the power generation enterprise
Cp The planning design cost of the prophase investment and loan interest of
power supply planning DSM project
DE Power reduction
CV Coal consumption for power generation, unit labor cost, and unit environ-
ment cost (desulfurization and denitration) reduced by the power grid
enterprise.
Therefore, the avoidable cost Ia is namely the power saving benefit that can be
shared by the DSM project implementer and the power generation enterprise. As
mentioned in last Chapter, by 2020, the installed capacity reduced through DSM in
China shall be 86 GW in total. If the unit average cost of thermal power generation
is 4,000 Yuan/kW, the total fixed avoidable cost got by the power generation
enterprise due to DSM shall be
Ia 0:86 108 4000 344 Billion Yuan

At the current power supply investment cost level, the electricity would have
the fixed avoidable cost as about 2 cents/kWh.
2.5.3 Cost-Benefit Analysis of Users
Users need to be encouraged to participate in DSM projects, and the cost-benefit

calculation is relatively simple.
First, users save energy independently. Under the management of relative
energy conservation policy and regulation issued by the state, a user carries out
investment and management independently to save power. At this time, the cost-
benefit is namely energy conservation income of the user minus power saving
equipment investment and power saving management expense.
Second, users participate in the DSM project, and the ESCO carries out power
saving and LM for them specifically. The structure of the cash flow formed by cost
and benefit is comparatively simple. How a user shares the benefit with the ESCO
becomes the core issue of a DSM project. Users cost can be deducted from the
sharable benefit. Thus, the ESCO certainly has an energy conservation reference
value (also called energy conservation service threshold value). In California, the
USA, this reference is specified in the energy efficiency plan made by the gov-
ernment. The energy conservation reference value is above 50 %. That is to say,
only when the value exceeds 50 % can the company which implements DSM have
the right to share the energy conservation benefit. Certainly, if the user type is
different, such as commercial users, residential users, or industrial users, the ref-
erence proportion can fluctuate. This is the basic principle how users share the
cost-benefit.
The benefit that users participate in the DSM project can be divided into two
parts: power saving investment Is and power saving benefit Rs : In addition, a
user can participate in one or more power saving project(s)i 1; . . .; k at the
same time, and the economic operation period of a power saving project is w
year(s), so the power saving cost-benefit objective function of this user is
" #
Xk Xm
Fij DQij DPij
Euser Rs Is Is 2:32
i1 j1 1 k j
where,
Euser Power saving benefit of the user
Rs Power saving income of the user, such as reduced electricity expenditure
Is The total power saving investment of the user and/or the ESCO.
Here, suppose that it is the present value of one-time investment of the power
saving project. If the investment is provided in multiple steps, the calculation
method will be the same as that of the benefit. The common DSM project
investment Is includes peak-valley meter installation, power saving or variable-
frequency motor purchase, and installation and energy storage project, etc. The
interruptible LM users investment mainly is the investment on the terminal
devices for load control. The power utility mainly provides investment on LM
devices.
Fij The government energy conservation fund in the jth year (when the
government energy conservation fund is withdrawn from the electricity
price, Fij also can be shown as the incentive fund to the user by the energy
conservation company.)
DQij The electicity quantity of the user saved in the ith DSM project in the jth
year due to the implementation of power saving project (it can be got
through the statistical data.)
DPij The difference between electricity prices of the user in the ith DSM project
in the jth year due to the implementation of power saving project (it can be
got through the statistical data, including the power saving expense got
through the implementation of peak-valley price and eletricity cost
compensated to the user through the interruptible electricity price, etc.)
k The necessary rate of return on the power saving project of the ESCO
(bank discount rate also can be used.)
i The zth type of power saving technology or power saving project used or
implemented by the user, i = 1, , k, such as peak load shifting and valley
filling with peak-valley price
Table 2.8 List of time-of-user price of accumulative household power in the district
Monthly power consumption (kWh) 050 50200 Above 200
Period Peak Valley Peak Valley Peak Valley
Electricity price (Yuan/kWh) 0.56 0.28 0.59 0.31 0.66 0.38
Fig. 2.10 Simple diagram of

household peak-valley Peak
Price
electricity price list
Time-of-use Price (RMB

Period
Yuan/kWh)
Monthly Power
Consumption (kWh)
Table 2.9 Monthly electricity charge calculation list of peak-valley progressive electricity price
of household users
No. Item Formula Ladder-type electricity
050 kWh 51200 kWh Above
200 kWh
1 Non-peak-valley electricity price 0.48
(RMB Yuan/kWh)
2 Monthly electricity (kWh) 285
3 Non-peak-valley electricity charge 1 2 136.8
(RMB Yuan)
4 Peak electricity price (RMB Yuan/ 0.56 0.59 0.66
kWh)
5 Peak electricity (kWh) 26 79 45
6 Peak electricity charge (RMB 4 5 14.7 46.6 29.7
Yuan)
7 Valley electricity price (RMB 0.28 0.31 0.38
Yuan/kWh)
8 Valley electricity (kWh) 24 71 40
9 Valley electricity charge (RMB 7 8 6.7 22.0 15.2
Yuan)
10 Peak-valley electricity charge [6] ? [9] 21.4 68.6 44.8
(RMB Yuan)
11 Total electricity charge (RMB 134.9
Yuan)
12 Saved charge; DP (RMB Yuan) [11] - [3] 1.9
j The economic operation period of the power saving project of the ESCO,
j = 1, , m.
[Case 2-13] The cost benefit calculation Case of a DSM project for users in a
residential district
There are 16 residential buildings in this district, 102 households in each
building; and 1,632 household users in total. The district is involved in the DSM
project of the ESCO and the time-of-use (TOU) price is implemented. The elec-
tricity price list is shown in Table 2.8 and Fig. 2.10.
According to the investigation, the average monthly power consumption of
each household is 285 kWh. The household electricity price is 0.48 Yuan/kWh
before the residents use the peak-valley price. According to the time-of-use price
provided in Table 2.8, after the household users in the district participated in DSM
projects, they consequently chose to use energy-saving lamps for lighting, transfer
the power consumption of washing machines to the power consumption in the
valley period, use valley price for electric heating and tried not to use the air
conditioners in peak period. Through the implementation of these DSM projects,
the average monthly power consumption of the residents in this district is
150 kWh in the peak load period and 135 kWh in the valley load period.
According to the progressive accumulation, the electricity price calculation is
shown as Table 2.9.
If the internal electricity charge in the accounting period is calculated according
to the simple interest, the annual saving electricity charge of the users in this
district is RMB 22.8 Yuan; the economic operation period of the project is 6 years
and the annual discount rate is 5 %. The expenses for participating in the DSM
projects before include the following contents: the cost for each household to rent
a piece of peak-valley eletric meter to participate in the household power saving
project is RMB 300 Yuan, thereinto, the subsidy provided by the power utility is
RMB 200 Yuan (the property right of owning this meter); the investment of each
household is RMB 100 Yuan. Then, the energy conservation service cost and
benefit difference of this residential district can be shown as the formula:
" #
P6
22:8
Euser Rs Is 1; 632 200 15% j 100
j1
1; 632 200 22:8 ADF5%; 6 100
352 Thousand Yuan
Where, the data of household investment (RMB 100 Yuan) is got through
95598 telephone interview in China; the cost saving is calculated according to the
annual total saving electricity charge, which is equal to the monthly electricity
charges saving (1.9 Yuan) multiplied by the number of months (12), as
1.9*12 = 22.8 Yuan (It should be the accumulated amount of 72 months, or
6 years, according to the compound interest in the economic operation period of
the DSM project).
This case shows that when the peak and valley ratio of the household electricity
price is two, the cost and benefit sum of the household DSM projects in this
residential district is RMB 352,000 Yuan and the operation period will go on six
years.
According to the estimation of the current time-of-use price in this district,
when the valley electricity accounts for 10.71 % in the total power consumption, it
is the critical point of the electricity charge before and after the implementation
of DSM [10]. That is to say, when the valley electricity exceeds 10.71 %, the
Savings Brought from Energy Efficiency:

from 1 US cent/kWh in Jan. 2002 to 9 US
cent/kWh in 2005
US cent/kWh
Nov. 2003
Jan. 2002
March 2002
July 2002
Nov. 2002
Jan. 2003
March 2003
July 2003
Sept. 2003
July 2004
Sept. 2004
Nov. 2004
July 2005
Sept. 2005
Nov. 2005
May 2002
May 2003
Jan. 2004
March 2004
May 2004
Jan. 2005
March 2005
May 2005
Jan. 2006
Sept. 2002
Electricity Sales Price Spot Market Energy Efficiency

Including Power Wholesale Price Contract Cost
Transmission
Fig. 2.11 Savings of spot electricity price of the power grid, sales electricity price including
power transmission price and the contract cost of the ESCO
peak-valley electricity charge will begin to drop and the DSM benefit will start to
emerge.
2.5.4 Cost-Benefit Analysis of Energy Service Company
ESCO refers to an intermediary organization, which reduces users energy con-

sumption through specialized energy conservation technology and management
services, shares benefits with users and independently survives and develops.
First, the cost and benefit1 of an ESCO mainly refer to the annual expenditure
and energy efficiency saving quantity obtained after the improvement of energy
efficiency, and then the ESCO shares them with the users. The business of this type
of ESCO also can be performed by a power grid enterprise. The objective function
of power saving cost benefit EESCO is
" #
X k X
m
Fij DQij DPij Cij
EESCO uRs Cs u 2:33
i1 j1 1 k j
where,
EESCO DSM project benefit of the ESCO
Rs The power saving benefit of the user, such as reduced electricity expense
1
The calculation in this chapter only focuses on the calculation of sharing type energy services.
Cs The amount of investment including incentive investment on users by the

ESCO
u The share proportion of the ESCO in the benefit of the user, such as the
share of the contract price in the power grid electricity price shown in
Fig. 2.11
Fij The government energy conservation fund in the jth year (when the
government energy conservation fund is withdrawn from the electricity
price, Fij also can be shown as the incentive fund to the user by the
energy conservation company)
DQij The electicity quantity of saved in the ith DSM project in the jth year due
to the power saving project implemented by the enery conservation
service company for the user (it can be got through the statistical data)
DPij The difference between electricity prices in the ith DSM project in the jth
year the power saving project implemented by the energy conservation
service company for the user (it can be got through the statistical data,
including the power saving expense got through the implementation of
time-of-use price, etc.)
k The necessary rate of return on the power saving project of the ESCO (the
published bank discount rate also can be used)
t The zth type of power saving technology or power saving project used or
implemented by the ESCO for the user, z = 1, , k, such as peak load
shifting and valley filling with peak-valley price
j The economic operation period of the power saving project of the ESCO,
j = 1, , m.
Figure 2.11 shows when the ESCO implements the DSM project for the user, it
carries out the energy auditing in advance, calculates the avoidable capacity in the
full life cycle of the DSM project (lifetime MWhs savings) on the basis of energy
efficiency measurement confirmation of the first year and compares the energy
efficiency contract electricity price with the power grid electricity price to show
the benefit brought by the ESCO through energy conservation.
Incentive to the Terminal User
Technology for the Terminal User

New Project Developed through the
Support Cost The Market of the Energy service Subsequent Services
company
Promotion Expense Expense
Cost of Technological Support Management

to the Business Cooperator information system
Daily Operation
Management Expense
Fig. 2.12 Cost expenditure of energy service company [11]

Second, the cost project and its approximate share of the ESCO are as follows:
Incentive to the terminal user (34 %)
Cost of technological support to the terminal user (22 %)
Market promotion expense of the ESCO (17 %)
Cost of technological support to the business cooperator (1 %)
Daily operation management expense (1 %)
Incentive to the business cooperator
Expense of new projects developed through subsequent services (22 %)
Management information system (3 %)
The cost expenditure of the ESCO is shown in Fig. 2.12.

Thereby, the cash flow of the DSM project can be received through the financial
account (please refer to Table 2.4 Energy and Capacity Conservation Cash Flow
Decomposition List of 2002-2004 by Efficiency Vermont of the USA) so as to
calculate the cost and benefit.
[Case 2-14] The practical evaluation case of Efficiency Vermont of the USA [11]
Efficiency Vermont (EVT) of the USA is a special energy efficiency organi-
zation established and supported by the government with local tax revenue. This
organization carries out independent and unbiased evaluation on the energy con-
servation performance through specialized planning procedures, accomplishes the
evaluation report in January every year and decides the amount of the government
energy conservation subsidies from the public service department (power enter-
prise) according to this report, and then decides its cost and benefit. These subsidy
schemes must be approved by the taxpayers in Vermont.
From 2002 to 2004, the power saving quantity measured in every year was 136
GWh. In the average lifetime of 14.3 years, the power as 1.95 TWh is saved in
total.
The tool of cost testing and analysis of public power utility is comparing the
power supply cost by means of improving energy efficiency. EVT supplies the
power with the price as 3.13 US cents/kWh (contract price agreed by the energy
sale center and the users) including the transportation cost to the users in Vermont
while the marginal electricity purchase price of the public power service depart-
ment is 6.63 US cents/kWh. The per unit cost of the electricity saved of EVT is
lower than the power generation cost in the state, so it shows that the energy
efficiency is a kind of strong vitality path to face the power system demand growth.
If the socal benefit evaluation mode is used, including the value of decreasing
environmental pollution influences, the benefit of EVT plans is 3.66 US cents/kWh
more than their cost. On the other hand, on the basis of EVT plan, every time when
the energy efficiency utility spends 1 dollar, the profit as 1.76 dollars can be
recovered in average. To be specific, if this plan is implemented in the commercial
or industrial field, the return on 1 dollar investment will be 1.97 dollars in which
1.57 dollars for the household.
2.5.5 Influences of Electricity Price on DSM Cost

and Benefit
The electricity price, which is established on the basis of the cost, is the currency
expression of power products. Therefore, electricity price is the key factor that
decides DSM cost and benefit. In different kinds of electricity prices, the one
which is most commonly used in DSM is the time-of-use (TOU) price.
As we know, the basic object form of DSM cost and benefit form is like this:
the cost that should be input for implementing DSM, including the fixed cost and
variable cost involved in the DSM business, is subtracted from the sharable benefit
of DSM formed by the profits at different electricity price levels. The assumed
condition here is DSM project is the financial management mode of the branch
with independent accounting of the ESCO. The benefit is shared with the users and
then is shared with the parent companythe ESCO.

EDSM Rt Cp Ce F Cv 2:34
where,
EDSM The sharable benefit after the implementation of DSM
Ri The benefit after DSM implemented at the electricity price level in the
t period
Cp The avoidable capacity cost
Ce The avoidable electric quantity cost
F The fixed asset investment on DSM project operation
Cv The circulating fund for DSM project operation.
The benefit R at different electricity prices and in different types can be

respectively expressed as income of service charge collected from the user, gov-
ernment system benefit fund and social endowment, etc. If only the influences of
the electricity price level are considered, it is only the energy efficiency rising in
different kinds of electricity levels, the avoidable capacity cost Cp and the
avoidable electricity cost Ce got through the demanded decrease.
Generally, the cost-benefit analysis mainly is in terms of the general price tariff.
To observe the profit-making space of DSM from the aspect of the general price
tariff to see whether this business and the ESCO can survive and develop at this
kind of price level is the content that draws much attention from the electricity
price designer, macro administrator and power utility.
Generally, the average electricity price represents the feature of the general
price tariff, so it is generally used to analyze the correlation between the electricity
price and the DSM benefit. The equilibrium electricity price of power market is
the price level accomplished through electricity purchase and sale business in the
power market. It is the basic data for calculating the net profit of the main business
of the power grid enterprises. At this time, the electricity sale price is the directory
electricity price of each place regulated by the government. Thus, this is the
45
40
35
Growth Rate (%)
30
25
20
15
10
5
0
1998 1999 2000 2001 2002 2003 2004 2005
National Power Equipment Capacity National Electricity
Resident Power Equipment Capacity Resident Electricity
Fig. 2.13 Total and resident power equipment capacity and electricity growth rate
important base for forming the profits of the power grid enterprise. The price in the
formula mainly depends on the former three items:

EDSM Rt Cp Ce F Cv 2:35
Where, Rt is the service benefit of each DSM planning of the project imple-
menter. At the same time, we observe from the Vermont case that the cost cal-
culated by the ESCO consists of the cost calculated accoding to the contract, the
wholesale price and sales price including transportation cost of power purchased
by the power utility from the market in a wholesale manner. Therefore, the ESCO
not only can get profit in the avoidable cost range but also can have the profit-
making potential between the wholesale and retail prices, shown as Fig. 2.13. The
ESCO is the implementer of DSM. Specifying the capital project can get the
following formula:
X
N 1
EBC Fp fG t Rlose t CDSM t 2:36
0 1 it
where,
EBC The cost-benefit of the full life cycle of the DSM project
Fp The saving value of annual investment per kW
fG The fuel cost saved through the avoidable power generation
Rlose The power loss cost of the power enterprise due to the implementation of
DSM.
The cost in the DSM project is mainly the implementation cost of DSM plan,
including energy efficiency testing cost, the cost of the participant and the third
party, and management expense such as the expense control, financial control and
plan control
In the process of applying this formula, attention should be paid to two points:
1. The fund subsidized by the government is input to the DSM planning project
but the fund cannot be attributed into the cost of the ESCO because the tax is
deducted from the cost, the fund is special fund rather than the energy con-
servation service expense, it cannot be calculated repeatedly.
2. Power loss cost is subsidized by the government in many countries, so it also
cannot be considered as part of the costs.
2.5.6 Sensitivity Analysis of DSM Cost and Benefit
To the evaluation on the long-term comprehensive cost and benefit of a DSM

project, it is very difficult for us to correctly estimate the future dynamic data. That
is to say, it is inevitable that there will be difference and bias between the data
actually generated in the future and the data predicted at present. The sensitivity
analysis refers to the method that the degree of a DSM project responsing to the
factorsthe amount of investment, operating cost, price as well as benefit cal-
culation period, and others which influence the cost and benefit of the DSM project
is researched and evaluated in the condition of considering these factors have
changes. This kind of response degree is mainly shown in the change of indexes
like the rate of return on investment, NPV, and IRR, etc. If the initial index
changes and the benefit index of the investment project has slight change or almost
does not change, it is considered that the investment project is not sensitive to this
factor. Correspondingly, the reliability is comparatively high; otherwise, the
reliability is low.
To the sensitivity analysis of a DSM energy conservation investment project, it
is allowed to calculate the net present value (NPV) of the cost and benefit of the
DSM project and then set the adjustments at different levels of different factors so
as to get the sensitivity analysis result of the DSM scheme. How to carry out the
sensitivity analysis shall be introduced through [Case 2-15].
[Case 2-15] Suppose the cost and benefit of the DSM project is shown in Table
2.10.
Table 2.10 Statistical table of dsm cost and benefit RMB Million Yuan
Initial DSM Annual average energy conservation Parameter
investment benefit
Scheme A 140 17.8 Discount rate 10 %
Scheme B 150 18.6 Operating period
20 Years
Calculation result:
NPV A 17:8 ADF10 %; 20 140 11:55 MillionYuan
NPVB 18:6 ADF10 %; 20 150 8:36 MillionYuan

NPV A [ NPVB; so the scheme A should be selected.
2.5.6.1 Sensitivity Analysis on Initial Investment
The cost-benefit analysis of a DSM project also has another important content
which is sensitivity analysis. It is required to make various judgments as follows.
People usually care about the risk degree of investment on DSM projects and
how to avoid the condition that there are no benefits but only investment. In the
two schemes, how is the sensitivity to the amount of the initial investment by
selecting scheme A like? Suppose the initial investment of scheme A is X, it is
required to use the annuity discount factor (ADF (i, n)) to calculate.
NPV A 17:8 ADF10 %; 20 X 151:55 X
Only when NPV A [ NPVB can scheme A be the best.
So 151:55 X [ 8:36
Namely, X\143:19
This is the upper limit X of the selection of the initial investment in scheme A.
It is also one of the key negotiation points of the critical point of the benefit sharing
by the ESCOs and users.
The sensitivity analysis also is often applied to the interference factors such as
electricity price level and loan interest rate of a DSM project, etc.
2.5.6.2 Sensitivity Analysis on Electricity Price
1. The average electricity price: The influence of the average electricity price on
the sharable benefit of DSM is acting on the total cost. The precondition here is
the general price tariff and the influences of electricity price type on DSM have
not been considered yet. The average electricity price actually is the basic
survival space of DSM business, because
BDSM IDSM CDSM

EDSM PDSM Qa CDSM
where,
BDSM Benefit of the DSM project
IDSM Income of the DSM project
Table 2.11 Power consumption list of urban and rural residents in some area
Years Electricity price (P, Annual urban and rural resident Arc elasticity of residential
RMB Yuan/kWh) power consumption (Q, GWh) electricity price (absolute value)
2001 0.25 1,810
2002 0.28 2,228 1.829
2003 0.31 2,647 1.751
2004 0.36 2,940 0.705
2005 0.37 3,853 4.901
2006 0.39 4,765 5.919
2007 0.42 5,301 1.438
2008 0.44 6,260 2.252
2009 0.46 7,048 2.664
2010 0.48 8,021 2.835
Note the arc elasticity of electricity price refers to the electricity price fluctuation range in relative
interval, and the calculation formula is as follow
CDSM Cost of implementing DSM project

Qa Avoidable electricity
PDSM Terminal electricity price, namely, the average electricity price after
the implementation of a DSM project (the avoidable cost of user is
the electricity charge difference before and after the implementation
of DSM)
PDSM Qa Saved electricity expenditure.
In the annual total average electricity price of the power utility, according to the
classified power consumption, the average household electricity price is compar-
atively convenient for sensitivity analysis.
2. Elasticity value calculation of electricity price. Calculate the avoidable electric
energy after the residents participated in the DSM project, shown as Table 2.11.
Q2 Q1 P 2 P1
CAEEP 2:37
P2 P1 Q2 Q1
Table 2.12 Electricity price sensitivity and sharable benefit calculation table
Electricity price change amplitude (%) 0 10 20 30
Residential electricity price (RMB Yuan/kWh) 0.50 0.55 0.60 0.65
Estimated value of residential electricity price elasticity 2.58
(the average value in recent 3 years)
Avoidable electricity (GWh) 481
Avoidable electricity cost (RMB Million Yuan) 240.61 264.68 288.74 312.80
EDSM (RMB Million Yuan) ADF(10 %, 6) = 4.355 1,047.86 1,152.68 1,257.46 1,362.24
Note suppose the power saving rate is 6 % after the residents participated in DSM
1600
1400
RMB Million Yuan y = 105x + 943
1200
1000
800
600
400
200
0
0 10 20 30 %
Fig. 2.14 Schematic diagram of electricity price sensitivity analysis of the sharable benefit
where,
CAEEP The arc elasticity of electricity price;
Q1 ; Q2 The resident power consumption in the last and next year respectively
(GWh);
P1 ; P2 The electricity price in the last and the next year respectively (RMB
Yuan/kWh).
The electricity price elasticity provides a precondition for the energy conser-
vation company to design a DSM project. When the electricity price has no
elasticity, the benefit got through peak-valley price is comparatively low. There-
fore, the electricity price elasticity is the response between the electricity price and
electricity. At the same time, it is required to carry out sensitivity analysis so as to
analyze various factors which influences DSM benefit. In these factors, the most
important one is the influencing degree of electricity price to the DSM benefit
(Table 2.12).
The slope of sensitivity trend line in Fig. 2.14 shows the sharable benefit of
DSM shall make the energy conservation benefit tend to change with the project
combination and design and through the correlation between the users energy-
saving potential and electricity price change, so the sensitivity refers to the
influencing degree of electricity price fluctuation to the sharable benefit.
[Case 2-16] The case of analysis on the sharable benefit potential of a DSM
project for residents
The peak-valley price benefit of residential power consumption is very obvious.
Both Table 2.13 and Fig. 2.13 show the data of the previous electricity prices and
the annual power consumption of some one area. We can fit the residential power
demand function with various eleven curves by SPSS software, whose fitting
analysis result, i.e. parameter evaluation, is shown in Table 2.14. According to the
simulation, it can be found that the R2 value of S curve is 0.97 which approximates to
1, F value is the most, and the special interest group value (sig.) approximates to 0.
Table 2.13 Total and resident power equipment capacity and electricity in China [12]
Years 1997 1998 1999 2000 2001 2002 2003 2004 2005
Total power equipment capacity (GW) 553.10 593.95 644.49 729.35 831.48 957.32 1004.70 1350.75
Growth rate (%) 7.4 8.5 13.2 14.0 15.1 4.95 34.4
Total electricity (TWh) 1103.9 1134.7 1209.2 1350.9 1468.3 1638.6 1889.1 2176.1 2468.9
Growth rate (%) 2.6 6.5 11.4 8.7 11.6 15.3 15.2 13.5
Resident power equipment capacity (GW) 84.92 98.58 129.26 154.74 219.49 268.95 281.51 394.11
2.5 Cost-Benefit Analysis of Each DSM Participants
Growth rate (%) 16.1 31.1 19.7 41.9 22.5 4.7 40

Resident electricity (TWh) 125.3 138.7 147.0 169.2 183.5 200.1 223.8 245.6 283.8
Growth rate (%) 9.8 5.9 13.7 8.7 9.1 4.8 10.1 16.2
127
128
Table 2.14 Electricity price forecast regression model summary and parameter evaluation
Model name Model summary Parameter evaluation
R2 F df1 df2 Sig. Constant b1 b2 b3
Linear regression 0.920 45.764 1 4 0.002 0.223 3.38E007
Logarithmic curve regression 0.969 123.399 1 4 0.000 -1.512 1.46 E001
Reciprocal curve regression 0.952 80.141 1 4 0.001 0.522 -5.10E004
Square regression 0.954 31.409 2 3 0.010 0.148 7.24E007 -3.95E013
Cubic regression 0.975 26.481 3 2 0.037 -0.008 1.95E006 -3.15E012 1.85E018
Gompertz function 0.863 25.303 1 4 0.007 0.242 1.00
Power function regression 0.946 70.602 1 4 0.001 0.002 4.10E001
S curve regression 0.970 131.288 1 4 0.000 -0.584 -1.46E005
Growth curve regression 0.863 25.303 1 4 0.007 -1.421 9.26E007
Exponential curve regression 0.863 25.303 1 4 0.007 0.242 9.26E007
Logistic function 0.863 25.303 1 4 0.007 4.140 1.00
Note The dependent variable is electricity price P and independent variable is power consumption Q
2 Basic Theory of Demand-Side Management
0.50
0.45
Electricity Price/Yuan/kWh
0.40
0.35
0.30
0.25
2 4 6 8 10 12
Electricity/TWh
Fig. 2.15 Resident power consumption demand function diagram
Table 2.15 Residential electricity price and its elasticity coefficient

Years Electricity price (RMB Electricity of urban and rural Electricity price spot
Yuan/kWh) residents (GWh) elasticity coefficient
1995 0.25 1,810 0.546(No elasticity)
1997 0.31 2,647 1.869
1998 0.36 2,941 3.178
2000 0.39 4,765 2.616
2002 0.44 6,260 2.949
2004 0.48 8,021 2.990
2005 0.48
2006 0.49
3.5 3.178
2.949 2.990
3.0
2.5 2.616
2.0
1.869
1.5
1.0
0.5 0.546
0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Fig. 2.16 Demand elasticity value variation trend of residential electricity price of a certain city
Table 2.16 Sensitivity analysis of a DSM project benefit

Electric Load Year(s) Annual Cash I (%)
energy (MW) depreciation flow
(GWh) (RMB (RMB
Million Million
Yuan) Yuan)
Quantity of year 6
Rate of return on the DSM project 10
Avoidable electric energy of 183 98.56
lighting equipment
Reduced/avoided drive capacity 28.03 19.82
Avoidable peak load 10.30
Avoidable capacity 40.78
Annual demand-side project 52.02
investment
DSM The annual artificial cost 4.37
The annual interest rate 0.0012
Sell electricity price 0.54
(Yuan/kWh)
Thus, the S curve regression model is available. The fitting curve is shown as
Fig. 2.15, and the formula is as formula (2.38).
P e0:584
145;837
Q 2:38
Furthermore, the demand elasticity of residential users can be analyzed. Table 2.15
shows the demand elasticity coefficient of electricity price from 1995 to 2004 for the
urban and rural residents in a certain city. Figure 2.16 is the demand elasticity value
variation trend of residential electricity price of a certain city.
Except that the electricity price elasticity value in 1995 is less than 1, showing
inelasticity feature, the subsequent electricity price elasticity values are more than
1. The analysis on the data result got in residential electricity price elasticity
calculation method shows that the demand elasticity of electricity price is always
more than 1 in recent ten years and proves that the electricity price rise can inhibit
the increase of resident power consumption to a certain extent. However, the
regulation capability is limited. The causes are as follows:
First, GDP grows rapidly; the urbanization progress speeds up; peoples income
level is improved; then the result is the rapid increase for power demand. Only
relying on the small-scale and general electricity price rise or coal-electricity price
linkage cant effectively inhibit the rapid rise of resident power demand.
Second, the power market mechanism is incomplete. The current electricity
price is not formed through the bidding by the direct price-related persons but is
mainly decided by the government. Thus, the signal function of price to marmet
resource allocation cannot be formed.
In this way, the residential electricity price cant effectively lead the power
supply and demand as well as the balance between them, thus the regulation effect
on power saving behavior of residents is limited.
Table 2.17 Sensitive value of electricity price

Increment 4 % 0 10 20 30
Electricity price RMB Yuan/kWh 0.54 0.594 0.648 0.702
NPV RMB Million Yuan 278 321 364 407
Table 2.18 Sensitive value of the variation of rate of return on DSM project
Increment 4 % 0 10 20
Rate of return i % 10 11 12
NPV RMB Million Yuan 278 270 262
Table 2.19 Sensitive value of DSM investment

Increment 4 % 0 10 20 30 40
DSM investment RMB Million Yuan 52.02 57.22 62.42 67.63 72.83
NPV RMB Million Yuan 277.65 248.46 225.80 203.15 180.49
The residential electricity price elasticity value shows that the elastic electric
energy brought due to the price variation during the increase and decrease of
average electricity price is the avoidable electricity of residential users. The total
cost of the avoidable electricity of the DSM project can be calculated through the
residential electricity price so that the sharable benefit can be got. If the result
worked out has no elasticity, no more avoidable electricity will be generated by
adjusting the average electricity price. Instead, the combined electricity price
should be used to get a part of sharable benefit of DSM.
Similarly, the Three-shift Workday System industrial load basically is the
load demand without elasticity. Then, its avoidable electricity cost is almost zero
and is mainly the avoidable capacity cost. That is to say, decrease the capacity by
means of technological power saving to reduce basic electricity expenditure so as
to get sharable benefit of DSM.
2.5.6.3 Comprehensive Case Analysis
Electricity price is only one factor that influences DSM. Many factors might have
comprehensive effect on DSM benefit. Thus, the influencing factors can be
extended. At the same time, the influences of unit electricity price, rate of return,
demand-side project investment, depreciation, and others on DSM benefit should
be observed.
[Case 2-17] DSM project sensitivity analysis case of a certain enterprise
The annual cost of comprehensive sensitivity analysis of a DSM project of a
certain enterprise is shown as Table 2.16.
Table 2.20 Sensitive value of depreciation period

n Years 3 4 5 6 7 8
NPV RMB Million Yuan 158.56 202.09 241.68 277.65 310.33 340.10
450
400
NPV/RMB million yuan
350
300
250
200
150
100 Electricity Price Rate of Return
50 Investment of the Demander DSM Operation Period
0
0 10 20 30
Parameter Sensitivity/%
Fig. 2.17 Sensitivity analysis diagram of the NPV of DSM benefit to various influencing factors
Economic benefit calculation of a DSM project:

The value of the avoidable electricity of lighting is as follow:
1:83 108 kWh 0:54Yuan=kWh 98:82 MillionYuan

The depreciation according to the unit capacity cost is as follows:
28:03 30:30 40:78 103 kW 5000Yuan=kW=25 19:82 MillionYuan
Annuity:
98:56 19:82 52:02 4:37 1:2 103 63:75 MillionYuan
1 10 %6 1
ADF10 %; 6 4:3553
10 % 1 10 %6
NPV 61:992 4:3553 277:649 278 MillionYuan

The NPV in the condition that other index data do not change and the single
index data change is 10, 20 % or 30 % and others is namely the sensitive value to
these indexes. The electricity price variation, variation of rate of return on DSM
project, sensitive value of demand-side investment demand and depreciation
period variation are shown in Tables 2.17, 2.18, 2.19, 2.20.
Table 2.17 shows that the more the electricity price rises, the more the
avoidable cost is, the better the benefit will be, i.e. the higher the NPV.
Table 2.18 shows that the higher the rate of return is, the smaller the annuity
discount factor will be, and the lower the NPV.
Table 2.19 shows that under the condition of achieving the same effect, the
more the DSM project investment is, the worse the benefit will be, i.e. the smaller
the NPV will be.
Table 2.20 shows that, the longer the depreciation period of the project is, the
bigger the annuity discount factor is, the higher the NPV will be.
The sensitivity of Tables 2.17, 2.18, 2.19, 2.20 can be shown as Fig. 2.17 in a
diagram form.
Figure 2.17 shows that the result of sensitivity analysis can make orders for the
influencing degrees: the influence of the electricity price on the net present value
(NPV) of the DSM benefit project is the greatest; the next is the operation period
and demand-side power investment; the last is the rate of return. The evaluation
indexes of social benefit should be added if the sensitivity to the social benefit
influencing factors of the social benefit is to be estimated.
References
1. National Energy Administration of National Development and Reform Commission (2004)

Department of power supply of state power regulatory commission. Demand-side
management work data compilation
2. State grid demand-side management instruction center (2005) Practical technology of
demand-side management. China Electric Power Press, Beijing
3. National development and reform commission (2007) Power demand-side management in
china (white book). China Electric Power Press, Beijing
4. Hu Z, Moskovitz D, Zhao J (2005) Demand-side management in Chinas restructured power
industry: how regulation and policy can deliver demand-side management benefits to a
growing economy and a changing power system.
5. Ministry of Electric Power, Beijing management office for planned, economic and safe use of
electricity, Electric power research institute (1997) Seventh report on research and
implementation on Beijing peak load shifting measures: Electricity use auditing of typical
customers in Beijing
6. Yang Z, Lao Derong (1999) Demand-side management (DSM) and its application. China
Electric Power Press, Beijing
7. Finamore B (2007) New development of energy efficiency in California [J]. Demand-side
management 9(1):2326
8. Zhou Y, WANG J et al (1993) Enterprise engineering economics. China Science &
Technology Press, Bejing
9. Zeng M (2002) Incentive mechanism of demand-side management and its application. China
Electric Power Press
10. Shi J (2006) Effect of popularizing residential TOU in Zhejiang. Demand-side Management
8(3):3133
11. Website of efficiency Vermont. http://www.efficiencyvermont.com/index.aspx/. Cited 1 Feb
2008
12. Zhou Y (2005) Report of research on interruptible and highly reliable electricity price
adjustment scheme of a certain area.
Chapter 3
The Promoter of Demand-Side
Management: Government
3.1 Government is the Promoter of Demand-Side

Management
Government is the subject of the responsibility of the whole society and the rep-
resentative of overall social interests. The direct purpose of demand-side man-
agement (DSM) is to meet the load demand of the whole society with minimized
costs, save energy and reduce consumption, and improve environment at the same
time to prompt sustainable development of electric power sector and the society.
The interests of the subjects such as government, power utilities (power grid
enterprises and power generation enterprises), energy conservation service com-
panies, manufacturers and suppliers of energy conservation technology/equipment,
power consumers, and financial institutions are involved in the operation process
of planning, design, and implementation of DSM.
Among them, the power enterprise (power grid enterprise and power generation
enterprise) represents the interest of power supplier. Power consumer (referred to
as Consumer) represents the interest of Demand-side, Energy Service Company
(ESCO; sometimes called Energy Management Company, EMCO) represents the
interest of intermediary organization who hopes to implement DSM for profits.
Owner of energy conservation technology, manufacturer and supplier of energy
conservation equipment, and financial institution represents the interest of the
relating parties that are partially connected to DSM. While all the participants
mentioned above are the representatives of stakeholders, only the government can
take the responsibility of the whole society and be the representative of overall
social interests (Fig. 3.1).
Government is the best choice for coordinating interests of all parties. Every
stakeholder has his or her requirement for interest and it varies in the starting point.
Generally, they make every effort to maximize self-interests. For instance, power
grid enterprises and power generation enterprises hope to decrease the predicted
operation costs and increase sales revenue, the intermediaries such as ESCOs want
to reduce investment risks and get more profits, and power consumers hope to cut
electricity bills. As there may be certain conflict when the interests of all parties
136 3 The Promoter of Demand-Side Management
Fig. 3.1 Role of Government

in DSM Government
Government is the representative of the interest of

the whole society and is the best choice for
coordinating relations among all parties.
Government has the function of law-making.
Power grid enterprises
Relationship coordination
Representative of their own interests.

Power generation
enterprises
Energy Service
Companies (ESCOs)
Power consumers
Manufacturers and suppliers of

energy conservation products
Financial institutions
Other relating parties
are interwoven, an object that is recognized by all parties is needed objectively to

coordinate the interests of all parties, and make the interests of each party main-
tained and met so as to mobilize the initiative of all parties to participate in DSM.
Who could play the role of coordinator? The only answer is the government.
The attention and support given by government to DSM activities is out of the
long-term consideration for the sustainable development of the society, which is
not to exceed the bearing capacity of resources and the environment, not to
damage the current living quality, and not to deprive the opportunities of sus-
tainable development of offspring while seeking social development. The gov-
ernment takes social benefits as the main criterion for judging the effects of DSM.
It is to improve energy efficiency, conserve energy, reduce pollution discharge,
and establish a healthy ecological system, while ensuring the coordinated devel-
opment of all parties.
Government is the subject for creating appropriate systems and environment.
DSM needs to depend on measures such as legal environment and economic
incentives to realize electricity economization and peak load shifting, and to
reduce electricity expenses for power customers, lower energy resource
3.1 Government is the Promoter of Demand-Side Management 137
consumption, and improve the quality of social environment, while cutting down
the investment on power construction, saving land occupation, and enhancing the
economy and reliability of power system, and finally achieve the best social
benefits and power service with the lowest costs, and prompt the sustainable
development of the society. DSM is a huge social system project which involves
legislation, criterion, finance, fiscal and taxation, etc. It would be very difficult to
effectively develop DSM in a long term, if there is no proper legal environment
and support of strong economic incentive policies. The effective implementation
of DSM needs government to create a sound and appropriate system environment,
which is to fully implement the policy with encouragement as the main method in
the field of terminal power conservation, work out and implement specific and
operable incentive measures in the aspect of finance, tax, credit, and price, and
establish a powerful DSM department in the aspect of organizational structure,
then propel with the combined method of administration and economic technol-
ogy, coordinate the distribution of energy conservation efficiency of all parties, and
carry out supervision and guidance in the execution process so as to ensure the
proper implementation of these incentive measures [1].
Different from power supply development, DSM has the characteristic of large
quantity, wide scope, and dispersion. Usually, the benefit of its individual case is
limited while its scale benefit is very remarkable. Therefore, efficiency power plant
(EPP) could be used for operation. Although DSM could bring huge economic,
social, and environmental benefits, the prerequisite for realizing these benefits is
the full and effective implementation of DSM, which needs the joint, long-term,
and persistent efforts of the whole society. As government has the social appeal,
only through the mobilization of government to call for the joint participation of
the whole society and to make a mickle with many a little can it obtains the best
comprehensive benefits. The successful experience of DSM abroad shows the
forceful intervention and promotion of government departments is the basic
guarantee for the effective implementation of DSM.
The main responsibilities of government in DSM include formulation of laws and
regulations, establishment of incentive, supervisory market mechanism as well as
development of guiding publicity and promotion. An organizational structure and
management system with clear responsibility and duties, and effective operation
shall be established in order to boost the long-term and effective development of
DSM. An organizational structure and management system with government as the
leader and prompter, power grid enterprises as an important executor, and energy
conservation service companies and users as the joint participants has gradually
formed under the framework of existing policies of China, as shown in Fig. 3.2. As
the leader of DSM, the main task of government is to organize and formulate
relevant policies, regulations and plans of DSM, perfect relevant laws and regu-
lations, set up and improve the operation mechanism and information release
mechanism of DSM, establish and perfect economic incentive mechanism, coor-
dinate the interests of all participants such as society, power utilities, ESCOs and
power customers, and establish enable environment for DSM through laws and
regulations, economic policies, and promotion of advanced technology, publicity
and administrative measures to actively propel and prompt the effective devel-
opment of DSM.
National government departments shall lead the work of DSM in the central
level, fully play the advantage of central administrative management, and work out
policies, regulations, standards, and middle-term and long-term targets that could
command the whole situation according to the development of DSM in the local as
the guidance for the formulation of relevant policies and plans in every place. By
starting from the overall situation, National government departments should
establish and improve the operation mechanism of DSM, set up and perfect
information release system of DSM, and draw experience from the development of
DSM in different places to gradually establish economic incentive mechanism, and
actively propel and prompt the effective development of DSM by combining with
various publicity methods.
Local government shall lead the development of local DSM through department
in charge of power set up by them, organize and work out regulations, standards
and plans of DSM in the local, issue corresponding policies, research and put
forward the content and target for the development of DSM work on the basis of
laws and regulations promulgated by the State. They shall set up and improve the
specific operation mechanism of local DSM, vigorously cultivate energy service
industry, and boost the development of energy conservation service companies.
They shall establish energy efficiency evaluation system of large power consum-
ers, coordinate the interests of local society, power utilities, energy conservation
service companies and users, and fully mobilize the initiatives of all parties to
prompt and propel the healthy development of the local DSM.
Promoter
Government or
Leader
Power utilities,
intermediary agencies and Project
quasi-governmental management
organizations
Power utilities or their subordinate

ECSOs, independent ECSOs, power Specific operation
consumers, contractors, manufacturers of the project
and sellers of products.
Fig. 3.2 Organizational structure of DSM with Government as the Promoter (leader)
3.2 Successful Experience of DSM Developed by Governments 139
3.2 Successful Experience of DSM Developed by

Governments
It can be found through analysis of successful experience of DSM developed by

other countries in recent years that the government plays the leading role in the
formulation of laws and regulations, putting forward of policies, promulgation of
criteria, and execution of supervision and implementation of service of DSM, etc.
The incentive mechanism, especially the economic incentive mechanism of gov-
ernment is of vital importance to the creation of the environment that is favorable
for the implementation of DSM, and promotion of the smooth development of
DSM work.
For countries that have successfully implemented DSM, the experience of
government departments mainly includes: first, the establishment and improve-
ment of the laws and regulations as well as policy support that is favorable for the
implementation of DSM; second, formulation of rational electricity price system;
third, implementation of mandatory energy consuming standard of the products;
and fourth, governments active promotion and guidance.
3.2.1 Improvement of Laws and Regulations to Establish a

Long-Term Effective Mechanism
3.2.1.1 Establishment and Improvement of Relevant Laws and

Regulations
Laws and regulations of DSM mainly include the contents in two levels. One is on
legislative level, which is to define DSM with the form of legislation from the level
of overall energy optimized utilization, especially emphasize government
departments support for the whole process of the development of DSM carried out
by power utilities in order to let users participate in the competition of power
market, support users to provide energy services and auxiliary services for the
competitive power market as well as encourage the establishment of DSM system.
The other is on execution level, which is to make mandatory laws and regulations
according to the integrated framework stipulated by legislation.
The United State provides a powerful guarantee for the development of DSM
by issuing laws and regulations of Law of Energy Policy of the State and Law
of Public Affairs Management Policy successively, working out many mandatory
energy efficiency standards, and proposing lots of clear and specific legal
requirements to power utilities, ESCOs, and power consumers.
The European Union countries issued many instructions about energy conser-
vation and energy efficiency. European Union Energy Efficiency Instruction put
forward a clear requirement that 9 % energy shall be conserved during the nine
consecutive years from 2008 to 2016, with the annual energy conservation of 1 %.
This instruction stipulated specific obligations for public departments and energy
suppliers, and designed detailed measurement and calculation, auditing and
reporting methods. Ecological Design Instruction of Energy Conservation Prod-
ucts stipulated technical and economic standard of 14 kinds of products and
facilities, including boilers, hot water and office atomization equipment, televi-
sions, chargers, office lighting, street lighting, and air conditioners (AC).
Germany, one of the European Union countries, has promulgated eight laws
which include energy conservation law of buildings, motor vehicle tax law, co-
generation of heat and power law, energy efficiency labeling, ecological tax reform
law, and renewable energy resources since 1976. All these laws are implemented
by the corresponding departments, for instance, the federal economic and technical
department is responsible for energy conservation and energy efficiency
improvement work, while the environment and nuclear security department is
responsible for CO2 emission reduction, renewable energy resources and nuclear
work, and communications, building and city development department is
responsible for the energy conservation work of communications and buildings,
etc.
DSM was introduced into Japan in 1990s and developed gradually. The gov-
ernment and relevant departments of Japan pay increasing attention to it. With the
transfer of peak load from winter to summer, and the continuous high temperature
in summer, peak load also shows rapid growth trend, which leads to the reduction
of load factor. For example, the load factor in 1994 was only 55 %, but in order to
satisfy the peak load, the investment by power enterprises for generation, trans-
mission, and distribution equipment also became increasingly larger, which
unquestionably caused great economic pressure to power utilities. In order to
relieve this pressure, DSM gets more and more attention. The government forces
enterprises to enhance energy utilization efficiency through legislation. Energy
Conservation Law requires Class I and Class II energy management units should
reduce at least 1 % of energy consumption each year. The unit whose energy
conservation reaches the standard could get the award of tax relief in a certain
period, while the unit whose energy conservation below the standard will get a
circulated notice and a penalty of less than 1 million yen. Meanwhile, it requires
Class I EMCO should establish an energy conservation management system and
the system shall be charged by a specially assigned person who will report the
energy utilization condition and submit the energy conservation plan to govern-
ment regularly. It proposes clear requirements to buildings and stipulates the
newly built and rebuilt projects must submit the specific energy conservation
measures to the government. It also raises energy conservation market access
standard for all kinds of power consuming equipment.
[Case 3-1] The United States Federal/State Government provide policy support
for the implementation of DSM by power utilities
The United States Federal/State Government worked out and implemented
corresponding incentive policies and measures to support development of DSM in
early 1990s by maintaining public interests of the whole society. The
implementation of these measures achieved good effect and the enthusiasm for
power utilities to participate in the implementation of a DSM project was rela-
tively high.
About half of the state supervision committees in the United States try to reduce
the obstacles restricting the implementation of DSM by electric utilities, in which
electricity price is main one. Under the traditional way of electricity price design,
volumetric rate is generally higher than the short range margin cost of power
utilities, which would lead to the result of sliding of revenues and profits of power
utilities when the electricity sales is reduced due to the increase of power con-
sumption efficiency of power customers. The solutions adopted by the supervision
committees in those States regarding this problem are as follows [2]:
1. Establish adjustment mechanism of net loss of revenues. Allow power enter-
prises to recover the net loss of revenues caused by the energy efficiency project
(the revenue loss caused by the energy efficiency project deducts the corre-
sponding cost saving).
2. Disconnect the revenues of power utilities with electricity sales. Disconnect the
profitability of power utilities with their actual electricity sales levels.
3. Establish DSM evaluation and motivation mechanism. Grant economic stimu-
lation on the basis of electricity saving realized by power utilities.
4. Establish system benefits charge (SBC) system. SBC, also called public
interest charge or transmission charge, is a way to raise public benefits fund
(PBF) for prompting the development of energy conservation and renewable
energy resources by withdrawing certain expenses from the electricity price of
all power consumers. PBF is a kind of fund providing public service and
maintain public interest without total dependence on the market mechanism
field. The funds raised through the implementation of SBC are used to support
energy efficiency DSM projects and also to support the development of
renewable energy at the same time. More than half of the States in the United
States have established the PBF which is raised through SBC and the average
power surcharge collection standard is USD1.1/MWh. PBF is used to support
the development and utilization of energy conservation and renewable energy
resources, and as the subsidy for low-income workers. In 2005, PBF used for
energy conservation reached USD 1.9 billion, with 25.71 GW the load demand
being reduced and 59.9 TWh power was conserved. The investment saved
through the implementation of DSM from 1989 to 2005 in the Untied States
was USD 60 billion if the invested fund of DSM was estimated as equivalent to
1/3 of the newly build power sources and power grids. Please refer to Fig. 3.3
for DSM funds and effects in the past years of the United States.
Some experts suggest that the United States shall establish a nationwide system
benefits credit fund to provide corresponding funds for the qualified projects in
each State. These projects will be a strong incentive to the development of energy
efficiency projects in every State and every power utility. Though evaluation, the
energy conservation league thinks the federal PBF of the United State will save
70 3
Conserved load
Saved electricity
60 Cost
50
Load (GW); Electricity(TWh)
Billion USD
40
30
1
20
10
0 0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Fig. 3.3 DSM funds and effects in the United State. Note Data from U. S. Department of Energy
and Ref. [4]
130 GW installed capacity by 2020, which equals to over 200 electric generating
sets [3].
[Case 3-2] Establishment of the corresponding fund by the United Kingdom to
support the development of DSM activities carried out by small users
After the reorganization of power industry in early 1990s, Office of Electricity
Regulation of the United Kingdom (OFFER) realized it was very hard for power
industry itself to play the role of prompting energy efficiency for users. Therefore,
they began to implement the system of establishing energy efficiency special fund
with citizens and small business power customers as contributors. The special fund
was especially used to support DSM activity of small users.
A SBC mechanism which was set up in 1994 to support small users to develop
DSM activity requires users with annual average power consumption below
12 MWh to contribute USD 16,000 energy efficiency special funds per year. USD
165 million funds had been raised accumulatively by March 1998 and were
invested into over 500 energy efficiency improvement projects, with 6.8 TWh
power being conserved for users. These DSM projects were managed by OFFER
and implemented with the assistance of energy conservation credit companies
(energy conservation trust companies) in order to accomplish the planned target of
energy conservation and pollution emission reduction.
3.2.1.2 Promulgation of Mandatory Standards
Implementation of Energy Efficiency Standard
The experience of European Union is to divide energy efficiency into three cate-
gories, i.e., the mandatory standard, the minimum energy efficiency standard, and
the average energy efficiency standard. (1) Mandatory standard is the strictest one,
which requires all new products to be installed with special spare parts or devices
(for example, catalytic exhaust purifier of automobiles, etc.); (2) Minimum energy
efficiency standard stipulates the lowest efficiency (or the highest energy con-
sumption) and all products of the manufacturers must reach this standard. It is
more flexible in implementation than mandatory standard as it does not stipulate
the technical and design details of the products, and only states the lowest energy
efficiency, which means it will be good as long as the minimum standard is
exceeded; (3) Average energy efficiency standard stipulates the average efficiency
of the finished products. It is the most flexible one in implementation because the
products only need to reach the whole average value.
Energy efficiency standard is initially put forward aimed at refrigerators and
washing machines, and later gradually extended to all energy consumption devi-
ces, such as household appliances, office equipment, transformers, electric motor
cars, small-scale packaging equipment, ventilation equipment, and AC (heating,
ventilation and air conditioner system). Most standards are related to electric
appliances. Each standard could be implemented either compulsorily or on the free
will. The lowest energy efficiency standard, the most frequently used one which is
composed of a series of European directives, requires a certain kind of household
electric appliance product must conform to the lowest energy consumption
requirement; otherwise, the product is not allowed to be manufactured and sold.
Generally, energy efficiency standard is used in combination with the label so as to
provide energy consumption information of the equipment to customers, guide the
improvement of energy efficiency of the product jointly, and greatly prompt the
increase of energy conservation efficiency. Some research show that energy con-
servation efficiency of household electrical appliances of European Union at the
end of 1990s had increased by 30 % than that in early 1990s.
US California always pays high attention to the energy efficiency standard.
Since the energy crisis in early twenty first century, California has further
improved the minimum efficiency standard of many frequently used electrical
equipment, and implemented energy efficiency standard of buildings, which was
the strictest one in the United States, in June 2001. This standard requires archi-
tects and constructors must strictly pay attention to the places that are easy to have
leakage such as AC and heating pipelines, and reduce the radiation of solar energy
into buildings through windows and attics.
Then, how to determine the energy consumption standard? Internationally, 37
countries and regions have established and implemented energy efficiency labeling
system. The methods for each country to determine energy efficiency standard are
different. The European countries use the statistical method, which is to take the
energy efficiency standard of all kinds of facilities on the market as the minimum
energy efficiency standard and determine the final standard by increasing 1015 %
of the average energy efficiency of facilities on the market, while other countries
(such as the United States) determine the standard according to the evaluation of
cost-profit, and determine the energy efficiency grade according to fixed recovery
amount of annual investment.
[Case 3-3] Energy Star in the United States [5]
Energy Star is a joint program of the U.S. Environmental Protection Agency
(EPA) and the U.S. Department of Energy (DOE) helping us all save money and
protect the environment through energy efficient products and practices.
Results are already adding up. Americans, with the help of Energy Star, saved
enough energy in 2010 alone to avoid greenhouse gas (GHG) emissions equivalent
to those from 33 million carsall while saving nearly $18 billion on their utility
bills.
For the home, energy efficient choices can save about a third on families energy
bill with similar savings of GHG emissions, without sacrificing features, style, or
comfort. Energy Star helps you make the energy efficient choice.
If looking for new household products, look for ones that have earned the
Energy Star. They meet strict energy efficiency guidelines set by the EPA and
US DOE.
If looking for a new home, look for one that has earned the Energy Star.
If looking to make larger improvements to your home, EPA offers tools and
resources to help you plan and undertake projects to reduce your energy bills and
improve home comfort.
For Business. Because a strategic approach to energy management can produce
twice the savingsfor the bottom line and the environmentas typical approa-
ches, EPAs Energy Star partnership offers a proven energy management strategy
that helps in measuring current energy performance, setting goals, tracking sav-
ings, and rewarding improvements.
EPA provides an innovative energy performance rating system which busi-
nesses have already used for more than 200,000 buildings across the country. EPA
also recognizes top performing buildings with the Energy Star.
[Case 3-4] Electrical appliance labeling plan of European Union
In European Union countries, power consumption of household electrical
appliances occupies 1/4 of the total energy consumption, and is in rapid growth
trend. Therefore, it is very important to control the growth of energy consumption
of household electrical appliances. European Union implements mandatory
labeling plan of household electrical appliances, which requests all manufacturing
enterprises and sales departments of household electrical appliances to assume the
liability of clearly indicating energy consumption parameters and energy con-
sumption grades of the appliances with the form of label. Mandatory labeling plan
is composed of a series of EU directives and almost all kinds of appliances are
formulated with the standard of label. For instance, EU 92/75/EEC directive

(Directive of the council issued on September 22, 1992, which is to clearly mark
the energy and other resources consumption of household appliances with signs
and standard products information, framework directive of labeling plan), 2003/
66EC directive (refrigerators, deep freezers, and refrigeration equipment), 2002/
40/E directive (electric baking ovens), 2002/31/EC directive (AC), 98/11/EC
directive (electric lights), 97/17/EC directive (dishwashers), and 95/12/EC direc-
tive (washing machines), etc.
Meanwhile, manufacturers, distributors, importers and exporters, and retailers
of relevant electrical appliance products could also voluntarily apply to the EU
commission for the label to mark their products have met or exceeded the relevant
energy conservation standards. Currently, Energy Efficiency label of EU is mainly
marked in the field of office supplies, but more and more manufacturers of
household electrical appliances have started to actively participate in this volunteer
activity.
[Case 3-5] Energy conservation label system of Japan
The energy conservation label system of Japan is used to show the energy
efficiency of household electrical appliances so as to improve the quality of energy
efficiency products. Till April, 2006, the label has been used in AC, refrigerators,
deep freezers, fluorescent lamps, televisions, gas appliances, gas water heaters, oil
water heaters, electric toilets, disks, and transformers, etc.
Energy Conservation Law revised in April 2006 requires that retailers must
provide energy efficiency information from October, 2006, including providing
information with unified energy efficiency labels. The united energy efficiency
labels are as follows: the first part is the multilevel grade system. Energy con-
servation information is labeled with five grades by 15 stars, which shows the
energy efficiency of the products in the market from low to high. The arrow under
the star shows whether the energy efficiency has reached the leader standard. The
second part is the energy conservation marking system, i.e., energy conservation
label. It has two types: green and yellow, in which green e mark indicates the
energy efficiency of this electrical appliance is in the leading position. There is
other corresponding information in the mark, such as the target year, the energy
conservation rate, the light efficiency of energy-saving lamps, or the annual power
consumption of electrical appliances, etc. The third part is the expected annual
electricity charges.
Implementation of Building Energy Conservation Certificate System
Developed countries have formulated mandatory standard for energy-saving

building and grant preferences such as tax relief to builders who can meet the
requirement.
US California worked out and issued building energy conservation standard for
the first time at the end of 1970s, and revised the standard for several times in
1980s and 1990s successively. It released the new standard again in 2001. The
energy conservation standard includes two parts: the stipulating index and the
functional index. The former must be implemented forcibly, while the latter
provides various methods and ways for reaching the stipulating index. The pro-
gressiveness and practicability of the standard and the flexibility of the extent of
index control inspired the innovative spirit of the users of the standard, including
designers and developers, and laid a foundation for the revision of standard in the
next round. The United States government carried out tax relief policy with the
highest tax reduction above 20 % for the newly build energy conservation resi-
dences, and high efficiency buildings and equipment in its financial budget of 2001
in order to encourage the energy conservation of buildings.
EU directive of building energy efficiency (2002/91/EC) have proposed the
method of measuring the energy consumption of buildings, set up the minimum
energy efficiency standard of new buildings, and established energy efficiency
marking system of buildings. The landlords must produce energy consumption
grade certificate in the renting out and selling of houses. Public buildings must be
marked with energy consumption certificate. It stipulates all the newly build
buildings must conform to the requirements of minimum energy conservation
standard, and provide and reserve access for energy conservation facilities. The
maintenance of old buildings shall also try to make reference to the minimum
energy conservation standard. This directive also requires energy conservation
certificate shall be issued to buildings conformed to energy conservation standard,
and relevant administrative agencies shall make regular inspection to the buildings
that have got energy conservation certificate and their boilers and air conditioner
facilities, etc. used internally so as to evaluate their energy conservation
conditions.
[Case 3-6] Building energy conservation in Germany
Germany is short in energy. Its petroleum is imported almost in 100 % and
natural gas in 80 %. Energy conservation and environmental protection are the
consistent policies of the Government of Germany in developing and utilizing
energy.
Energy Conservation Law (EnEV) of Germany, which came into effect in
February, 2002, replaced the previous Heating Protection Law and Heating
Equipment Law, formulated new standard of energy conservation of newly-build
buildings, and standardized energy conservation technical index of heating
equipment such as boilers and the heating performance of construction materials.
The power consumption of buildings would be about 30 % lower than the average
power consumption of the whole country in 2002 according to the new law.
One of the main characteristics of the new specification of heat retaining and
energy conservation technology on buildings of Germany is to transfer from the
controlling of minimum heat insulation index of the retaining structure (for
example, external wall, exterior windows, and roof) of single building into con-
trolling of actual power consumption of buildings. The total power consumption of
the building includes heating, ventilation, and hot water supply. The new
regulation stipulates newly build building must produce the calculation result of
energy needed for heating, core value of power consumption of building, and the
heat loss of building, especially the calculation result of heat loss of periphery
structure of the building. The construction is allowed to commence only when the
total energy consumption of the building meets the corresponding energy con-
servation standard.
In the new regulation, the quality of installation work of the building also
becomes a more important parameter than that of before. When consumers buy the
residence, the developer of the building must produce an Energy Efficiency
Certificate, which shall clearly list the annual energy consumption of the resi-
dence, thus the transparency of energy consumption of the building could be
increased. Since 1995, the law of Germany has required the new buildings must
specify their energy consumption. Only the energy consumption of heating system
is required to be specified in energy consumption certificate before 2002. With the
implementation of Energy Conservation Law, the scope of main energy con-
sumption index that need to be specified also enlarges correspondingly.
There are still lots of old buildings in Germany that have not adopted the new
heat retaining technology measure. The new law encourages enterprises and
individuals to reform old buildings with modern energy conservation technology,
and implements the compulsory scrapping measure. For example, the new regu-
lation stipulates about 2,000,000 heating boilers installed before October 1, 1978
must be scrapped before the end of 2006 and be replaced by new type energy
conservation boilers. Clean energy such as natural gas and renewable energy are
getting more and more popular in residence heating market in recent years under
the promotion of government.
The German government also has launched all kinds of energy conservation
projects on the basis of technical specification stipulated by law in order to prompt
the implementation and popularization of regulation. The main work of German
Energy Agency which was established in 2000 includes heating and heat retaining
of houses, energy conservation appliances and lighting, solar power generation,
and application of renewable energy such as wind energy and electrothermal
coupling devices. For the convenience of the public, German Energy Agency sets
up a free telephone service center to answer the problems encountered by the
public in energy conservation aspect. German Federal Consumer Center Union and
its subordinate branches in each State also provide information and consultation
service about energy conservation.
3.2.1.3 Establish Long-Term Planning Target of DSM Mechanism
In recent years, the EU has paid great attention to the improvement of energy
utilization efficiency, and listed it with the realization of emission reduction
obligation, development of renewable energy and ensurance of safely supply of
energy determined in Kyoto Protocol as one of the four targets of energy policy.
The directive of Improving Energy Utilization Efficiency and Prompting Energy
Service that is under discussion and consideration sets the time scope from 2006
to 2012. The obligators include all the important energy suppliers (distributors and
retailers) and final user departments. The European commission hopes the direc-
tive passed is mandatory, while part of the member countries hope the directive
passed is directional. The hopes of all countries are only varied in the force of
execution of the standard, but all have important meanings. The main contents are:
1. Establish national energy conservation development outline. All member
countries shall encourage and propel the development of market intermediary
organizations such as energy auditing and consultation companies and energy
conservation companies, and encourage and stimulate the development of
financing tools produced for energy conservation.
2. Provide energy service and energy auditing. All member countries shall ensure
suppliers could provide the service and auditing (evaluate energy consumption
and put forward suggestions for improvement) regarding the improvement of
energy conservation while supplying energy for users.
3. Provide information data in a timely manner. All member countries shall ensure
final users know power utilization condition timely, which will be solved
mainly by improving measurement service and more accurate power utilization
report.
4. Create a good environment for the energy conservation service. For instance,
abolish decrees and legislations that impede energy conservation, carry out cost
compensation methods, implement qualification authentication system of
energy service suppliers, etc.
5. Set the mandatory energy conservation target. Generally, all member countries
shall save about 1 % energy consumption annually, in which the target of public
department is to save 1.5 % more annually so as to be a role model for the
social public. By 2012, the total annual energy consumption of all member
countries will be 6 % less than that in 2006.
3.2.2 Economic Measures
Economic measures are the major incentive methods in DSM, and are also an
important field for the government to work out policies and guide the whole
society to actively develop DSM work. During this process, the government
usually guides users to shift the electricity utilization from peak period to low
valley period (it not only includes the shift between the peak and valley time
period in a day, but also the shift between the peak and valley time period in
different seasons) by implementing electricity price policies such as time-of-use
price, seasonal price, and interruptible price. Besides, the government also attracts
users to buy high energy efficiency electrical equipment through the methods of
granting preferential loan, tax relief, and providing fiscal subsidies. These
measures could be merged into five categories: (1) Declining Price Policy; (2) Tax
System; (3) Financial Policy; (4) Technical Support; and (5) Certificate Trade
System, as shown in Fig. 3.4. The measures on the left side are more directive,
which is simply to decline the price or provide corresponding subsidies while the
measures on the left side are more advanced, which is to combine the price with
the market development method, and comprehensively guide users to participate in
DSM.
Measure of the rst category: Declining price policy. It focuses on the simple
and direct electricity price adjustment, including subsidiaries or discounts related
to the projects or productions. For instance, give electricity price preference to
users who bring energy conservation.
[Case 3-7] The US California government adjusts the consuming habit of users
by utilizing tariff mechanism such as preferential electricity price and declining
price policy.
The US California Government provides a very good environment for the
implementation of 20/20 project for power utilities, i.e., government supports
power utilities to give at least 20 % discount on electricity price to users who could
reduce power consumption by more than 20 % during the peak period in summer.
20/20 project is warmly welcomed by residential users and achieves success
through the implementation of this capital incentive mechanism of discount and by
combining with the publicity of effective energy conservation methods to users (i.
e., set the temperature controller of air conditioner at 26C, try not to use large
household electricity appliances with high power consumption before 7 pm, turn
off the light when leave, etc.). More than 3,000,000 households have reached the
target of reducing 20 % power consumption and got the award of 20 % discount on
electricity price. Besides, millions of households have conserved 1020 % power.
In the aspect of residential users, 16.9 % peak load of residences have been
Economic incentive
methods
Combination of price with market
Simple price declining
development
Declining Certificate
Tax Financial Technical
price trade
system policy support
policy system
Reduction
The third Acquisition
Cash subsidy of loan Financial Bulk Certificate
Authorization Tax relief party of
and discount interest guarantee buying transaction
financing technology
rate
Fig. 3.4 Classification of economic incentive methods

reduced, and many measures for the reduction of load, including the reform of heat
retaining and insulation of buildings, utilization of power conservation appliances
adopted during energy crisis have produced long-term energy conservation effects.
Measure of the second category: Tax system. It mainly includes all kinds of tax
plans that are favorable for energy conservation. All member states of Interna-
tional Energy Agency (IEA) have greatly strengthened tax policies and various
measures since early 1990. In 1999, they worked out 65 kinds of tax policies,
including granting tax relief and allocation of some expenditure in pretax to users
who buy energy conservation products in order to encourage the action of reducing
GHG emission. Although some policies will not directly influence the emission of
GHG, they will indirectly influence the power consumption actions in the relating
field for a long term. The taxes of relevant energy could also be used as the fund
rising of a DSM project. Some countries, such as Norway and Denmark, collect the
CO2 tax (Carbon tax) or energy tax.
Measure of the third category: Financial policy. It mainly includes all kinds of
policies of lowering loan interest and providing financial guarantee. The channels
for capital sources of financial support are wide, but all types are required to be
repaid according to the condition of energy conservation when the special loans
are used for financing. Meanwhile, government could also join in this work
through its relevant financial institutions. For example, Brazil National Develop-
ment Bank established special loan for energy conservation projects. However, it
shall be assisted by a successful marketing plan in order to ensure the interest of
customers, which to certain extent provides soil for the market operation mech-
anism of energy conservation projects.
[Case 3-8] Source and usage of DSM fund in New York
Energy Research and Development Administration of New York provides
financial aid in the aspect of research and project implementation of DSM,
improvement of energy utilization efficiency, and strengthening of environmental
protection. The sources of fund for carrying out DSM in summer come from three
aspects: the first is the evaluation cost for the selling of electricity and natural gas
across the state by all (privately owned) power and natural gas supply companies
of New York investors; the second is the fund provided annually by Electricity
Board of New York and Long Island; and the third is some cooperation funds.
While supporting users to carry out the research of DSM, Energy Research and
Development Administration of New York itself also conducted research to some
projects. The first is to help residents to use energy in a better way. For instance,
actively prompt power consumption efficiency evaluation of energy star household
electrical appliances which is carried out by US DOE, mark the power con-
sumption efficiency of household electrical appliances on their external packing,
and recommend customers to use electrical appliances of energy conservation
type. Meanwhile, provide loan at reduced interest rate for households buying
electrical appliances of energy conservation type, and reduce and exempt local
taxes for users purchasing certain energy conservation products (i.e., solar energy
products). Second, provide comparatively large-scale energy efficiency equipment
and customize a series of relatively perfect energy efficiency services to large

users, such as large business and industrial organizations, and provide financial aid
to their newly build buildings and facilities. Third, carry out energy analysis. The
analysis report could make the investors and decision makers grasp future energy
trend in this State more comprehensively and avoid the drastic fluctuation of power
development and energy supply. It has achieved good effect.
Measure of the fourth category: Technical support. The policies contained in it
combine the price with the market shares that ensure the minimum margin. It is
either through bulk buying to lower the price or through new products to possess
the market.
The public technology procurement plan developed by the Swedish industrial
development department motivates manufacturers to develop and manufacture
products such as high efficiency refrigerators, high efficiency heat retaining
materials, and high-frequency lighting ballasts through the way of payment and
signing of order have all achieved ideal market shares.
Measure of the fth category: Certicate trade system. At present, Tradable
White Certificate system is the most frequently one to be carried out. White
Certificate means energy supply enterprises conform to energy conservation
standard stipulated in law and complete the amount of energy conservation in the
specified period by implementing energy conservation projects and adopting
energy conservation technologies. This White Certificate is tradable. The
responsible party could realize energy conservation requirement through its own
effort or by buying this certificate from other users so as to complete its own
energy conservation task. Currently, England, Italy, and France have implemented
the White Certificate plan.
The implementation mechanism of Tradable White Certificate system is
energy supply enterprises shall submit certain amount of certificates to the
supervision department at the end of the year (generally one year) and accept the
corresponding penalty, which would exceed the cost for buying certificate (of
the same quantity) if energy conservation task could not be completed. Therefore,
those supply enterprises that have difficulty in completing energy conservation
task will be willing to buy certificate to avoid the penalty, while those enter-
prises that overfulfill the task could get profits by selling certificate.
The Tradable White Certificate system could not only effectively realize
energy conservation target of the whole society but also greatly prompt the
development of energy conservation service market.
Now, there is an emerging certificate trade mechanism of Energy Efficiency
License Trade, which is to integrate the advantages of restriction mechanism with
economic efficiency of trade mechanism on the basis of market mechanism.
Electricity could be sold back to electricity store (negawatt) in energy efficiency
trade. In case this kind of market could be established, power utilities could
develop energy efficiency license trade into a kind of business activity. Italy has
put forward the development plan including the energy efficiency license trade.
[Case 3-9] Implementation of the Tradable White Certificate system in Italy

In the days of increasing liberalization of energy market, Italian Government
thinks the new policy instrument is more needed to realize predetermined energy
conservation target besides the insistence on traditional policy instruments. Italian
Government issued the Tradable White Certificate system in the form of min-
isterial decree in July, 2004. The design, implementation, and supervision of this
system are responsible by Italian administration of electricity and gas (AEEG).
During the design process, new policy instrument insists on two standards, i.e.,
cost advantage and contestability, and the obvious characteristic is to integrate
administrative order with tradable mechanism that is based on market.
According to the stipulation, the responsible party (energy suppliers) could
have four choices to complete their energy conservation target: designing and
developing energy conservation technology by themselves to meet the energy
conservation requirement; cooperating with the third party (equipment manufac-
turers, installers, and energy conservation service companies, etc.) to meet the
energy conservation requirement; signing bilateral agreement or buying tradable
white certificate directly from the market to complete the task; and accepting
penalty (those who cannot fulfill the obligations). Currently, the responsible party
of White Certificate in Italy is only limited to energy supply enterprises.
3.2.3 Information Popularization and Guidance Measures
Information popularization and guidance measures mainly refer to through the

measures of knowledge popularization, information transmission, technical dem-
onstration, and publicity and training to vigorously publicize the energy conser-
vation and the environmental protection awareness and ideal of DSM, advocate
scientific utilization of electricity, enhance cognition of DSM in the whole society,
improve the enthusiasm of users active participation in DSM, and make DSM
become a social activity that is valued and participated by every one. Information
popularization and guidance measures could start from the following aspects:
public service advertising campaign (through various media), exhibition and
presentation, certification of energy efficiency mark (coordinate with energy effi-
ciency label), energy efficiency information center, energy auditing, education and
training, and projects prompted by government, as shown in Fig. 3.5. Direct public
activities will be mainly guided by the government or carried out by power utilities
and social organizations entrusted by government to constantly transmit energy
conservation information to users through various public service advertisements,
exhibitions and presentations, energy efficiency marks, and daily publicity of
energy efficiency information center without the direct intervention of govern-
ment. However, the intervention of government always plays a key role in the
promotion of integral energy conservation technologies and projects of the whole
society as it could guide users to save energy and manufactures of energy
Information
popularization and
guidance measures
Promotion of integral energy
conservation technologies and
Face to direct public projects of the whole society ,
activities, with popularity with pertinency
Energy
Public service Energy Education Projects
efficiency Energy
advertising Exhibition efficiency and prompted by
information auditing
campaign label training government
center
Fig. 3.5 Information popularization and guidance measures
conservation products to develop high efficient products and equipment through

energy auditing, education and training, and projects prompted by the government.
The government could introduce some directive and incentive legislations to
guide the whole society to use energy conservation technologies, techniques and
products. For example, EU vigorously prompts co-generation of heat and power
project through directive measures. EU started to implement co-generation of heat
and power strategy in 1997 and promulgated 2004/8/EC directive that promote co-
generation of heat and power in 2004 on the basis of existing achievement of co-
generation of heat and power made by all member states to further advance the
improvement of energy utilization efficiency of industrial and commercial sectors.
All member states must execute this directive before February 21, 2006.
According to this directive, the proportion of electricity production from co-
generation of heat and power in the total power generation of EU would reach
18 % by 2010, which is one time of the 9 % in 1994. This directive especially
points out all power grid operators must provide access service for power from
cogeneration of heat and power to be connected to the grid as the power generation
of renewable energy.
3.2.4 Government Guide Enterprises to Participate in

Voluntary Agreement
Voluntary Agreement is a plan involving multiple parties. It is an agreement

signed by government department with some industry or some enterprise with the
aim of reducing power consumption of commercial and industrial enterprises.
Generally, it is defined in accordance with industrial branches or trade fields.
Typical Voluntary Agreement includes the following contents:
1. Decide reduction target of energy consumption through consultation. State

government department signs the Agreement with energy consumers or their
industrial associations to determine the energy conservation target, which could
be specified in various ways, including the change or restriction of indicators
such as per unit product energy consumption, per unit output value, utilization
of the energy and electric, etc. This Agreement shall also states the period for
the realization of energy consumption reduction target. In certain condition, the
commitment made by participants in Voluntary Agreement has the legal
effect.
2. Measurement plan. Most Voluntary Agreements include a measurement plan,
which stipulated the target setting standard and quantified method of energy
power consumption, and defined the reference value.
3. Technical assistance service. Many Voluntary Agreements include the
mechanism of providing technical assistance to final users who have signed the
Agreement. These services could include publication of technical information,
training, energy consumption auditing and consultation of facilities, project
design and inspection, and the assistance during the implementation of mea-
surement plan.
4. Reward and punishment system. The sponsor of Voluntary Agreement
encourages enterprises to sign Voluntary Agreement to fulfill their liabilities
through lots of policies and systems. These systems include:
Standardize it with law. As regulation breaking phenomenon has existed for a
long time and people refuse to sign the Voluntary Agreement, some gov-
ernments have suggested pollutants discharge restriction stipulation or direc-
tive equipment energy consumption standard must be forcibly executed.
Detain the operation license. In some countries, the Voluntary Agreement
stipulates environmental permit must be renewed; otherwise, operation license
would be detained.
Tax exemption. Many governments, such as the United Kingdom, Denmark,
and Holland, exempted the fuel tax of employers who have fulfilled their
obligations stated in Voluntary Agreement.
Emission trading loan. Many governments such as Canada provide tradable
primary behavior loan regarding emission reduction action adopted within
the framework of Voluntary Agreement.
Economic incentive. After the signing of Voluntary Agreement, finance and
taxation preferences, such as discounts, income tax free, or granting of loan at
reduced interest rate could be enjoyed when implementing energy efficiency
measures.
Voluntary Agreement must be combined with various existing policies of the
State and be connected with energy efficiency measures. Generally, existing tax
policies, laws and regulations, and subsidy schemes shall all be taken into con-
sideration during the design of Voluntary Agreement. From the experience of all
countries, it can be seen that Voluntary Agreement especially considered tax
policies. As having obtained the permission about energy tax directive from EU,
some countries, including Denmark, Finland, the United Kingdom, and Holland
take the signing of Voluntary Agreement as the standard for determining
whether to exempt tax or not. Those countries that have made energy auditing plan
could use Voluntary Agreement to design a kind of visible, more flexible, and
effective framework to realize the environmental target.
[Case 3-10] EU encourages self-disciplining industrial agreement
This is the self-discipline behavior implemented by industrial circles for energy
conservation, usually signed between industrial circles and the government. The
reason for EU to encourage self-disciplining industrial agreement is that this is
always the substitute or guide of the mandatory standard made by government.
Self-disciplining industrial agreement has been successfully implemented in
countries such as Holland, Norway, and Sweden, and the content of the agreement
keeps upgrading. At present, the scope of self-disciplining industrial agreement
implemented by EU involves televisions, refrigerators, washing machines, dish-
washers, electrical vehicles, water heaters, and acoustic equipment, in which
Standby Loss Agreement of Television and Cassette Videotape Player and
Agreement of Household Refrigerator and Washing Machine is regarded as the
two agreements with the best implementation effects.
3.2.5 Formulate Reasonable Electricity Price Policy
Price leverage is the most direct and sensitive mean for adjusting interest rela-
tionship. The practices of many countries has proven that users will actively
respond to price signal and change the power consumption mode, including power
utilization time and extent of load demand on their own initiatives.
The formulation of electricity price policies varies from country to country.
Countries such as the United States and Canada adopt low electricity price policy
because of their good resources endowment condition, while European countries
adopt high electricity price policy to restrict the fast increasing of load demand due
to their relatively shortage in energy resources. As EU is going to implement new
waste gas emission agreement, the electricity price in some relevant countries will
continue to increase.
The electricity price for different users has certain difference. As there is energy
loss during the power transmission process by power grid, the more the power
transformation links there are, the more the loss will be. Generally, residential
households are connected to low voltage power gird and industrial users are
connected to high voltage power gird. Therefore, the electricity price for resi-
dential households shall be higher than that of industrial users under the condition
of non-cross subsidization. For instance, electricity price of residents, which is
about two times of industrial electricity price, is the highest in the electricity price
structure of developed countries of Europe and the United States with the actual
value of electricity being reflected.
Many countries have published a series of time-of-use price according to their

own conditions. Implementation of the policy of peak-valley price, and the wet
and dry season price could make the sales price fully reflect the resource condition,
and relation between power supply and demand.
Cancel electricity price preferential policy to industrial users. The industrial
users in many countries enjoyed electricity price preferential policy before 1990.
Some US States have canceled these preferences during the reorganization process
of their electricity industries in order to make the industrial electricity price
increase and thereby prompting more users to invest in DSM.
3.3 The Achievements and Experience of China in

Carrying Out DSM
DSM has been highly valued by Chinese government since it was introduced to
China and many relating departments have done lots of work to prompt its
development in China. Although some obstructions have not been completely
solved, the relevant government departments have created a comparatively good
environment for the wide development of DSM by formulating corresponding
policies, laws and regulations, and strengthening publicity and promotion. The
relevant central government departments have brought DSM into special policies
and legislations, and promulgated corresponding guidance, implementation
methods, and incentive mechanisms, etc. Relevant departments in local govern-
ment also released related regulations according to actual local conditions.
3.3.1 DSM is Gradually Incorporated into National

Special Regulations
The law of the Peoples Republic of China on Conserving Energy (called Energy
Conservation Law for short) is formulated and implemented in 1998 to raise
energy conservation to the level of national law for restriction, which reflected the
high attention given by the government to energy conservation. Management
Method of Electrical power Conservation which was formulated in 2000 incor-
porated DSM into it as one of the special chapter to enrich the contents of DSM and
further prompt development of DSM. The policies, regulations, and plans thereafter
all take DSM as an important part. Under the environment of further deepening of
energy conservation and emission reduction, the revised version of Energy Con-
servation Law was issued on October 28, 2007. It further detailed energy con-
servation work and confirmed Energy conservation is the basic policy of China
and China will support and disseminate DSM with law, which created a good
legal environment for the development of DSM.
3.3 The Achievements and Experience of China 157
3.3.1.1 Energy Conservation Law
Energy Conservation Law promulgated in 1998 raised energy conservation and

rational utilization of energy to the level of long-term strategic policy of national
economic development for the first time and meanwhile made systematic nor-
malization to the organizational system of energy conservation management
agencies, types of key energy conservation technologies encouraged by the gov-
ernment and energy conservation liabilities of major power consumption users,
and legal responsibilities of power utilization of energy intensive industries that
violate the regulations. It laid a foundation for the release of successive relevant
policies of power industries and also became an important basis for the devel-
opment of DSM.
The revised Energy Conservation Law issued in 2007 further cleared the
duties of government, detailed the energy conservation requirement to each
industry, and put forward energy conservation requirements and measures espe-
cially to industries, buildings, transportations, public institutions, and major power
consumption units. It raised energy conservation to the level of obligations that
shall be performed by all units and individuals in legal form. All units and indi-
viduals have the right to report energy wasting behaviors to authorities.
Article 66 also proposed The country shall implement the price policy that is
favorable to energy conservation, and guide power consumption unit and indi-
vidual to conserve energy. It also clearly stated the legal status of DSM and
energy conservation methods such as DSM, Energy Management Contract (EMC),
and Voluntary Agreement of Energy Conservation supported and disseminated by
the government with finance and taxation, and price policies. All these have
provided the guarantee, specified financial and taxation support for the further
development of DSM.
The government would establish mandatory energy efficiency standard of power
consumption products and equipment, and energy consumption limit per unit of
energy intensive products during the production process, formulated relevant
incentive measures and law to encourage the development of energy conservation
service agencies.
Therefore, the revision of Energy Conservation Law will greatly stimulate the
development of energy conservation work in China.
3.3.1.2 Management Method of Electric Power Conservation
Management Method of Electric Power Conservation was formulated jointly by

original State Economic and Trade Commission and original State Planning
Commission on December 29, 2000 as the supporting policy for the specific
implementation of Energy Conservation Law, which clearly deepened the def-
inition of DSM. It not only clearly incorporated DSM into the contents of gen-
erator expansion planning and integrates resource planning, but also put forward
DSM technologies that are encouraged and disseminated by the government,

which greatly prompt the development of DSM work.
1. Interpreted the denition of DSM. It pointed out that DSM is a power utili-
zation management activity carried out to reduce power consumption and load
demand, achieve the purpose of energy conservation and environmental pro-
tection, and realize power service with low cost by improvement of terminal
power utilization efficiency and optimization of power utilization way while
completing the same power utilization function.
2. Dened the department for DSM promotion. It pointed out economic and trade
commissions at all levels are the prompters of DSM. They will carry out load
management to the end users and disseminate interruptible load mode and
direct load control to fully utilize the valley electricity of power system.
3. Proposed to incorporate DSM into generator expansion planning or integrate
resource planning. It is required to widen the utilization of two-part electricity
price, gradually increase basic electricity price and lower electrical degree and
electricity price, and accelerate the dissemination of time-of-use price and wet
and dry price to enlarge the gap of peak-valley price and wet-dry price pro-
gressively. It also proposed to research, formulate, and prompt electric price of
interruptible load.
4. Proposed to give preference to units that pay attention to energy conservation. It
stipulated power customers who use electricity saving products that are espe-
cially prompted by the government or passed energy-saving certification of the
country could apply to provincial-level department in charge of price and
power administrative organ for reduction and exemption of the relevant
expenses. Customers who use electricity saving technologies and products that
are incorporated into National High Technology Products Catalogue could
enjoy preferential tax policies stipulated by the government.
5. Proposed the department for publicity and promotion of DSM. It is requested
that power utilities shall strengthen publicity and promotion work of DSM, and
the expense arisen from thereafter could be paid out in management expenses
according to the actual condition.
3.3.1.3 Demand-Side Management Regulations
On November 4th, 2010, six ministries and commissions including National

Development and Reform Commission (NDRC) jointly promulgated DSM Regu-
lations (FA GAI YUN XING [2010] No. 2643) to determine the definition of
DSM, explicate the main body of duty and implementation DSM, put forward the
16 incentive measures for DSM work, further provide a satisfactory legal envi-
ronment for utilization efficiency of electrical energy, facilitate the electric power
resource optimization, and guarantee the power consumption order.
1. Denition of DSM is explicated. Such Regulations defines the DSM as the

relevant activities carried out to improve the utilization efficiency of electric
power resources, to make power consumption ways better and to realize rea-
sonable power consumption, energy-saving power consumption, and Orderly
Power Utilization.
2. Main body of duty and implementation for DSM are determined. NDRC is
responsible for DSM throughout the country while competent departments for
electric power operation in peoples governments above the county level for
DSM within their own administrative regions; power grid enterprises are the
important main body for the implementation of DSM and they conduct man-
agement by themselves and facilitate all the other parties; and electric power
consumers are the direct participants of DSM. All regional governments, rel-
evant departments, and units shall positively boost the implementation of DSM.
3. Efforts shall be made to bring DSM into development plan of electric power
industry, energy development, and regional economy development. Relevant
government organs shall do well in potential investigation and market analysis
of DSM according to the requirements. Moreover, peak-valley electricity price
system shall be advanced and improved, energy storage at low valley shall be
encouraged, and electricity price systems like seasonal electricity price, high
reliable electricity price, and interruptible load electricity price shall be carried
out in all regions.
4. Explicit requirements are proposed for Orderly Power Utilization. All provin-
cial level competent departments of electric power operation shall organize the
formulation of the Orderly Power Utilization schemes for province, autono-
mous region, and municipality; the schemes shall be implemented with the
consent of the corresponding Peoples governments and then be submitted to
NDRC for filing. Competent departments of electric power operation shall well
organize information release, supervision, inspection, and relevant statistics.
What is more, power grid enterprises shall well coordinate and electric power
consumers shall adopt the corresponding measures according to the Orderly
Power Utilization scheme.
5. Annual conservation target of electricity power quantity is regulated for power
grid enterprises. It is regulated that the conservation target is no less than 0.3 %
of power sales amount of previous year within the power selling area of rele-
vant power grid enterprises and 0.3 % of power load. Power grid enterprises can
realize this target through their own organization and implementation or pur-
chase service and the electricity power quantity reduced through Orderly Power
Utilization will not be counted. It is encouraged to affirm the conservation
quantity of electricity through the third-party institution.
6. Specic requirements are proposed to the load monitoring capacity of power
grid enterprises. According to the proposal, power grid enterprises shall carry
out load monitoring and control through electric load, load monitoring capacity
shall reach over 70 % of the maximum power load in this region, load control
capacity shall reach over 10 % of the maximum power load in this region and
all the consumers who consume over 100 KVA shall be brought into the load
management scope.
7. Capital source and application of DSM are dened. It is regulated that the
capital required for DSM comes from additionally levied urban public utilities
fees, income of differential electricity price, other financial budges and
arrangements, etc.; capital of DSM is mainly used for construction, operation
and maintenance of electric load management system, subsidy for implemen-
tation of pilot, demonstrative and key projects, subsidy for Orderly Power
Utilization and relevant publicity, training and evaluation expenses; reasonable
expenditure for DSM of power grid enterprises can be counted in power con-
sumption cost.
8. Relevant suggestions for electricity conservation technology are proposed.
Power grid enterprises are encouraged to adopt energy-saving transformer,
reduce power supply radius rationally and strengthen reactive compensation;
consumers are guided to improve reactive power management in order to
realize the statistical analysis of line loss by different voltage classes and reduce
line loss rate gradually; consumers are encouraged to adopt efficient power
consumption equipment which conforms to relevant national requirements and
techniques such as frequency conversion, heat pump, electric cold storage and
electric heat storage, configure the reactive power compensation devices rea-
sonably, strengthen reactive power management, optimize power consumption
ways, and coordinate with competent government organs and power grids to
carry out DSM.
3.3.1.4 Other Relevant Plans and Energy Conservation Documents
Original State Economic and Trade Commission promulgated The 10th Five-year
Plan (20012005) of Energy Conservation and Comprehensive Utilization of
Resources on January 1, 2001. DSM and comprehensive utilization of resources
are included into its Policy and Measure as one of the new mechanisms for
prompting energy conservation and comprehensive utilization of resources under
the market economy.
Notice of General Office of the State Council about Carrying out Energy
Conservation Activities (Guo Ban Fa No [2004]30) includes Strengthening of
DSM into Target and basic requirement of energy conservation activities.
Middle and Long Term Plan of Energy Conservation issued by NDRC on
November 25, 2004 is the first and special plan about energy conservation for-
mulated and issued by China since the reform and opening up to the outside world.
It includes prompting comprehensive resources planning and DSM into car-
rying out new mechanism of energy conservation on the basis of market
mechanism.
It is required in greatly prompt energy conservation of Notice of General

Office of the State Council about Recent Key Work of Building Economical
Society (Guo Fa No [2005]21) to strengthen DSM, implement arrangement of
DSM and tide over the peak load during summer, reinforce DSM with energy
conservation and improvement of power consumption efficiency as the core,
prefect supporting laws and regulations, formulate effective incentive policies,
disseminate typical experience and guide all regions to intensify the
implementation.
NDRC started to organize the formulation of Implementation Measures of
DSM and Planning of DSM at the end of 2005, which marked DSM work in
China gradually entered into the preliminary implementation stage from the pre-
vious exploration and experiment stage.
It is required in Decision of General Office of the State Council about
Strengthening Energy Conservation Work (Guo Fa No. [2006]28) to fully take
the comprehensive advantages of DSM, optimize power consumption plan of
urban area and enterprises, disseminate the application of high efficient energy
conservation technologies, prompt the development of EPP and improve utiliza-
tion efficiency of electricity.
It is stipulated to strengthen DSM in Outline of 11th Five-year Plan
(20062010) of National Economic and Social Development on March 14, 2006.
On July 25, 2006, NDRC together with other concerned departments, including
Ministry of Science and Technology, Ministry of Finance, Ministry of Construc-
tion, General Administration of Quality Supervision, Inspection and Quarantine,
State Environmental Protection Administration, Government Offices Administra-
tion of the State Council, Government Office Administration directly under CPC
Central Committee issued Suggestions on Implementation of Ten Key Energy
Conservation Projects of the 11th Five-year Plan (20062010). It clearly pointed
out in the chapter of Safeguard Measures that some effective new energy con-
servation mechanisms such as DSM shall be implemented in accordance with local
conditions.
On April 18, 2008, NDRC promulgated Guide for Examining the Energy-Saving
Amount of Energy-Saving Project (FA GAI HUAN ZI [2008] No.704), providing
detailed instruction for examination agencies to examine energy-saving amount of
energy-saving item (project) in such aspects as examination basis, examination
principle and method, examination content, examination procedure, and exami-
nation report, which facilitates the improvement of the examination level of third-
party organization.
From 2010 to 2012, NDRC issued the filing list of energy-saving companies in
batches, which provides a good platform for all parties to look for energy-saving
service companies conveniently and makes positive contribution in the construc-
tion of energy-saving service system; Energy saving Product Projects for the
Benefit of the People like efficient motors, AC, washing machines, TV sets,
refrigerators, water heaters, and vehicles were promulgated in batches, making a
great contributions to energy-saving realization besides improving peoples lives.
Comprehensive Work Program for Energy Conversation and Emission Reduc-

tion in 12th Five-year Plan (20112015) (GUO FA [2011] No.26) promulgated
by the State Council in 2011 definitely will facilitate the continuous and effective
implementation of Chinas energy saving and power DSM.
3.3.2 Enrichment of Guidance of DSM
The relevant State government departments have formulated Guidance about the
Promotion of DMS Work (Guo Jing Mao Dian Li No. [2002]470), Guidance
about the Strengthening of DMS Work (Fa Gai Neng Yuan No. [2004]939), etc.
successively since 2002. The government keeps propelling the development of
DMS work in China through these documents and has achieved certain effect. The
continuous enrichment of the contents of these documents points out the direction
and provides ideas for the development of DMS in future.
3.3.2.1 Guidance on the Promotion of DMS Work
Original State Economic and Trade Commission detailed and supplemented the
contents of Management Method of Electricity Conservation, and printed and
distributed Guidance about the Promotion of DMS Work (Guo Jing Mao Dian Li
No. [2002]470) on July 2, 2002 in order to further prompt DSM work in the whole
country. The supplement and perfection of DSM in laws and regulations are
mainly reflected in:
1. Clearly identied the responsibility and function of every related subject. It put
forward the development of DMS work needs the joint participation and
concerted efforts of government, power utilities, users, research and develop-
ment and manufacturing units of electrical equipment, and the relevant inter-
mediary service organizations, and made specific division of the work that
shall be done by the Economic and Trade Commission in every place, every
provincial level power grid enterprises and users, especially the units with high
power consumption.
2. Raised the position of DSM. It is required to raise DSM to the same important
position as that of increasing power generation capacity.
3. Stipulated the functions that should be possessed by the applied technologies
and products of DSM. The applied technologies and products of DSM shall
have the functions of peak clipping and load filling, optimization of the
operation mode of power grid, realization of economical operation of power
grid, improvement of power utilization structure, reduction of environmental
pollution and increase of power utilization efficiency, etc..
4. Put forward guidance to key technologies and products being prompted. It put
forward 11 kinds of key technologies and products being prompted under that
condition, including load management technology; cold and heat storage

technology; green lighting technique and product, and energy efficient house-
hold electrical appliance; heat pump and gas-steam combined cycle power
generation technology; far infrared ray, microwave and high power interme-
diate frequency induction heating technology; low frequency power source
smelting technology; alternating current motor regulating speed running tech-
nology; applied technology of air-foil fan, water pump, motor and transformer;
specialized production such as heat treatment, electroplating, casting and
oxygen production; reactive automatic power compensation technology;
application technology of high efficiency storage battery and renewable power
generation technology.
3.3.2.2 Guidance About Strengthening DSM Work
NDRC, and State Electricity Regulatory Commission printed and distributed the
notice of Guidance about Strengthening DSM Work (Fa Gai Neng Yuan No.
[2004]939) on May 27, 2004. It brought forward specific guidance for DSM and
electricity saving work under the new situation from the aspect of organizational
management, planning management, load management, electricity conservation
management, publicity and training, source and use of fund, etc.
1. Government at all levels shall vigorously prompt and be in the leading position.
It put forward DSM work shall be vigorously promoted and led by government
at all levels. Planning management, load management, and electricity saving
management shall be strengthened, publicity, and training shall be energetically
carried out, and effective supervision shall be implemented by supervision
institutions.
2. Incorporate DSM into development plan as a kind of resource. Government in
each province (region and municipality) shall incorporate electric power and
electricity conserved through DSM to development plan of regional power
industry, energy development plan, and economy development plan as a kind of
resource according to the local economic development target and the charac-
teristic of power supply and demand.
3. Provide some operable economic incentive policies. Government in each
province (region and municipality) shall formulate active economic incentive
policies and lead users to reasonably utilize electricity with peak load shifting
and valley filling. Economic incentive policies include:
Appropriately, widen the implementation scope and price difference of time-
of-use power price in grid sales link. Regions with proper conditions, small
and medium-sized enterprises and residential users could also carry out time-
of-use power price. The regions with striking peak load in power grid could
implement peak electricity price according to the actual conditions. The level
of peak electricity price shall be properly higher than that in the peak hours.
Regions with proper conditions shall implement time-of-use power price

linked to power grid sales sector in power generation grid sector.
Regions with high proportion of water and electricity or whose power con-
sumption varies greatly with the change of seasons could implement wet and
dry electricity price or seasonal price.
Gradually enlarge the implementation scope of two-part price and properly
increase the proportion of basic electricity price in two-part price.
Research interruptible load and high reliable electricity price policy. Regions
with proper conditions could formulate the implementation method of the
interruptible load and the high reliability electricity price.
3.3.3 Relevant Notices and Documents About DSM

have been Issued for Many Times
China met a new round of power supply shortage during the 10th Five-year plan
and DSM was highly valued in the process of handling this imbalance between
supply and demand. The related departments had issued many notices to give
promotion and guidance, and make DMS work to be carried out in a normal,
effective, and continuous way. It had achieved significant effectiveness in the
aspect of ensuring the security, stability, and supply of electric power.
The situation of shortage in power supply began to show up in some areas since
the second half of 2002. The General Office of the State Council issued Notice of
the General Office of the State Council about Seriously Improve the Relevant
Work of Power Supply (Guo Ban Fa No. [2003]21) on April 20, 2003, which
required relevant departments of the State Council, and local Peoples government
at all levels and power utilities to strengthen power utilization side management,
fully play the function of price leverage, scientifically guide power consumption
and alleviate the contradiction between the difference of peak and valley.
In order to guide the rational power utilization with power price policy, NDRC
issued Notice of the Relevant Issues about Adjusting Power Supply and Demand,
and Prompting Reasonable Utilization of Power through the Application of Price
Leverage (Fa Gai Jia Ge No. [2003]141) on April 15, 2003, which made clear
stipulations in the aspect of prompting DSM work with electricity price leverage.
The stipulations mainly include:
1. Vigorously push forward time-of-use power price, encourage power generation
enterprises to fully utilize power generation capacity, and prompt users to clip
the peak and fill the valley in electricity utilization under the premise of
keeping the basic stability of the general level of electricity price.
2. For regions with large proportion of hydropower, implement wet and dry
electricity price, and properly arrange the price difference between wet season
and dry season under the principle of not influencing the general level of
electricity price and being favorable to the adjust and balance the power
demand and supply in wet and dry season.
3. Gradually perfect the system of two-part price and prompt the increase of
utilization rate of power generation and utilization equipment.
4. Try out peak averting electricity price system, guide and encourage users to
shift the peak rationally.
5. Properly form the interprovincial and inter-regional price of power transmission
and receiving, and transmission price of special transmission projects to prompt
optimized allocation and rational utilization of power resource.
6. Seriously implement and rectify electricity price, and normalize all the policy
measures of electricity price management to provide a favorable environment
for the development of power industry.
7. Every place shall clear and standardize power pricing policy of expanding
power supply and broadening marketing scope according to the change of the
situation of power supply and demand, and actively prompt technologies and
products with high efficiency of power utilization to guide users to properly
utilize and conserve electric power.
To implement measures of the document (Guo Ban Fa No. [2003]21) and
develop DSM in a further way, NDRC issued Notice of NDRC about the
strengthening of DSM (Fa Gai Neng Yuan No. [2003]469) on June 3, 2003,
which proposed requirement from the aspect of formulating plan to strengthen
DSM, working out peak load shifting and peak averting measures, making
emergency plan, improving electricity saving work, guiding power consumption
with price leverage, correctly guiding the development of high energy consump-
tion industries, reinforcing publicity and training, and enhancing supervision. It
provided good guidance and standard for the development of DSM in each place
and ensured the power utilization of the whole society in a safe, stable and orderly
way.
In order to provide financial support to DSM and ensure the security and
stability of power utilization during summer peak period, the General Office of the
State Council issued Notice of the General Office of the State Council about
Improving Summer Peak Work of Electric Power (Guo Ban Fa No. [2004]47) on
June 7, 2004. It is required all places shall actively raise special fund for DSM,
which will be mainly used for publicity and training, supporting the research and
development of energy conservation products, transformation of energy conser-
vation technologies of users, implementation of interruptible load subsidy, con-
struction of load management system of power grid enterprises, etc.
It is clearly required in Notice of State Council about the Printing and Dis-
tribution of Main Points of Work in 2006 (Guo Fa No. [2006]12) that Long-
effect mechanism of DSM shall be established to keep the stable and rapid
development of economy.
3.3.4 Formulation of Relevant Supporting Measures
3.3.4.1 Mandatory Energy Efciency Standard of Main Power

Consumption Products
Establishment of Certification Body of Energy Conservation Products
Original State Economic and Trade Commission released Management Method

of certification of energy conservation products (CCECs) and launched the cer-
tification work of energy conservation products together with the State Bureau of
Quality and Technical Supervision at the end of 1998. Energy product certification
is a kind of activity designed to prove that a certain product is a kind of energy
conservation product, by issuing energy conservation product certificate and
energy conservation label through the confirmation by certification authority,
according to the relevant standards and technical requirements. Although the
CCECs is carried out on the free will basis, some products without energy con-
servation certificate, or label will be in disadvantage in market competition with
the strengthening of energy conservation awareness.
Establishment of Energy Efficiency Label
Before July 2012, China had published about 50 energy efficiency labels or
standards for final energy consumption products and this number is still increasing
[6]. Currently, it mainly involves five kinds of products which include household
electrical appliances, lighting fixtures, commercial equipment, industrial equip-
ment, and vehicles. The research, promulgation, and implementation of energy
efficiency standard play an important role in bringing China in line with interna-
tional standard, energy conservation and emission reduction, overcoming of green
trade barriers, etc.
Energy efficiency label is a kind of information label attached to power con-
sumption products, indicating the energy consumption performance, and efficiency
index of products, especially emphasizing the degree of energy efficiency stan-
dard reached by the products so as to guide consumers to select products with
higher energy efficiency. Figure 3.6 is the basic manner of energy efficiency label
and that for AC and refrigerators in China.
NDRC, together with State Administration for Quality Supervision and
Inspection and Quarantine issued Management Method of Energy Efficiency
Label on August 13, 2004 and established energy efficiency label body on the
basis of fully investigation and verification, and solicitation of opinions from the
whole society. This body began to be formally implemented by household
refrigerators and AC on March, 2005.
The initial mandatory energy efficiency standard includes allowable value of
energy efficiency and evaluating value of energy conservation. At present, energy
Fig. 3.6 Basic manner of energy efficiency label and that for air conditioners and refrigerators in
China. Picture Source The national development and reform commission (NDRC), general
administration of quality supervision, inspection, and quarantine of the Peoples Republic of
China (AQSIQ), certification and accreditation administration of Peoples Republic of China.
Chinese energy efficiency labeling standard style (NDRC file code 2004-71)
efficiency standard in China is entering into a comprehensive promotion stage and

the mark is the more important changes of technical contents besides the expansion
of the scope of products. Part of the energy efficiency standards is newly formulated
and revised. It also stipulates indexes such as energy efficiency grade and it will lead
allowable value of energy efficiency besides the original allowable value of energy
efficiency. It evaluates value of energy conservation by drawing on foreign expe-
riences and combining with the need of energy conservation work in China so as to
guide enterprises to speed up the progress of technology in a more effectively way. At
the same time, it establishes a foundation of energy efficiency label system [2].
Currently, China National Technical Committee for Standardization of Energy
Fundamentals and Management has made a general revision about energy effi-
ciency standard of the first batch household electrical appliances. Some standards
in it have been revised for the second time. The setting of energy efficiency
standards in the field of lighting products, commercial equipment, and industrial
power consumption products is also actively in progress. The household electrical
appliances whose energy efficiency standards have been compiled and revised by
now involve refrigerators, AC, washing machines, and color televisions.
National standard and industrial standard are promulgated on the basis of lots of
investigation and research, and theoretical analysis and experimental verification.
As some technical indexes, the advancement, rationality, and operability of
parameters and the influence of promulgated standards to the healthy development
of industry have to be taken into consideration, some issues have to be demon-
strated or experimentally verified repeatedly during the formulation and revision
work. Generally speaking, the key to the formulation of national standard and
industrial standard is to make the standard conforms to the development of
industry and market in an appropriate and timely manner, and keep pace with the
times. The standard is not always that the newer the better, the promulgation speed
is not the faster the better and the quantity is not the more the better. The key to the
judgment of a standard is the standard shall conform to the production situation
and market demand of relevant domestic industries, and play an active role for the
healthy development of the industries. Old standard cannot become the obstacle of
market, while new standard shall also take the long-term development and bearing
capacity of the industry into consideration.
3.3.4.2 Energy Conservation Technology Service Mechanism Based

on the Market
Three demonstration energy conservation service companies and a non-profit

information dissemination center were set up in Beijing, Liaoning, and Shandong
province in 1998 based on World Bank/Global Environment Facilities China
Energy Conservation Project. These three companies carry out energy conserva-
tion projects in the form of internationally common energy conservation financing
and service such as EMC and Loan Refunding with Energy Conservation
Benefits. Totally, more than 400 energy conservation technology reform projects
had been implemented by the end of 2005.
In 2002, original State Economic and Trade Commission entrusted Develop-
ment Research Center of the State Council to organize and carry out Research of
Government Energy Conservation Management Mode under Market Economy to
summarize the practical experience of China and learn from the development trend
and experience of international energy conservation. It proposed to strengthen the
general thought of energy management in China, and pointed out as there are few
energy conservation service companies at present, their risks are still large.
The revised Energy Conservation Law issued in 2007 clearly defines that the
State will support and disseminate energy conservation methods such as DSM,
EMC, and Energy Conservation Volunteer Agreement through the application of
policies such as finance and taxation, and price. The State will encourage the
development of energy conservation service agencies and support energy con-
servation service agencies to carry out service such as energy conservation con-
sultation, design, evaluation, inspection, auditing, and certification. These
stipulations lay a good foundation for promoting continuous and effective devel-
opment of DSM and cultivating energy service industry.
3.3.5 Promulgation of Relevant Policy Solutions by Local

Government
Prior to the promulgation of national Management Method of Electricity Con-

servation by the central government, some provinces (regions and municipalities)
have made management method of electricity conservation for their own province
according to the local conditions, such as Management Method of Electricity
Conservation of Henan Province issued by Henan government on September 7,
1994 and Management Method Electricity Conservation of Hubei Province
issued by Hubei Government on December 2, 1995. Since 2000, some provinces
(regions and municipalities) have issued local Implementation Measures of
DSM and some policies based on the relevant national policies and by combining
with local characteristics, with good effect being achieved for promoting DSM in
local area.
Economic and Trade Commission, Construction Office, Price Bureau, Envi-
ronmental Protection Bureau, and Price Bureau of Jiangsu Province took the lead
in introducing Implementation Measures of DSM of Jiangsu Province (Trial
Implementation) in April, 2002, which clearly defined the responsibilities of the
relevant government departments, power utilities, power users and energy con-
servation companies, elaborated plan and publicity of DSM, and the policies and
technical measures to be taken for its implementation, and preliminarily estab-
lished organizational structure and operation mechanism. It produced a positive
effect in leading DSM work.
More than ten provinces (regions and municipalities), including Hebei, Shanxi,
Jiangxi, Liaoning, Beijing, Guangdong, and Hunan province issued the similar
documents or forwarded the document of the State successively by following
behind closely. Although the printing and distribution units and names of the
document are varied, they are issued by the relevant government departments for
promoting the continuous and effective development of DSM, and have played
certain promotion function for local DSM work. For instance, in 2002, Economic
and Trade Commission, Department of Finance, Price Bureau, Tax Bureau,
Construction Office, Environmental Protection Bureau of Hebei Province jointly
issued Opinions about Vigorously Developing DSM (Ji Jing Mao Dian Li No.
[2002]342), Economic and Trade Commission of Heilongjiang Province for-
warded Notice of State Economic and Trade Commission Guidance about
Prompting DSM (Hei Jing Mao Dian Li No. [2002]356), Economic and Trade
Commission of Guangdong Province issued Opinions about Promoting the
Implementation of DSM Work in our Province (Yue Jing Mao Dian Li No.
[2002] 409). In 2005, Peoples Government Office of Beijing Municipality printed
and distributed Notice about Improving DSM Work in Summer of 2005 (Jing
Zheng Ban Fa No. [2005]17), Economic and Trade Commission of Hunan Prov-
ince issued Opinions of DSM Work in 2005 (Xiang Jing Dian Li No. [2005]
135), General Office of Hubei Peoples Government printed and distributed
Notice about forwarding the Implementation Measure of DSM in Hubei Prov-
ince of Provincial Economic Commission and Provincial Price Bureau (E Zheng
Ban Fa No. [2005] 92), etc.
Although other provinces (regions and municipalities) such as Henan, Zhejiang,
Qinghai, Inner Mongolia, Guangxi, Chongqing, Xinjiang, and Fujian Province
have not issued the corresponding documents especially aimed at DSM, their
governments and relevant departments all proposed specific requirements for

strengthening DSM in related power supply and utilization documents.
The policy reform in the country-level could facilitate the implementation of
DSM. Local government could also explore the mechanism and process that is
suitable for the implementation of DSM in local area according to the actual local
condition. The correct guidance of government at all levels has made a important
contribution to easing the tension of power supply and demand in recent years.
Where:
Beijing started to introduce DSM in early 1990s and did a lot of work with
certain effect being achieved. Beijing Government supports Beijing Power Supply
Company to develop DSM demonstration project, guide users to adopt advanced
DSM technologies, equipment and processes, vigorously prompt peak-valley
price, and guide users to clip the peak and fill the valley. Significant effects have
been achieved in the aspect of cold storage air conditioner, electric boiler with
thermal storage, etc.
Beijing Government issued relevant documents about providing government
subsidies to users participating in cold storage air conditioning project on their free
will, which prompted the dissemination and application of energy storage tech-
nology. Power consumers who have participated in implementation of power
utilization project of cold storage air conditioner technology (includes ice storage
air conditioner and water storage air conditioner) within Beijing area, willingly to
apply for demonstration project of energy storage air conditioner of Beijing, accept
the assessment of experts and enjoy government subsidy, and do the statistic of
power consumption of cold storage air conditioner could make application
according to the process as shown in Fig. 3.7.
A state-level DSM exhibition hall, built by Beijing Electric Power Corporation
in 2007 under the support of State government departments, and Beijing Municipal
government, created a good environment for the publicity and exhibition of DSM
in the whole country.
Hebei province government set Hebei Province DSM Guidance Center on the
basis of the building of DSM organizational system. That was the practice for
taking DSM as a resource of the same importance as power supply construction
and establishing the long-term effective mechanism. By following the practice of
SBC in other countries, it draws 1 cent per kWh from city surcharge contained in
the electricity price as the special fund of provincial DSM used for capital subsidy
to projects such as the reform of DSM technology, and development and research
of new technologies and products. During the 3 years from 2004 to 2006, 227
DSM demonstration engineering projects had been especially organized for
implementation, and the accumulated electric power being conserved was nearly
500 GWh, which equaled to 200,000 tce. The emission of CO2, SO2, and NOx
being reduced was 550,000, 3,900, and 1,300 tons, respectively [7].
Jiangsu Province has realized the good and rapid development of economy with
less energy consumption through the vigorously development of DSM. Government
actively raised funds and used it mainly for prompting DSM demonstration projects,
encouraging enterprises to adopt advanced energy conservation technologies and
Fig. 3.7 Process for

application of Government Approval and initiation of the
subsidy for cold storage air project, and application of subsidy
conditioner installed by
voluntary users
Installation of meter before the

completion of the project
Application for acceptance by user

on completion of the project
Releasing subsidy if qualified

through the assessment of experts.
Filling in operation record and

report
Accepting monitoring and

evaluation
management measures, and guiding enterprises to reform technologies and renew

equipment so as to improve the overall utilization efficiency of power. Strategic
Planning of DSM of Jiangsu Province compiled by the government proposed the
conception and corresponding measures of implementation system of DSM from
multilevels of policy, economy, and technology. It also put forward the idea of
constructing EPP in Jiangsu Province and the capacity would be 600 MW during the
11th Five-year Plan (20062010). There had been about 11.4 TWh power accu-
mulatively conserved by 2010, in which 3.7 TWh was conserved in 2010. Analyzed
and calculated in accordance with the parameters of conventional power plants
(CPP) and EPP in Table 3.1, 1.3 million tce was conserved, and 3.5 million tons CO2,
25,000 tons SO2, and 8,000 tons NOx were reduced, respectively, in 2010. The
electric power and electricity being conserved by Jiangsu EPPs during the 11th Five-
year Plan are shown in Fig. 3.8, which has been carried out.
Guangdong Province mainly starts from administration and economy two
aspects to develop DSM work. Staggering power consumption effectively eased
power supply pressure in the peak period of the system. The actual stagger load
was nearly 1.3 GW, when the expected power consumption shortage reaching 2.5
GW in 2002. Peak-valley price started to be piloted since 2001 and was gradually
Table 3.1 Comparison of unit cost and benefit between CPP and EPP [8]
Unit Conventional power Efficiency power
plants (CPP) plant (EPP)
Installed power generation capacity MW 300 300
Electricity produced GWh 1,5001,900 1,5001,900
or conserved per year
Coal consumption gce/kWh 340 0
for power generation
Emission factor of SO2 g/kWh 4 0
prompted in the whole province. The difference of peak-valley price is also

widened so as to strengthen peak load shifting and valley filling effect.
Guangdong Province also used the loan from Asian Development Bank to
develop EPP project and make beneficial explore on the research of mechanism of
implementation of EPP project. Guangdong Province was approved by Asian
Development Bank and the relevant State departments as the pilot province of EPP
project and was incorporated into national alternative project plan from 2007 to
2009 by using the loan of Asian Development Bank through the application of
Guangdong Provincial Government in March, 2006. On September 29, 2008, the
Government of China and Guangdong Provincial Government formally signed
Loan Agreement and Project Agreement with Asian Development Bank for
phase I of the projects that would be effective on January 9, 2009. Guangdong EPP
project loaned 0.1 billion USD from the Asian Development Bank which would be
implemented in several batches with 35 million USD for phase I relying on 3-year
loan period for sub-projects; loan for phase II is 65 million USD for projects
involving renovation projects such as lighting, power grid, transformers, as well as
new energy projects such as solar PV generation. So far, phase 3 of the project has
been applied focusing on motors, green lighting, HVAC, and many more fields.
The project office set up by the Economic and Trade Commission of Guang-
dong Province is responsible for implementation of the project, and Department of
Finance of Guangdong Province is responsible for lending. It is plan to implement
the project in the aspect of modification of electrical engineering in industrial and
Fig. 3.8 Electric power and 4000 3709

electricity conserved by Conserved electric power (MW)
3500
Jiangsu EPP during the 11th Conserved electric quantity (GWh) 2996
Five-year Plan 3000
2500 2377
2000
1450
1500
1000 880
500 600
500 300 400
150
0
2006 2007 2008 2009 2010
commercial enterprises, green lighting, replacement of lower efficiency trans-

former with high efficiency transformer, energy conservation enhancement of air
conditioner system, etc.
3.4 Measures for Continuously Prompting the Effective

Development of DSM
As stated in Chap. 1 of this book, lots of energy has been conserved and massive
emission of pollutants has been reduced through DSM since 1990, but there are
still some problems in the aspect of system, mechanism, law and regulation. In
order to prompt the establishment of long-lasting and effective mechanism of
DSM, current existing problems must be overcome, existing laws and regulations
have to be perfected to create a good legal environment, and the policies such as
finance, taxation, and price have to be improved to set up an effective mechanism.
Besides, various technological and administrative publicity and incentive mea-
sures have to be carried out to prompt the whole society to actively participate in
DSM so as to vigorously prompt the continuous and effective development of
DSM. These methods and measures are divided in the way of short term and long
term. Please refer to Table 3.2 for details.
3.4.1 Prefect Legal Environment
3.4.1.1 Incentive Principle
The starting point of European countries whose DSM is well developed currently
greatly differs from that of China. Although there is increase for the load demand
in European countries, it belongs to small-scale increase under the totally balanced
condition of power supply and demand. Therefore, they carry out DSM from two
aspects, on one hand, consider reasonably cutting down the increase of demand so
as to reduce power supply, decrease the impact of GHG emission on ecology, and
improve security of energy supply. On the other hand, their important aim is to
contend for and control international market by researching and disseminating
advanced technology and international standard of new industry, and grasping the
guiding right of technology and standard.
The development of DSM in China is aimed at meeting the rapid growth of load
demand and ensuring the balance of power supply and demand so as to support the
sustainable development of economy and the improvement of peoples living
standard. In order to guarantee the demand of fast-growing economy to power,
start from the two aspects of supply side and demand-side is the main charac-
teristic of getting the balance of power supply and demand in China. However, a
Table 3.2 Short-term and long-term policies
174
Working area Means and measures

Detailed item Short term Long term
Creating good legal Perfection of laws and Make revision to relevant laws and Draft and perfect implementation
environment regulations regulations such as law of electric measures of DSM, and establish
power and regulations on supply special fund for DSM
and utilization of electric power
on the basis of revised law of
energy conservation passed on
October 28, 2007
Establishing effective Finance and taxation policy DSM fund Reduce and exempt corporate income
incentive mechanism tax of enterprises implementing
DSM; offset corporate income tax
with investment for special
equipment of energy conservation
and electricity conservation.
3
Price policy Differential electricity price will all be Raise the level of electricity price,
used for energy conservation cancel cross subsidization of
work; cancel all preferential electricity price, and gradually
electricity price given to high establish a reasonable electricity
power consumption industries price system that could reflect the
degree of shortage of resources
Utilizing various publicity Technical measure Allowable value of energy efficiency, Leading energy efficiency standard
and guidance measures executive standard of energy
efficiency
Administrative measure Orderly power utilization, energy Incorporate enterprises whose DSM
conservation program of 1000 agreement is above 315 kva into
enterprises energy conservation monitoring
grid
Guidance measure Publicity and training Publicity and training
The Promoter of Demand-Side Management
3.4 Measures for Continuously Prompting the Effective Development of DSM 175
problem arises thereby, which is DSM will be valued when power supply and
demand is in tension, and the importance of DSM will be lowered accordingly
when the contradiction between power supply and demand is eased. DSM shall be
taken as a long-term effective mechanism instead of the emergency measure being
adopted during the period of tight supply and demand of power.
China shall pay attention to the long-term and forward-looking characteristic
when formulating DSM policy. On the one hand, the long-term characteristic of
the policy could facilitate to mobilize the initiative of all parties in the society and
to form a virtuous circle as recovery of the investment for the implementation
project of DSM needs certain time. On the other hand, formulating the policy with
certain forward-looking characteristic could further raise the status of DSM work
in China. It could not only be taken as the beneficial supplement when power
supply and demand is in tension, but also make China master the new standard and
technology to breakthrough the trade barrier and technological barrier of devel-
oped countries by encouraging forward-looking technical research.
3.4.1.2 Laws and Regulations
The key to the success of DSM in some countries lies in the establishment of
corresponding law and regulation systems. The rights and obligations of subject of
DSM implementation and the parties concerned are clearly defined by law. As the
relevant laws and regulations of DSM are not sound in China now, they are not
favorable for the mobilization of initiative of all parties and the optimization of
allocation of all kinds of resources.
For the development of DSM work, laws and regulations have to be perfected to
standardize the rights, obligations, and interests of the subjects concerned, to
clearly define the methods and measures of main work, and to provide the gov-
ernment regulation for places with market failures. We should improve the sup-
porting policies from the aspect of finance, taxation, and price, and deepen the
incentive and restraint mechanism to make the DSM work develope in a deepening
and lasting way. Please refer to Fig. 3.9 for the regulation group in the energy field
of China.
The legal status of DSM was clearly defined in Energy Conservation Law
revised in 2007. Management Method of Electricity Conservation deepened the
definition of DSM and clearly incorporated DSM into the contents of generator
expansion planning and integrated resource planning. However, there is still no
legal basis for the effective implementation of it, and the rights and liabilities of
the subject of implementation and all participants shall also need to be stipulated in
the form of legal document. Relevant contents shall be added during the revision
of Management Method of Electricity Conservation, Electricity Law, Reg-
ulation on Electric Power Supervision and Regulations on Supply and Utiliza-
tion of Electric Power, and Implementation Measures of DSM and
Regulations of DSM shall be issued in a timely manner so as to clearly define
the responsibilities and targets of subject of implementation and all participants in
Energy Law
Complete revision in 2007 and
solicit opinions
Electricity Law Energy Coal Law Renewable

Conservation Law Energy Law
Promulgated in 1995 Promulgated in 1996
and was under revision Promulgated in 1997 and and was under revision Promulgated in
currently revised and issued in 2007 currently February, 2005
Regulations on Supply and
Utilization of Electricity
Promulgated in 1996 and was
under revision in 2007
Regulation on Electric
Power Supervision
Promulgated in 2005
The supporting administrative

Supporting Supporting
laws and regulations are The legal status of DSM
administrative laws and administrative laws and
needed to determine the has been clearly defined
regulations regulations
important position of DSM
Fig. 3.9 Regulation group in energy field of China
DSM, clarify the organizational structure, source of fund and supervision mech-
anism of DSM, and standardize and legalize DSM.
Determine the Legal Status of DSM
Energy Conservation Law was passed at the 28th Session of the Standing
Committee of the 8th National Peoples Congress on November 1, 1997 and
became effective on January 1, 1998. As situations in all aspects, such as the
reform of economic system and reform of electric power system, changed greatly,
the government made a revision according to the requirement and the revision was
passed on October 28, 2007. The new Energy Conservation Law expands from
original 50 articles in 6 chapters to 87 articles in 7 chapters with one chapter of
incentive measures being added. Its operability is also enhanced. Article 66 in it
pointed out the public supports energy conservation methods such as DSM, EMC,
and Energy Conservation Volunteer Agreement with the policies of finance and
taxation and price. As new Energy Conservation Law has clarified the legal
status of DSM and created a good legal environment for DSM, DSM work will
enter into a new stage.
Electricity Law with 75 articles in 10 chapters was passed at the 17th Session
of the Standing Committee of the 8th National Peoples Congress on December
28, 1995 and became effective on April 1, 1996. The promulgation and imple-
mentation of Electricity Law ends the history of no laws or rules in power
industry in China. Article 24 pointed out the State adopts the management
principle of safe, economical, and planned supply and utilization of electric power.
Article 34 pointed out power supply enterprises and uses shall comply with the
relevant stipulations of the Country, adopt effective measures to implement the
work of safe, economical, and planned utilization of electric power. New Elec-
tricity Law is still under revision in order to adapt to the development of reform.
Regulation on Electric Power Supervision took effect on May 1, 2005. It has
37 articles in 6 chapters and the main content is to maintain market order, protect
the legitimate rights and interests of investors, operators, and users of electric
power, and social public interests pursuant to the law, and ensure the safe and
stable operation of electric power system. However, DSM is not mentioned in it.
Regulations on Supply and Utilization of Electric Power is an electric power
regulation promulgated and implemented in 1996 following Electricity Law. It
has 45 articles in 9 chapters, in which Article 5 pointed out the State adopts the
management principle of safe, economical, and planned supply and utilization of
electric power. Article 29 pointed out power supply enterprises and users shall
make electricity conservation plan, and disseminate and adopt new technologies,
new materials, and new processes of power conservation to reduce power con-
sumption. As the promulgation time of this regulation is relatively early, some
stipulations have become not applicable to the management of power supply and
demand under the market economy, and DSM is also not mentioned in it. Its
amendment work has started.
New Energy Conservation Law has clarified the legal status of DSM. The
important position of DSM shall be further confirmed during the revision of
Electricity Law and Regulations on Supply and Utilization of Electric Power
so as to ensure the long-term and further development of DSM. DSM shall be
taken as one of the main business of power grid enterprises and power generation
enterprises must be clearly required to carry out DSM based on the current national
conditions. Departmental regulations, Implementation measures of DSM and
Management Regulations of DSM shall be especially researched and formulated
concerning DSM in order to enhance the systematicness of the work.
Incorporate DSM into the Plan of Power Development
As per capita resource in China is scarce, and the restraint of resources and
environment poses great challenge to economic development; incorporating DSM
into the development plan of power industry, energy and regional economy as a
kind of resource is of great strategic significance to the comprehensive imple-
mentation of scientific outlook, building of resource conservation and environ-
mental friendly society, and the promotion of power industry, sustainable
development of economy and society.
Countries have made energy conservation schemes or plans in succession due to
the concern about the unfavorable impact brought by climate change. In December
1997, Kyoto Protocol stipulates the GHG emission of developed countries shall
be reduced by 5.2 % from 2008 to 2012 on the basis of that in 1990. The Climate
Warming Solution Act of California requires GHG emission by 2010 shall be

maintained at the level of 2000 (11 % lower than no emission reduction plan) and
GHG emission by 2020 shall be maintained at the level of 1990 (25 % lower than
no emission reduction plan).
The first 20 years in twenty first century is the key development stage of China
to be out of low-income country and strive toward middle income country. Due to
the accelerated development of industrialization and urbanization, economic
development will keep the continuous strong demand for power. The degree of
consensus reached by all countries in future on emission reduction of GHG will
decide the power consumption condition of China to a great extent. Insisting on the
principle of carrying out power development and conservation simultaneously, and
putting conservation in the first place is the correct choice leading to the road of
sustainable development. Including DSM into the power development plan will
greatly prompt the development of energy conservation cause in China.
3.4.1.3 Energy Efciency Standard
Energy efficiency standard refers to the procedure or law and regulation stipulating
the energy performance of the product. It mainly makes specific requirement to the
energy performance of energy consumption product on the premise of not reducing
other properties such as performance, quality, security, and the overall price of the
product.
Classification of Energy Efficiency Standard in China
Similar to other countries, the energy efficiency standard in China could be clas-
sified into four categories according to the contents of its stipulation: mandatory
standard, minimum energy efficiency standard, average energy efficiency standard,
and energy efficiency grading standard.
Mandatory standard generally requires to add a special performance to or
install/remove a special device from all the new products. Minimum energy effi-
ciency standard stipulates the minimum energy efficiency (Maximum energy
consumption) index of power consumption products, which is also called index of
allowable value of energy efficiency. It requires all the products manufactured
after a determined date have to reach the stipulation of the standard, otherwise,
those products are not allowed to be sold on the market. Minimum energy effi-
ciency standard is the most common energy efficiency standard which has specific
requirements for the energy performance of power utilization products. However,
it has no requirements for technical specification or design details of the product
itself. It allows innovative design or design with competitiveness and its confor-
mity to the standard shall be determined through the testing of laboratory. The
energy efficiency standard of household electric appliances of US and European
countries all belong to this kind of standard.
Average energy efficiency standard stipulates the average energy efficiency of a

kind of product. It allows manufacturers to select appropriate energy efficiency
level for each type of product. It would be fine as long as the average energy
efficiency level of all products calculated according to the weighted sales volume
reach or exceed the average value stipulated in the standard. Improvement of
average energy efficiency level could be realized by increasing the proportion of
new technologies instead of total elimination of old technologies. Therefore,
average energy efficiency standard gives manufacturers more flexibility and cre-
ativity while achieving the goal of improving energy efficiency of the products.
Grading standard of energy efficiency adopts grading indexes for the stipulation
of energy efficiency of energy consumption products. The indexes generally
include several or all allowable value of energy efficiency, target allowable value
of energy efficiency, evaluating value of energy conservation and energy efficiency
grade index. The energy efficiency standard of China and Korea all belong to
energy efficiency grading standard. The difference lies in: allowable value of
energy efficiency and target allowable value of energy efficiency are the ones
stipulated in energy efficiency standard of Korea, while energy efficiency standard
of China is the standard containing the most contents. The basic indexes included
are allowable value of energy efficiency and target allowable value of energy
efficiency, and part of the standards also include target allowable value of energy
efficiency and energy efficiency grade standard.
Besides, energy efficiency standard could also be divided into status quo
standard and leading standard. It generally takes half a year to a year from the
promulgation to the implementation of status quo standard. The allowable value of
energy efficiency stipulated in the standard generally is lower than the average
energy efficiency level of products on the market in recent period. The preparation
period for the implementation of leading standard is relatively long, which gen-
erally is 3 to 5 years. The allowable value of energy efficiency stipulated in the
standard generally is higher than the average energy efficiency level of products on
the market in recent period, or sometimes even higher than the highest energy
efficiency standard in the current market. At present, the energy efficiency standard
in China belongs to status quo standard while energy efficiency standard in most
countries, including the European Union, the United States, and Japan belong to
leading standard.
Function of Energy Efficiency Standard
The purpose of implementing energy efficiency standard is to restrict the pro-

duction, sale, and importation of energy intensive products through the stipulation
of allowable value of energy efficiency of energy-using products, eliminating the
model of products with the lowest energy efficiency, so as to boost the increase of
market share of high energy efficiency products and improve the national energy
efficiency. It mainly can be realized through the following several aspects:
1. Directly eliminate energy-using products whose energy efficiency is lower than

the requirement of minimum allowable value of energy efficiency so as to
greatly reduce the waste of energy and facilitate the healthy and sustainable
development of economy.
2. Force manufacturers to improve technology and enhance the research and
development in order to produce more products that could meet the minimum
allowable value of energy efficiency to maintain the sale and get profits, prompt
the progress, dissemination and application of energy conservation technolo-
gies, enhance the competitiveness of the products and meet the requirement of
the trade of the state.
3. Reduce operation costs and save energy expenditures for customers on the basis
of maintaining the service of energy-using products.
4. Prompt adjustment of products structure of enterprises and development of
industry through the guidance of market, and provide means for government to
regulate and control the market from the terminal link of energy utilization.
5. The implementation of energy efficiency standard could either be mandatory or
voluntary, but most are implemented in a mandatory way. The reason is that the
mandatory way has obvious advantages through comparison. First, the basic
requirement of market access is clearer. Energy-using products can only be
allowed to come to the market for sale when they conform to the stipulations of
energy efficiency standards. Second, it is fair, all manufacturers, wholesalers, and
retailers are treated equally. Third, the high benefit and efficiency will restrict the
increase of energy consumption without affecting the economic growth.
Prompt the Implementation of Energy Efficiency Standard of Products
The formulation and market penetrating ability of energy efficiency standard in

China has certain gap with that of international level, and it is a weak link for
China to expand energy efficiency market. Strengthening the certification and
labeling work of energy-using and power utilization products, and incorporating it
into the legal system is a field that needs to be paid attention to in energy con-
servation and emission reduction.
The first batch nine energy efficiency standards of household electric appliances
were formulated at the end of 1980 and were officially implemented in 1990. The
scope of products of energy efficiency standard design has gradually expanded
from lighting equipment to the general industrial power consumption equipment
since 1990. Original State Economic and Trade Commission officially set up
China Committee for CCEC and China Certification Center for Energy Conser-
vation Product (CECP), formulated management method of certification of China
energy conservation products and established energy efficiency label system in
1998, making the energy efficiency standard in China to take it one step further.
The scope of products with energy efficiency standard in China has expanded to
about 50 in 2012, but there is still a considerable gap with that in other countries. It
can be seen from the evaluation standard that energy conservation standard system
of design, production, and utilization for most industrial power consumption
equipment, general equipment, and household electrical appliances and lighting
fixtures has not been established in a real sense except the energy efficiency
standard for few products such as AC, refrigerators, and energy conservation
lighting fixtures.
Although energy conservation work of household electric appliances in China
has made certain achievements, the investigation result of an evaluation and
research project jointly carried out by Household Electrical Appliances Associa-
tion in China, Energy Foundation of the United States, and Economic Committee
for Promotion of Energy Benefit of the United States show there are still some
problems in compilation and revision, implementation, and supervision of energy
efficiency standard, and dissemination of energy conservation products in China.
These problems influenced the role that could be played by the standard. For
instance, because of the lack of supporting government incentive policies and
publicity, energy efficiency standard, energy conservation products, and energy
conservation certification currently have less public cognition and influence, which
affected the overall improvement of energy efficiency level of the products in
household electric appliance industry to a certain extent. The problems such as the
lack of market supervision, and weak management and slackness in law
enforcement by law enforcing departments to remote areas and rural markets also
exist in the process of implementation and monitoring of energy efficiency stan-
dard. In addition, false propaganda phenomenon [9] also exists because of the
slack management of energy efficiency products.
Government departments shall continuously enhance the implementation of
Management Method of Energy Efficiency Label, formulate comprehensive
mandatory standard of energy efficiency, eliminate high energy consumption
products and equipment, and improve the market access threshold of products.
Government shall forcibly execute energy efficiency standard body, implement the
supporting policies with economic incentive as the main one, and improve the
design and production standard of power utilization products within a stated time
and fully prompt the further progress of energy conservation work. Government
shall perfect and disseminate the implementation of energy efficiency standards
such as energy efficiency design specification, and building energy efficiency of
main energy consumption industries. The specifics are as follows:
Expand the scope of product with energy efciency standard. Energy efficiency
label could let consumers get a lot of information to make the comparison among
similar products. Mobilize the initiative of enterprises to produce and use energy
conservation products though measures such as commendations and rewards,
government procurements, and subsidies. The scope of products with energy
efficiency standard shall be expanded to all power utilization equipment, including
industrial products, household electric appliances, office supplies, and lighting
fixtures in order to increase international competitiveness of products.
Extend the scope of energy efciency label index of products. To add expense
comparison information (i.e., lifetime cost) that is easy for consumers to confirm in
energy efficiency label so as to guide consumers to purchase high efficient products

in a more effective way.
Establish integral energy efciency standard body. Energy efficiency standard
stipulates the minimum energy efficiency that should be reached by the products.
Formulate minimum energy efficiency standard, carry out leading standard
research, and regularly publish advanced domestic indexes of main power utili-
zation equipment and products for product catalog that cannot be prompted tem-
porarily. Make leading energy efficiency standard mainly regarding household
electric appliances, office supplies, and general industrial power consumption
equipment that are popularized in a large scale. Competent manufacturers will
choose stricter energy efficiency standard according to marketing strategy of
enterprises in order to improve the competitiveness of products and thereby
increasing the market share of the energy conservation products.
Combine energy efciency standard with incentive mechanism. Encourage
manufactures initiative to improve energy efficiency of products in energy con-
servation policies and adopt market instruments to stimulate users to purchase
energy conservation products in management strategies. For power users who
purchase high energy efficient equipment and technologies designated in Cata-
logue of Products Implementing Energy Efficiency Label and put them into
normal operation, government organizations shall provide subsidy and policy
support so as to mobilize the initiative of enterprises to produce and utilize energy
conservation products.
Combine minimum energy efciency control standard with economic sanction.
Prohibit the sale and production of products failed to reach the minimum energy
efficiency standard, and restrain low efficient products to enter into market.
Strengthen the supervision and management of energy efficiency label, and ensure
the fairness, justice, and authority of energy efficiency label. Enhance the
inspection of implementation effect of energy efficiency label, and investigate and
deal with illegal activities severely while reinforcing the mechanism of social
supervision, reporting, and complaint handling.
3.4.2 Establishment of Market Mechanism
3.4.2.1 Price Policy
Role of DSM in Electricity Price
Electricity price is an important economic measure in DSM and is a major link in

the establishment of DSM mechanism. Scientific and reasonable electricity price
will facilitate the operation and development of DSM in the market. On the
contrary, unreasonable electricity price will restrict the development of DSM
work.
Tariff Mechanism of DSM
In order to boost the effective development of DSM, a reasonable basic electricity

price, time-of-use price, and wet and dry electricity price structure has to be
established to adjust the consuming behavior and peak-valley difference, and make
the society get economical power supply.
1. Reasonable peak-valley electricity price. The higher the ratio of peak to valley
electricity price is, the better the effect for the adjustment of electricity price
will be. However, the ratio shall not be enlarged without limit. The ratio of peak
to valley electricity price has an optimal value, which could be measured and
calculated according to the actual local conditions and on the basis of lots of
data collected.
2. Implementation of peak pricing. Further increase the electricity price in some
periods on the basis of peak electricity price and implement the so-called
critical peak pricing in power grids that have more than 97 % maximum load
and less loading time. The overcharged part of peak pricing could be used as
special fund of DSM.
3. Reasonable peak-valley period. The purpose for the implementation of time-of-
use electricity price is to decrease the peak load and increase the valley load,
and improve the load factor thereby. In case the division of peak and valley
time period is not reasonable, the peak load will be over decreased and the
valley price will be over increased, and the load in original valley period will
exceed the load in original peak period without getting any good effect. Cor-
responding measurement and calculation shall be made according to the actual
local conditions and lots of data collected to rationally coordinate peak and
valley period with time-of-use electricity price.
Grading electricity price. Determine electricity price with electricity for
industries which are encouraged to use electric power, i.e., the more the power
consumption is, the higher the electricity price is. For industrials which are
restricted for power consumption, the more the power consumption is, the higher
the electricity price is.
Establish linked peak and valley electricity price of power generation and
supply: The interests between power utilities and users are changed due to the
implementation of peak-valley electricity price. In case peak and valley electricity
price is only implemented on power supply side and electricity purchasing costs of
power grid enterprises do not change, the profits of power grid enterprises will be
decreased, the more the valley electricity price is, the more the losses of the profits
are. Therefore, it is a necessity to implement the linked peak and valley electricity
price of power generation and supply.
Appropriately increase residential electricity price: As residential users are not
very sensitive to electricity price, implementation of effective electricity price
could prompt residents to strengthen their electricity conservation awareness and
to actively select high efficient household electric appliances. However, differen-
tial electricity price shall be implemented to poor families.
Strengthen the enforcement of differential electricity price and prompt the

adjustment of industrial structure: One of the reasons for the rapid growth of power
consumption in China in recent years is enterprises are given a certain degree of
preferential electricity price out of the consideration of economic development in
every place, and the development of high power consumption industries is
prompted. It is necessary to implement differential electricity price in the category
of elimination, restriction, permission, and encouragement to enterprises in steel
industry, nonferrous metals industry, building materials industry, chemical
industry, and other major power consumption industries in order to guide the
reasonable production and stimulate the healthy development of high power
consumption industries. Besides, it shall also renew the standard and business
directory regularly by combining with energy efficiency standard.
DSM cost shall be considered in electricity price in the long run. It can be seen
from the implementation effects of countries in Europe and the United States that
higher electricity price is favorable for the development of DSM. Therefore, it is
necessary to issue the electricity price containing the cost of DSM in a timely
manner. Establishment of DSM special fund is an important mean for the devel-
opment of DSM as it will ensure the implementation of a DSM project
mechanically.
Electricity Price Level in China
Current electricity price level and policies in China could not prompt the imple-
mentation of DSM. The unreasonable pricing mechanism in generation side leads
to the unreasonable setting of sale price and increases the difficulty in imple-
mentation of energy efficiency projects and load management projects of power
grid enterprises. Leverage of electricity price cannot be relied on to motivate users
to actively participate in DSM project. As the revenues of power grid enterprises
depend on the sales of electricity, the reduction of the sales of electricity will lead
to the decrease of profits of power grid enterprises. Generally, the implementation
of energy efficiency will lead to the decrease of the sales of electricity. As elec-
tricity transfer makes power grid enterprises give up the high price electricity (The
electricity price is high in the peak period), load transfer project will also reduce
the revenues of power grid enterprises.
General electricity price level is low. It can be seen from Table 3.3 that elec-
tricity price level in Japan and European countries is relatively high while that in
some countries such as Australia, USA, and China and so on is very low without
reflecting the scarcity of resources and the cost of environmental capacity. In 2010,
the average pretax electricity price of industries and residents in European coun-
tries was about USD 125/MWh and USD 209/MWh, respectively. About 50 % of
electricity price is tax used by government as the capitals to support subsidization
of energy conservation and renewable energy projects, for the purpose of reducing
the GHG emissions. The average pretax electricity price of industries and residents
in USA was USD 68/MWh and 116/MWh, respectively. Special fund named SBC,
Table 3.3 Comparison of the tariff between household and industrial of some countries in 2010
[10, 11]
No. Country Household (USD/kWh) Industry (USD/kWh) Household/industry
1 Australia1 0.063 0.045 1.40
2 Austria2 0.257 0.154 1.67
3 Belgium 0.232 0.125 1.86
4 Canada 0.095 0.070 1.36
5 Chile 0.229 0.140 1.64
6 Czech Republic 0.186 0.144 1.29
7 Danmark 0.356 0.114 3.12
8 Estonia 0.127 0.093 1.37
9 Finland 0.175 0.095 1.84
10 France 0.157 0.106 1.48
11 Germany3 0.263 0.109 2.41
12 Greece 0.158 0.114 1.39
13 Hungary4 0.206 0.160 1.29
14 Ice land 0.233 0.137 1.70
15 Ireland 0.140 0.087 1.61
16 Italy 0.263 0.258 1.02
17 Japan 0.232 0.154 1.51
18 Korea4 0.077 0.058 1.33
19 Luxembourg 0.215 0.122 1.76
20 Mexico 0.089 0.104 0.86
21 Netherlands 0.221 0.123 1.80
22 New Sealand2 0.164 0.071 2.31
23 Norway 0.176 0.074 2.38
24 Poland 0.179 0.120 1.49
25 Portugal 0.215 0.120 1.79
26 Slovakia 0.213 0.169 1.26
27 Slovenia 0.186 0.121 1.54
28 Spain4 0.212 0.103 2.06
29 Sweden 0.218 0.096 2.27
30 Switzerland 0.18 0.102 1.76
31 Turkey 0.184 0.151 1.22
32 Britain 0.199 0.121 1.64
33 United States 0.116 0.068 1.71
34 OECD average4 0.156 0.104 1.50
35 China5 0.068 0.081 0.85
1 2 3 4
Notes Current prices, excluding tax. Data of 2000; Data of 2008; Data of 2007; Data of
2009; 5 Data of 2010
adding USD 34/MWh to electricity charge, is established to support DSM pro-

ject. It is used to subsidize energy conservation products, energy accumulating
equipment and peak load shifting of users, carry out DSM project, and publicity
and training, etc. to prompt the effective development of DSM.
The level of electricity price is low compared with price level of other energy.
Through comparison of the price of electricity, natural gas, and gasoline, it is
found that the rising of the price of natural gas and gasoline is fairly fast as they
gradually come up to international level while the rising of electricity price is
relatively slow comparing with other energy due to the strict control by relevant
state departments. Feed-in electricity price reflecting the scarcity of resources shall
be transmitted to the electricity price of users to guide the reasonable power
consumption and prompt energy conservation and environmental protection
awareness of users.
Household electricity price of residents is low. According to the data shown in
Table 3.3, household electricity price in China is the second lowest among 34
countries and the proportion of household electricity utilization to industrial
electricity utilization is less than 1, which contradicts to international common
practice and the tendency of electricity price. As household electricity utilization is
generally connected to low voltage power grid while industrial electricity utili-
zation is generally connected to high voltage power grid, the cost for power supply
of household electricity utilization is usually over 30 % higher than that of
industrial electricity utilization, which means it is appropriate for household
electricity price to be more than 30 % higher than industrial electricity, and
household electricity price shall be over 1.3 times of industrial electricity price if
cross subsidization is not taken into consideration.
Ratio of peak to valley electricity price is small. Although time-of-use price has
the function of peak load shifting in DSM of China, and the utilization efficiency
of electric power is increased and the load curve is improved to a certain extent,
the leverage function of current price has not brought large-scale increase of
electricity load factor and the function of time-of-use price to adjustment of load
and energy conservation is not obvious.
Beijing prompted DSM technology in 2002 and the load factor achieved
82.97 %, which was 0.94 % higher than the same period last year. Jiangsu
Province, Henan Province, Sichuan Province, and Hunan Province transferred 900,
500, 700, and 800 MW peak load, respectively, in 2003 through the implemen-
tation of time-of-use price. The load rate rose by 12 %. China Southern Power
Grid enhanced DSM comprehensively in 2004 and the load factor rose to 85.9,
1.6 % higher than the same period last year. It further strengthened DSM in 2005
and the unified adjustment of the whole grid rose to 86.4 %, which was 0.5 %
higher than the same period last year.
Although the ratio of peak to valley price, which was 31, implemented earlier
in China has certain peak-shaving function, it was not enough to encourage
enterprises to avert the peak in power utilization and the effect achieved was not
satisfactory. Therefore, some provinces adjusted the ratio of peak to valley price
according to the specific conditions in their own provinces after submitting it to
NDRC for approval. For instance, the ratio of peak to valley price in Jiangsu
Province was adjusted from previous 3:15:1 and the ratio of peak to valley price
in Beijing Municipality was adjusted from previous 3:14:1. Undoubtedly, it is of
great benefit to the relief of the tense contradiction between load demand, and
realization of winwin between power grid enterprises and users. The ratio of peak
to valley price in China now is between 2 and 5, but on the whole, it is greatly
different from the ratio in other countries. For example, France set several load
averting days in every July and August, and the electricity price in load averting
days is over 10 times higher than the electricity price in valley period. The
electricity price in evening peak (16:0019:00) in December and January in
England is also over 10 times higher than the electricity price in valley period
(0:007:00). Several States in the United States have implemented time-of-use
price of household electricity utilization and the ratio of peak to valley price could
reach 81.
3.4.2.2 Finance and Taxation Policies
DSM is a resource of equal importance to the resources of suppliers. Although the

fund needed by DSM project is much smaller than the fund required by supply
side, it still needs investment. How to obtain the fund needed for the implemen-
tation of DSM is the key issue concerning the implementation of a DSM project.
However, because of the imperfection of DSM market mechanism, and single and
unsound related finance and taxation policies, the investment to DSM fund from
the whole society is insufficient, which cause enterprises and individuals lack the
inner motivation to implement DSM.
DSM Special Fund
As the electricity price level in China is relatively low and market mechanism is
not enough to stimulate the development of DSM project, economic incentive
policy (i.e., DSM special fund, etc.) is needed as an aid to establish a stable DSM
fund mechanism. The experience of the United States and other countries shows
that the transparency and supervision of fund utilization increased and strength-
ened by government through DSM fund will play a decisive role in the successful
implementation of DSM.
More than 20 countries, including the United States, England, Spain, Norway,
Denmark, Brazil, India, and Thailand have established the related funds to support
DSM work. The main source of the funds is to set up electric power surcharge, i.e.,
low electricity price model represented by the United States is to collect a small
amount of surcharge on the basis of retail price and the high electricity price model
represented by European Union is to draw part of the fund from policy tax
included in electricity price. China shall formulate finance and taxation policies
that could support energy conservation so as to provide a stable fund guarantee for
the long-term development of DSM work and guide the investment direction of the
society. It is also an important content in the establishment of DSM market
mechanism.
Some provinces in China, such as Tianjin, Hebei Province, Shanxi Province,
and Jiangxi Province have drawn 0.10.2 cents/kWh from city surcharge and used
it for DSM. The government could either publicize the experience in these
provinces or enhance financial capital support to DSM project by way of gov-

ernment debt in finance at all levels.
If we analyze, measure, and calculate the influence of governments estab-
lishment of DSM special fund by using the function of Policy Simulation of DSM
Special Fund in DSM laboratory, slightly raise the level of electricity price and
take this part of revenue as the special fund of DSM, then remarkable economic
benefits and social benefits could be achieved.
DSM Tax Policy
Government could implement certain preferential policies to enterprises producing

and manufacturing energy conservation equipment and products. For example,
grant certain preferential policies such as tax reduction and exemption to help
enterprises to lower the costs for the production of energy conservation products
and realize excellent quality and reasonable price. Government shall strengthen
the support to energy conservation production enterprises and consider giving
appropriate encouragement to the development and application of energy con-
servation and load regulation products and equipment. Tax policies could provide
favors mainly from the following aspects: First, increase the pretax deduction
proportion of expenses for research and development of energy conservation
equipment and products. For instance, research and development expenses for
energy conservation equipment and products incurred by enterprises in the same
year could be disbursed before tax according to the actual situation, and could be
added for disbursement before tax in accordance with certain proportion (50
100 %) of incurred expenses to establish research and development special fund,
which will be used for the development and research of energy conservation
equipment and products by enterprises in future; Second, implement accrual
depreciation with accelerated depreciation method for special equipment pro-
ducing energy conservation products; Third, offset the newly added enterprise
income tax of the same year within a certain amount for enterprises that purchase
equipment to produce energy conservation products.
Make research on tax policies that could prompt the development of DSM. The
catalog and corresponding preferential tax policies of energy conservation, elec-
tricity saving, and comprehensive utilization of resources and environmental
protection products (equipment and technologies) could be formulated. Reduce
and exempt income tax of enterprises implementing DSM project, and offset
income tax of enterprises investing in special equipment of energy conservation
and electricity saving. Provide VAT input tax deduction for investment in energy
conservation and electricity saving equipment, and implement preferential tax
policies that encourage the introduction and importation of advanced energy
conservation and environmental protection technologies and equipment.
Rewarding Policy
Government at all levels shall set aside certain capital in financial budget to
support major projects of DSM, dissemination of high efficient energy conserva-
tion products and new energy conservation technologies, construction of man-
agement ability of energy conservation, etc. in the rewarding method of subsidy,
preferential credit, tax relief, accelerated depreciation, etc. Strengthen the pref-
erence of financial investment in capital construction to energy conservation and
electricity saving projects in a further way, and give discounts and subsidies to
residents and commercial users who purchase and use energy conservation prod-
ucts, i.e., users and government pay for energy conservation products jointly, and
users could buy high efficient energy conservation products at a relatively low
price. Government shall provide a financial incentive to industrial and commercial
users who design and carry out reform of energy conservation technologies
themselves so as to reduce extra expenses paid by users due to the adoption of
energy conservation technologies,and enhance the self-consciousness and enthu-
siasm of industry and commerce for the development of DSM.
Cultivate Energy Conservation Market
As energy conservation market in China is still in the primary stage of develop-

ment, the promotion of DSM still face many barriers such as investment and
technology risks, and information blockade, etc. Severe information disconnection
issue still exist in energy conservation market and capital market in China, and less
understanding about the profitability of a DSM project of financial institutions and
private investors all lead to financing difficulty of DSM.
It is clarified in Energy Conservation Law that development of energy con-
servation service companies shall be supported. Government shall actively culti-
vate energy conservation service industry and guide the healthy development of
energy conservation service companies. At present, energy conservation service
companies in China belong to Vulnerable group as most of them are weak in
strength and bear greater capital risk at the same time. Government shall clarify
the necessity for market cultivation, define the position, and rights and obligations
of energy conservation service companies, and perfect system of information
statistic and energy efficiency evaluation during the formulation of guideline and
plan of DSM so as to create a good external environment for its financing and
development work. Government shall enhance and perfect financial supporting
policies to small and medium-scale enterprises, and improve the financing envi-
ronment for energy conservation projects of energy conservation service compa-
nies, including further enhancing the guarantee system of loan of small and
medium-scale enterprises, and setting up policy banks of small and medium-scale
enterprises and so on.
3.4.3 Guidance Methods
3.4.3.1 Technical Means
Technology and equipment is an important carrier for the implementation of DSM.

Whether it is electricity saving or improvement of the mode of electricity utili-
zation, the relevant practical technologies and equipment shall be depended on,
and the affordability of technology and feasibility of economy shall be taken into
consideration for the realization of it in a real sense. The relatively mature and
widely applied technologies that are suitable for promotion now mainly include
high efficient motors, energy conservation transformers, servo motors, frequency
control, energy conservation household electrical appliances, green lighting,
reactive power compensation, load management system, cold and heat storage
technologies, and energy conservation of buildings. Strengthening of operation
management and data accumulation shall be paid attention to when promoting
these technologies and equipment. On the one hand, let the equipment operate
under good condition and fully play the function; On the other hand, pay attention
to the accumulation of operation data and carry out the effect evaluation. As the
load management system could effectively stimulates the development of DSM,
the redevelopment and utilization of load control device shall be emphasized. Load
control terminal, which plays an important role in the adjustment of load distri-
bution, peak load shifting, and ensuring the security of power system could be
widely applied to users of factories and mines, enterprises, hotels, entertainment ,
and large air conditioning units. Devices of load management system in the whole
country had exceeded 300,000 sets with 150 MW monitoring load being realized
and about 3540 GW peak load potential being transferred till the end of 2005. It
had provided technical support and guarantee for DSM work. During the 10th
Five-year Plan when power supply and demand was in shortage, more than 70 %
of power shortage was eased through the measure of Orderly Power Utilization
depending on load control device. However, the function of load control device is
not only restricted to the Orderly Power Utilization, it could also provide scientific
basis for the refining of management decisions and measures at the same time after
slight modification, and become an important platform for power utilities or users
to develop DSM projects. Electricity DSM Practice makes clear that load
monitoring capability should reach up to 70 % or more of maximum electrical load
of the local and load control capability should be over 10 %, while the consumers
with capacity over 100 kVA should be under the monitoring. Guide and Sug-
gestion for Electricity DSM Pilot Cities Program specifies that grid enterprises
from pilot cities should make more efforts to implement DSM and enhance
building of load management system with load monitoring capability up to 75 %
or more of maximum electrical load of the local and load control capability
over 15 %.
3.4.3.2 Administrative Methods
Administrative methods mean that relevant government departments standardize

power consumption and market behavior through policies, laws, regulations, and
standards, and prompt energy conservation, restrict wastage, protect resources, and
promote the healthy development of DSM with administrative power of
government.
Construction of Organization System
DSM is a huge and complex system project. According to the present situation and
development in China, energy and environment are still the two major factors
restricting the development of economy. Therefore, we shall strengthen the ability
to construct the government energy efficiency management organizations as a part
of deepening the reform of the long-term strategic perspective. China shall timely
establish corresponding implementation organization of DSM, which could be
realized either through the transformation from existing energy conservation
monitoring organizations or by establishing guidance and exhibition centers of
DSM at all levels to encourage power utilities to set up energy conservation
service companies. Please refer to Fig. 3.2 for organizational structure of DSM
with government as the leader.
Renew the idea and transform the function. Implement legalized management,
policy support and guidance service, and improve decision making, supervision,
and coordination abilities. Gradually shift the focus of function to the field with
malfunction of market mechanism, and concentrate force on cultivating energy
efficiency market and solving the barrier in energy efficiency market so as to form
sustainable energy conservation activities.
Take the cultivation of energy efciency operation mechanism as an important
task for the construction of energy efciency management ability. Government shall
pave way for mechanism service and market-oriented operation mechanism so as
to smooth the way for implementation of energy conservation and adopt effective
operation method to put energy conservation and electricity saving into the end
and take effect.
Support and Prompt the Implementation of Demonstration Projects
Demonstration project is a common international practice adopted by government

for the promotion of energy conservation activities by setting up mode through
specific energy conservation projects. On the part of their types, some are guiding
research pilots which are to verify their feasibility, while some are the exploration
of experience before the promotion of the projects so as to get the guiding
experience of promotion. Although they are the external driver of the market
initiated by the government, they could play the role for the pulling of energy
efficiency market. Most energy conservation and electricity saving projects that get
international financial aid in developing countries are for demonstration purpose.
Energy conservation demonstration project is a kind of management method for
energy conservation and electricity saving most frequently adopted by China since
1980. Energy conservation and electricity saving demonstration projects incor-
porated into government plan could also enjoy part of allocated subventions or
discount-interest loans. Some typical successful demonstration projects also carry
out promotion activity through the scene visit and exchange of experience. With
the constant deepening of the reform of economic system and the continuous
expanding of international communication, government has enhanced the reform
of energy conservation and electricity saving mechanism, and project demon-
stration activity of policy research since 1990.
It is a necessity to formulate implementation management method of DSM
demonstration projects so as to stimulate the smooth development of demonstra-
tion projects. The management system such as project application, review, initi-
ation and approval, acceptance, and auditing could be established to standardize
the management of the projects. Energy (electricity) conservation, new environ-
mental protection technologies, and new products and processes shall be especially
supported. Electricity conservation in public institutions shall be strengthened and
power consumption efficiency shall be improved. Research and put forward the
methods of energy conservation demonstration projects on the basis of clean
development mechanism, actively explore the development of DSM work with
market mechanism, support the establishment of energy conservation service
companies, and prompt the deepened development of the model of energy contract
management. Meanwhile, implement pilot energy conservation (electricity saving)
agreement entered into between industrial enterprises and government to enhance
the self-consciousness and enthusiasm of industrial enterprises for energy and
electricity conservation.
Energy Conservation Monitoring and Assessment System
Currently, international representative evaluation systems of energy consumption

target mainly include the index system of British energy industry, sustainable
development energy index system of International Atomic Energy Agency, and
energy efficiency index system of European Union and World Energy Council.
China established three-level energy management network since early 1980 in
order to has strengthen basic energy conservation work of enterprises. However,
energy management work is affected to a certain extent due to the intuitional
restructure. National Energy Leading Group Office, National Development and
Reform Commission, and National Bureau of Statistics jointly issued a notice,
which stated bulletin system of energy consumption index of gross domestic
product (GDP) started to be implemented from 2006. Energy consumption per unit
of GDP and its reduction rate, energy consumption and power consumption per
unit of industrial value-added of industrial enterprises above designated size shall
be regularly published to the society. This system stimulated the development of

energy conservation work in every industry all over the country. It can be seen
from the bulletin of National Bureau of Statistics of China (NBSC) that energy
consumption per unit of GDP in the whole country in 2005 was 122 tce/Million
Yuan. It had declined by 19.06 % during the 11th Five-year Plan (20062010) and
saved energy of about 630 Million tce, reduced CO2 emission about 1.46 Billion
ton [11, 12].
In order to prompt the continuous and deepened development of energy con-
servation work, government at all levels and major energy consumption enterprises
shall establish and improve a scientific and perfect leading group and working
team for energy conservation and emission reduction, form a management orga-
nization with sound system, distinct level and effective operation, set up and
perfect the assessment system that connects industrial statistic system and energy
conservation and emission reduction with achievement, and meanwhile strengthen
energy conservation supervision and management, and enhance the enthusiasm of
the whole society to participate in DSM in accordance with the principle of unified
leadership, level-to-level administration, and division of labor with individual
responsibility, progressive implementation, and responsibility assessment.
Energy Conservation Law points out energy conservation management of
major energy consumption enterprises shall be strengthened. Major energy con-
servation units are the energy consumption units whose total annual comprehen-
sive energy consumption are above 10,000 tce (equals to over 30 GWh of annual
power consumption) or the ones appointed by government energy conservation
management department with total annual comprehensive energy consumption
between 5 and 10,000 tce.
A clear energy conservation management system shall be established regarding
major energy consumption units, as shown in Fig. 3.10. Government energy
conservation management system shall monitor the power consumption condition
of major energy consumption units, and review, analyze, and compare the power
consumption reports submitted by the units. Major energy consumption units shall
set up energy management post with a specific person responsible for energy
conservation task. The person in charge shall implement energy conservation
work, analyze, evaluate, and improve power consumption condition of the unit,
and report the power utilization condition to government department through the
executive level of the unit. This kind of management system could prompt the
improvement of energy utilization efficiency of all major power consumption
units, and drive the constant increase of energy conservation level of the whole
industry and the whole society.
Incentive to the Subject of DSM Implementation
Power grid enterprise is the subject for the implementation of DSM. The revenues
and profits of power utilities under the current system are directly connected to the
sale of electricity. State-owned Assets Supervision and Administration
Government energy conservation

management department
Submit energy utilization report of last year to energy

Examine energy utilization reports conservation management department in each year
submitted by major energy consumption units Energy utilization situation includes the contents such as
Make horizontal and vertical comparison of energy consumption, energy utilization efficiency, completion
power consumption condition of major energy condition of energy conservation target and energy conservation
consumption units benefits analysis, and energy conservation measures.
Major energy consumption units
Organize to make analysis and evaluation of energy consumption

Set up energy management post. The condition of his/her own unit, organize the compilation of energy
person in charge of energy management utilization report of his/her own unit, and propose the
accepts energy conservation training improvement measures of energy conservation work of his/her
own unit and organize the implementation of them.
Person in charge of energy

management in major power
consumption units
Fig. 3.10 Energy efficiency management of major power consumption units
Commission assesses the added value and profit of state-owned assets, and
assesses the increase and profit of sale of electricity of power grid enterprises to
prompt them to make efforts to increase the sale of electricity. As the imple-
mentation of DSM will improve energy utilization efficiency and reduce the sale of
electricity, the enthusiasm for power grid enterprises to participate in DSM will be
affected and this work will have difficulty in development if there is no corre-
sponding incentive mechanism. In order to ensure the smooth development of
DSM, policy support and incentive mechanism shall be formulated to make
enterprises to actively participate in.
A strategy in several steps with short-term, middle-term, and long-term goals
may be adopted to encourage power grid enterprises in China to implement DSM
so as to ease and finally solve the problems such as insufficient power source
construction, low power utilization efficiency, and grave situation of peak regu-
lation on supply side, and finally realize energy conservation and emission
reduction.
In the short term, SBC policy that has been implemented by California gov-
ernment for several decades to aid power utilities to research, develop, and
implement high energy efficiency projects can be taken as a reference. SBC is to
draw a certain capital from electricity price and use it for the implementation of
DSM policies and the corresponding mechanism as well as the establishment of
DSM special fund, which will be utilized to stimulate power grid enterprises to
develop the research and implementation of high energy efficiency projects. This
method is simple and easy to be carried out, and could be realized under the
current management system, financial system, and framework of policies and

regulations.
In the middle term, the way of joint sharing of energy conservation benefits by
power grid enterprises and users can be adopted to encourage the implementation
of DSM by power grid enterprises. Power grid enterprises could cooperate with
power users to carry out energy conservation work through energy conservation
institution especially set up under it, and jointly share the benefits of cost con-
servation obtained from the adoption of DSM. This method could also reduce the
initial investment required for the development of DSM by power users and the
risks to be borne therein, and greatly drive the enthusiasm for power conservation
of power users. Under certain circumstances, the mode of energy conservation
institution set up by power grid enterprises providing service to power users could
be more easily accepted by power users and more feasible.
The long-term target could consult the policy of Separation of annual revenues
and sales of power utilities implemented by California. It is to decouple the
profits from the sales of electricity of power utilities, and encourage power grid
enterprises to implement DSM for energy conservation and consumption reduc-
tion. Government will also provide corresponding compensation to power grid
enterprises for the reduction of profits caused by the implementation of DSM. In
this way, the revenues of power grid enterprises will not be affected by the
reduction of sales of electricity caused by the implementation of DSM and the
initiative for the implementation of DSM will be greatly enhanced.
Orderly Power Utilization
As the economy in China is in rapid orbit and power supply is either tense or loose
sometimes, in order to ensure the electric power meets the requirement of
households and economic development, Orderly Power Utilization, as the content
included in DSM, is an important measure that conforms to Chinese situation.
Orderly Power Utilization is a kind of DSM measure adopted when the con-
tradiction between power supply and demand is prominent. It could change the
power utilization mode of users, lower the maximum load of power grid, obtain
saved power and increase the efficiency of installed capacity of power system. As
the growth of cooling load and heating load is fairly fast, and these loads are much
influenced by climate change, power supply shortage will appear in part of the area
during the period of summer peak and winter peak. Therefore, all provinces
(regions and municipalities) need to compile the arranged plan of Orderly Power
Utilization and formulate peak load shifting and averting scheme in accordance
with the principle of First, peak load shifting, then peak averting and power
brownout, lastly, pull of line. China has accumulated a lot of experience in the
aspect of Orderly Power Utilization as power supply and demand is always tight in
China. The focus of Orderly Power Utilization in future is to transit from
administrative measures to market measures gradually, such as progressively
increasing electricity price level, and implementing interruptible load and peak
electricity price to mobilize users initiative to participate in DSM.
3.4.3.3 Expand the Scope of Government Efciency Procurement
Government efficiency procurement is a kind of guidance method by governments

direct intervention into energy efficiency market through its own participation in
energy conservation activity and thereby setting energy conservation image of
government and prompting energy conservation activities. As government sup-
ports energy conservation under public financial system, the degree of recognition
of energy conservation is an important factor in deciding the supporting strength of
public finance. The support of energy conservation with public finance has become
an effective measure for European Union and its state members to prompt energy
conservation work. Currently, the budget for energy research in European Union
occupies 4.5 % of the total budget.
Government procurement will play an important role in reducing the risk of
producers and encouraging the production and sale of high energy efficiency
products. Two measures could be adopted to incorporate energy conservation
technologies and equipment into the procurement catalog of government: First, the
procurement of government focuses more on those high energy efficiency products
so as to encourage enterprises to develop energy efficiency equipment or tech-
nologies. Second, government publishes procurement standard to guide enterprises
to stride toward high standard and thereby prompting the improvement of energy
efficiency of the whole society.
Governments procurement catalog of energy conservation products and
equipment shall be formulated and published jointly by government procurement
supervision and management department of the goverment at or above the pro-
vincial level and the relevant departments at the same level. What shows in
Table 3.4 is an abridged table of government procurement list of energy conser-
vation products jointly published by Department of Finance and the National
Development and Reform Commission of China in 2007. The mandatory pro-
curement of part of the products with remarkable energy conservation effects and
relatively mature performance could prompt the development of new technologies
and new products.
3.4.3.4 Publicity and Training
DSM concept has been gradually introduced into China since early 1990s and
highly valued by Chinese government and the power industry. Many research and
discussions, communications and inspection activities were carried out. For
instance, American scholar Hammed Nezhad came to China in 1991 to give
lectures and introduce DSM as well as its application. China held an IRP inter-
national seminar for the first time in January 1994. The Chairman of International
Table 3.4 Government procurement list of conservation products
Category of No. Product category Remarks Category of energy No. Product Remarks
energy conservation conservation category
I. Energy 1 Air conditioner Mandatory procurement I. Energy conservation 16 Household automatic washing
conservation product products category machine
products category 2 Refrigerator
3 Double-capped fluorescent Mandatory procurement 17 DVD
lamp product
Self-ballasted lamp Mandatory procurement 18 Household induction cooker
product
High pressure sodium lamp 19 Water dispenser
Single-capped fluorescent 20 Digital multifunction office
lamp equipment
High pressure sodium lamp 21 Centrifugal water pump
electronic ballast
Ballast for tubular 22 Switching power supply
fluorescent lamp
4 Television Mandatory procurement 23 Digital projector
product
5 Electric water heater Mandatory procurement 24 Uninterruptible power source
product
6 Electric power fitting 25 Gas appliance
7 Small and medium three- 26 Gas water heater
phase asynchronous II. Water conservation 1 Toilet Mandatory procurement
motors products category product
8 Computer Mandatory procurement 2 Water nozzle Mandatory procurement
product product
9 Printer Mandatory procurement 3 Flush valve of toilet
product
10 Fax machine 4 Tank fitting
3.4 Measures for Continuously Prompting the Effective Development of DSM
11 Displayer Mandatory procurement 5 Valves with female screw

product ends for water heating
12 Copier system
13 Power adapter 6 Shower room
14 Three-phase distribution 7 Shower set
transformer
197
15 Household automatic
electric cooker
Energy Promotion Association, officials from United Nations Educational Scien-

tific and Cultural Organization (UNESCO), experts and scholars from US Law-
rence Berkeley National Laboratory and Oak Ridge National Laboratory, and
power utilities of Europe and the United States attended the conference and
introduced the application, development, experience, and barriers of DSM to
government officials and experts in China while Chinese experts presented to the
conference the research result of IPR and DSM in pilot Shenzhen power grid. In
1995, the Ministry of Power Industry of China invited the experts of E7 Group
(seven largest emerging market economy countries, including China, India, Brazil,
Russia, Indonesia, Mexico, and Turkey) to give lectures and prompt demonstration
projects. Since 1997, China has taken part in DSM Special Committee of Energy
Commission of Asia-Pacific Economic Cooperation (APEC) to communicate,
research, and discuss the implementation and dissemination of DSM.
The trainings and communications have been more thorough and diversified
since entering into twenty first century. From 2003 to 2005, more than 20,000
people across the country accepted the training, which enhanced personnel
reserves and laid a good team construction and mass base for the development of
the work in future. The province (municipality) of Beijing, Tianjin, Heilongjiang,
Hebei, and Liaoning opened exhibition hall of DSM products and technologies in
the bustling zone of provincial capital to publicize knowledge, products, and
technologies of DSM to mass users and the whole society. However, the con-
struction of talent team of DSM still seem to be lagged behind and the training of
DSM professional staff still insufficient comparing with the huge energy conser-
vation potential in China.
Extensive international communication and cooperation are organized and
developed by seizing the opportunity that international organizations and financial
institutions take energy conservation as the field with priority support in recent
years. Strengthening the intercourse and cooperation among countries will pro-
mote the DSM work because it is a long-term energy work in China and the
developed countries keep making innovation in conception, mechanism, and
technology.
To hold forums and training sessions regularly, and introduce international
advanced experience into China is an effective way for the promotion of DSM
work. For instance, China DSM International Forum was held in 2007, which took
DSM and Energy Conservation and Emission Reduction as the subject and
carried out discussion on relevant policy measures and practical issues by focusing
on the strengthening of DSM and promotion of energy conservation and emission
reduction work. The forum was jointly hosted by the National Development and
Reform Commission and Ministry of Finance, and sponsored by the State Grid
Corporation of China, China Southern Power Grid Corporation of China, and
National Resources Defense Council of United States. More than 300 people,
including the person in charge of the relevant departments of central and local
government, power utilities and industrial associations, experts of related inter-
national organizations, and experts at home and abroad attended the forum. The
holding of similar forums could strengthen the exchanges, improve the level, and
prompt the continuous and effective development of DSM [8].
The government could also require power utilities and energy conservation
service companies to hold seminars on DSM regularly so as to exchange experi-
ence and improve the standard, and prompt the effective development of DSM.
Sino-America Seminar on DSM Policy hosted jointly by the State Development
and Reform Commission, State Electricity Regulatory Commission, and State
Power Corporation of China, and undertook by Beijing Power Supply Corporation
was held from March 2324, 2004. Part of the provincial governments, power
enterprises, industrial associations, and relevant units and experts attended the
conference. Eight experts from the United States were specially invited to intro-
duce the successfully experience of DSM developed by some states in their
country so as to prompt the effective development of DSM in China. The Guidance
Center of DSM of State Grid Corporation of China hosted a seminar of DSM
strategic planning and EPP in Jiangsu Province on February 24, 2005. The pro-
vincial government departments and related power utilities of Jiangsu Province,
Southeast University, US Natural Resources Defense Council, US Optimal Energy
Efficiency Service Company, US Aid Plan, Asian Development Bank, Switzerland
Policy Consultation Agency, etc. attended the conference, exchanged views, and
deepened the understanding of all parties about EPP.
Relevant departments also organize National Energy Conservation Publicity
Week activity in each year while improving the daily energy conservation pub-
licity. The government could set a time table for energy conservation education
and public participation by making reference to Table 3.5 so as to make conser-
vation awareness go deeply into the mind of people.
1. Energy Conservation Month. As some areas will generally have power supply
and demand shortage due to the rapid increase of power utilization load in the
period of summer peak, setting July in each year as energy conservation month
could prompt and improve energy conservation work in each industrial
department through the broad participation, including general users and public
utilities in the whole country, and good energy conservation effects could be
achieved by a series of energy conservation activities held by government,
power utilities, and energy conservation companies.
2. Energy Conservation Publicity Week. Since 1991, China has started to hold
energy conservation publicity week activity once in November of each year and
the date was changed to the second week of June in each year since 2006. The
purpose of this activity is to popularize the concept, technologies, and methods
of energy conservation.
3. Energy Conservation Day. The first day in each month could be set as energy
conservation day to strengthen power conservation strength, create energy
conservation opportunities, and enhance energy conservation effects.
200
Table 3.5 Suggest table of energy conservation education and public participation
January February March April May June July August September October November December

Set the first day in each month as energy conservation day
3

Set the second week in June as energy conservation publicity week

Set July in each year as energy conservation month
3.4.4 Operation Mechanism
The operation mechanism of DSM is a method adopted to overcome the barriers of

policies and projects, and reach the target of national energy policy. DSM and
energy efficiency plan refers to the special action taken by public utilities or other
organizations to influence energy utilization behavior, while operation mechanism
is to help complete the project plan with purpose to develop and complete the
organization of the project. Operation mechanism has critical influence on the
success of a DSM project. According to the study of IEA, there are 25 kinds of
effective operation mechanisms [13] in various power restructure and they could
generally be divided into several categories, including control mechanism (change
power utilization behavior of users by direct control mean), fund mechanism
(provide fund support to other mechanisms), support mechanism (provide support
to terminal users and power supply enterprises so as to change their power utili-
zation behaviors), and market mechanism (guide terminal users and energy sup-
pliers to change their power utilization behaviors with the strength of market).
Please refer to Table 3.6 for the participants involved in different operation
mechanisms. At present, the operation mechanism most frequently applied in
China is EMC. Clean development mechanism and EPP are still at the preliminary
stage, and white certificate has big potential. This Chapter mainly introduces EMC
and EPP, and others will be introduced in Chap. 7.
3.4.4.1 Energy Management Contract
The Development
EMC is an investment mechanism of energy conservation project gradually

developed in market economy country on the basis of market since 1970. This
mechanism is gradually promoted and applied in North America, Europe, and
some developing countries through over 30 years development and perfection, and
the professional ESCO also appeared based on this kind of EMC. At present, more
Table 3.6 Participants involved in different operation mechanisms

Government Power Power Users Energy Manufacturers
grid generation conservation of energy
enterprises enterprises service conservation
companies equipment
Clean development * * * * *
mechanism
Energy management * * * *
contract
Efficiency power plant * * * * *
White certificate * * * * *
than 80 countries in the world have helped users improve the power utilization
efficiency by adopting new energy efficiency improvement technologies, energy
contract mechanism, and the effective management of power demand-side through
energy conservation service companies. The appearance of energy conservation
mechanism of EMC and the prosperous development of ESCOs based on EMC
have driven and prompted the accelerated general implementation of energy
conservation projects in the whole society of North America and Europe, and also
propelled and facilitated the industrialization of energy conservation service. The
experience in other countries includes ESCO aid plan of Korea, ESCO develop-
ment plan of the United Kingdom, and energy adaptive plan of the United States,
etc. [13].
The essence of EMC is an energy conservation investment method that is to pay
all the costs of energy conservation projects with the reduced energy costs. This
kind of energy conservation investment method allows users to upgrade the
equipment of enterprises with future revenues of energy conservation, and reduce
current operation costs. Energy conservation contract is entered into between
enterprises (users) implementing energy conservation projects and special ESCO,
the latter will invest or finance energy conservation projects of users, and provide
one package service of energy efficiency auditing, design of energy conservation
projects, procurement of raw materials and equipment, construction, monitoring,
training, and operation and management to users. It could facilitate the promotion
of the development of energy conservation projects.
EMC was officially brought into China by a large-scale international energy
conservation cooperation project implemented jointly by China, World Bank, and
Global Environment Facility in 1998. The proposed target of this project is to
introduce this kind of energy conservation mechanism into China and then prompt
it in the whole country to form energy conservation service industry. This project
established three demonstration energy conservation service companies in the first
phase and lifted the curtain of demonstration and promotion of EMC in China.
The National Development and Reform Commission incorporated Promotion of
EMC into Middle and Long term Plan of Energy Conservation in November,
2004. By the end of 2011, the members of Energy Management Company
Association (EMCA) had developed from 59 to 3,900 or so, which showed the
rapid growth trend of the team of energy conservation service industry. These
ESCOs had totally implemented over 10,000 EMC projects with the amount of
investment reaching RMB 41.2 billion Yuan in 2011. The persons engaged in the
Energy Management Industry have been up to 378,000 [14].
Energy Conservation Law pointed out the government shall support and
disseminate energy conservation methods of DSM, EMC, and Energy Conserva-
tion Volunteer Agreement with policies such as finance and taxation, and price.
The government shall encourage the development of energy conservation service
institutions and support energy conservation service institution to develop con-
sultation, design, evaluation, inspection, auditing, and certification service. Thus it
can be seen that energy conservation mechanism of EMC still has a relatively large
development space.
Governments Role in EMC
Government reduces the economic disputes between the two parties by playing the
role of guarantor. Under the current situation of China, government, as the
guarantor, could dispel both parties concern and prompt the development of EMC
project. However, energy auditing shall be strengthened prior to providing guar-
antee. Energy auditing is the most preliminary work for the development of EMC,
and is the analysis of research and development of pretransformed equipment, and
effect of energy conservation.
Provide nance and taxation incentive regarding energy conservation service
industry. The whole operation process of EMC project involves the procurement of
goods and providing of relevant service. It, as a new mechanism based on the
market and a new thing, influenced the development of the business of energy
conservation service companies due to the untimely issuance of tax policies
conforming to the characteristics of its operation mode. The new Energy Con-
servation Law points out the government shall guide financial institutions to
increase the credit support for energy conservation project, and provide prefer-
ential loan to eligible projects such as research and development of energy con-
servation technologies, production of energy conservation products, and
transformation of energy conservation technologies.
Encourage power grid enterprises to set up energy conservation service com-
panies. Power grid enterprises are the main subject for the implementation of
DSM. However, the enthusiasm of power grid enterprises will be affected as
energy conservation work might conflict with the profits of power grid enterprises.
To encourage power grid enterprises to set up energy conservation service com-
panies and compensate the profits lost by power grid enterprises during energy
conservation to a certain extent in the form of energy conservation service com-
panies will enhance the initiative of power grid enterprises and stimulate the
development of EMC in China.
Dissolve the obstacles in the aspect of information and nancing. As energy
conservation service companies have various business opportunities and broad
development space, the transmission of the concept of EMC shall be strengthened,
and there are still lots of work to be done in helping those interested organizations
to understand the basic concept of the EMC and learn from the experience that
have already been obtained. Energy conservation service companies that directly
finance for energy conservation projects still has the most attraction in the market,
but the start-up capital of energy conservation service companies are large. As the
nature of business of energy conservation service companies has not yet been
recognized by people, fund raising for potential energy conservation service
companies from capital market at start-up period would be very difficult. There-
fore, government shall mainly support State-owned enterprises, provide feasible
financing channels and establish effective loan mortgage or guarantee mechanism
to stimulate the virtuous growth of energy conservation market.
3.4.4.2 Energy Efciency Power Plants
The Development of EPP
EPPs are the virtual power plants. They, like CPP, must go through the stage of
planning, financing, construction and operation, and their energy efficiency (i.e.
electric power being produced or conserved) must be measured and checked. As
long as the government issues the proper policies and takes the corresponding
actions, EPPs could also adopt the same financing and payment method as that of
CPP. Capital construction expenses and operation costs of CPP are recovered
through power generation while the costs of EPPs are paid by installment through
the electricity conserved.
RMB 1.05 billion Yuan reconstruction cost needs to be invested to EPP planned
by Jiangsu Province at the end of 2004. The accumulated revenues realized by
them could reach RMB 5.93 billion Yuan.
Guangdong Province was incorporated into the plan of national alternative
project using the loan of Asian Development bank from 2007 to 2009 as the pilot
province of EPP project in March 2006. The preliminary designed total investment
of this project is about RMB 1.7 billion Yuan and the loan from ADB being used is
about USD 1 billion. The project office set up by Guangdong Economic and Trade
Commission is responsible for implementation of the project and the Ministry of
Finance of Guangdong Province is responsible for lending.
Governments Role in EPP
Many channels could be adopted to establish sustainable development mechanism

on sources of fund. For instance, financial allocation, compete for grants from
international organizations or low interest loans, electricity surcharge, and reve-
nues from the sale of CDM project clearly define a certain proportion in city
development surcharge for the development of EPP and leave the income from
differential electricity price to local government for energy efficiency projects, etc.
Establish the loan recovery mechanism. Encourage power grid enterprises from
the aspect of structure and financial management system to provide loan recovery
service for energy efficiency projects in the link of electricity charge collection by
learning from the experience in other countries.
Gradual dissolution of the obstacles existed in capital on lending mainly include
the following three aspects:
1. EPP has both the characteristics of publicity and operation. On one hand,
energy conservation policy is the government action. Governments promotion
for the development of energy conservation work of enterprises could bring
social benefits. Therefore, it has publicity. On the other hand, as projects that
use the loan belong to enterprises with different ownership, government cannot
provide free capital for the development of energy conservation work. The loan
must be recovered from the users. However, government needs to provide

proper support for the development of energy conservation work when the cost
of loan capital is high and the enthusiasm of enterprises is low.
2. Financing costs are high. As this kind of project also needs to pay testing and
confirmation charges of energy conservation efficiency, loan guarantee fee,
handing charge of bidding, management handing charge, and management fee
of financial intermediary except the interests and commitment fee, the financing
costs would be higher and implementation of the project would be harder if all
these costs are shifted to the project unit.
3. The risk for loan recovery is high. As most of the prospective borrowers of the
project are small- and medium-sized enterprises, the on-lending risk would be
high and the recovery cannot be guaranteed when quite a number of enterprises
lack loan guarantee (mortgage).
3.5 Analysis and Evaluation of Social Benets
Generally speaking, social benefits of DSM shall be the result of DSMs imple-
mentation prompted by government, such as the improvement of products energy
efficiency which could reduce unnecessary electricity and fuel consumption and
the conserved energy could help deepening the national energy conservation work,
ease the contradiction between energy supply and demand, and provide guarantee
for national energy security and sustainable development of economy.
The social benefit evaluation of DSM is to assess the revenues of DSM
implementation mainly from the view of government and standing on the level of
the whole society. Specifically, benefits of DSM implementation mean greater
power consumption efficiency and saving primary energy, decreasing total elec-
tricity consumption and reduction of pollutant emission; lower growth of peak
load, delayed construction or less power plants and disinvestment; regulating
electricity price and improving fund utilization efficiency of the society; and sta-
bilizing power utilization order in the society and ensuring the normal operation
and sustainable development of the society and economy. Besides, new employ-
ment opportunity brought by the development of emerging industries because of
DSMs implementation is also the reflection of DSMs social benefit.
3.5.1 Social Benet Evaluation of DSM
3.5.1.1 Reduction of Social Cost
DSM could prompt the decline of electricity consumption and thereby the fuels
consumed by power plants. The investment for obtaining, transaction, and utilization
Table 3.7 Economic benefit of the standard and label system in 2020 (discounted to 2000)
Accumulative net Accumulative net Net income Benefit
benefit in present value cost in present value (RMB billion cost ratio
(RMB billion Yuan) (RMB billion Yuan) Yuan)
Energy 696.10 190.10 506.00 3.7
efficiency
standard
Information 68.25 34.70 33.55 2.0
label
Total 764.35 224.79 539.55 3.4
of fuel in future will all be reduced, the saved expenditures in energy department
could be used for the production and service of other products. Therefore, the
operation of a high performance energy sector will bring higher economic benefits.
As described in Chap. 1 of this book, about 90 GW installed capacity as well as
1 trillion Yuan of capital and running costs across the country could be saved
accumulatively by 2020 through implementation of EPP and other means of DSM.
The conserved costs could be used in other industries for production and service.
3.5.1.2 Increase of Consumer Welfare
As DSM could prompt the improvement of energy efficiency of the energy-

consuming products, the electricity consumption of which could be greatly reduced
and the running costs could be lowered. Here, take the implementation of energy
efficiency standard and label policy as an example for calculation, although the
improvement of products energy efficiency will certainly bring the increase of
purchase costs which is much lower than the reduction of running costs. Table 3.7
shows the economic benefits that could be brought through the implementation of
energy efficiency standard and labeling, for most of the products, the ratio of benefit
and cost for improving energy efficiency standard and labeling for improving
products energy efficiency standard and labeling could reach 3.4 on the average, the
total net income in 2020 could reach 539.5 billion Yuan. Take refrigerator as an
example, the net income brought by the implementation of new energy standard
could reach 45.7 billion Yuan and the benefit-cost ratio will be 9.1 in 2020.
3.5.1.3 Energy Conservation and Emission Reduction
Because of the load demand decline, the demand for fossil fuel is correspondingly
decreased, so does the emission of GHG and pollutants, including CO2, SO2, NOx,
and particulates. As described in Chap. 1 of this book, about 1 billion tce, 2.2
billion tons CO2, 11.7 million tons SO2, and 7.6 million tons NOx would be
accumulatively reduced in China from 2007 to 2020 by exploration of several
3.5 Analysis and Evaluation of Social Benefits 207
types of EPP resources and adoption of integrated resource strategic planning

(IRSP). The economic and social benefits are significant.
3.5.2 Simulation Analysis of Social Benets of a DSM

Project
The intelligent laboratory for economy-energy-electricity-environment (ILE4)

contains a module named Policy Simulation of Special DSM Fund. Provided
that the government establishes DSM special fund in the way of electricity sur-
charge and uses it for compensation to DSM project, the influence on economy and
power industry in China can be analyzed based on the historical data. The result is
as follows:
If the electricity price of each industry increases by 1 %, the total amount of
special fund drawn would be about 8.088 billion Yuan. The products price in each
industry will raise accordingly due to the rising of electricity price, that is shown in
Table 3.8. The general rising range is not large. Chemical industry and building
material industry which increased by 0.11 % respectively, has the largest
increasing range, while the price of agricultural products which only increased by
0.03 %, has the smallest increasing range. The consumer price index (CPI) across
the country rises by 0.069 % and GDP rises by 0.061 % due to the rising price of
products.
Meanwhile, power consumption of each industry will be reduced to a different
degree and the total reduction will be 6.69 TWh. If this part of special fund is
totally used for the promotion of energy-saving products and updating of industrial
equipment, 77.2 TWh electricity which equals to 28 million tce will be conserved.
Energy consumption per unit GDP would decrease by 1.67 % from 111.1 tce/
million Yuan to 109.3 tce/million Yuan. At the same time, the emission of CO2,
SO2, and NOx will be reduced by 80 million tons, 560,000 tons, and 190,000 tons,
respectively. Thus it can be seen that special DSM support established by gov-
ernment for the sustainable development of DSM has significant economic and
social benefits.
3.6 Case Analysis
3.6.1 Energy Efciency Labeling Program in Thailand
The population in Thailand in 2006 had reached 63.08 million and the per capita
gross national product was about USD 2,525. The main mineral product in
Thailand is tin, while coal and petroleum resources are scare. The statistic data in
2003 show the recoverable reserve of raw coal in Thailand is 2 billion tons, crude
208
Table 3.8 The changing range of product price and power consumption in each industry under the condition of 1 % rising of electricity price
Industry Changing range of Change of power Industry Changing range of Change of power
product price (%) consumption product price (%) consumption
(GWh) (GWh)
Agriculture 0.03 0 Other manufacturing industries 0.06 180
Excavating industry 0.09 620 Building industry 0.08 70
Food manufacturing industry 0.04 100 Transportation and 0.05 2,580
telecommunication industry
Textile, sewing and leather 0.06 50 Business and catering trade 0.05 340
products manufacturing
industry
Coking, gas and petroleum 0.09 30 Other service industries 0.04 570
3
processing industry
Chemical industry 0.11 700 Electric power and heating power 1.00 520
production and supply
industry
Building materials and other non- 0.11 230 CPI 0.069
metallic mineral product
industry
Metal product manufacturing 0.12 500 GDP 0.061
industry
Mechanical equipment 0.08 210 Total 6,690
manufacturing industry
3.6 Case Analysis 209
oil and liquefied natural gas 79 million tons, and natural gas 188 billion cubic
meters. Thailand is poor in oil. As the development is in slow progress, its
petroleum mainly depends on importation. Therefore, economic development is
much influenced by the fluctuation of oil price, the financial crisis in 1997 caused a
serious blow to the economy of Thailand. This objectively requires Thailand to
pay attention to energy conservation and thereby brings opportunity for the
development of DSM.
Thailand raised a sum of DSM fund through surcharge on electricity price
under the support of International Aid Agency. From 1993 to 2000, the cost for the
first phase of DSM project was USD 60 million. The annual peak load reduction
was 566 MW and energy conservation is 3.14 TWh. A lot of advanced projects
have been developed, including market transformation of domestic manufacturers,
pilot projects of Energy Service Companies (ESCOs).
Thailand Government issued and implemented Promotion of Energy Conser-
vation law in 1992, which established perfect energy conservation management
system and many energy conservation systems, including energy efficiency label,
voluntary target agreement of manufacturer, and customs collection. A 5-year
DSM plan that would cost USD 189 million was formulated and approved in the
same year.
The energy efficiency labeling system of Thailand is approved by the govern-
ment, managed and implemented by Thailand Electric Power Bureau. It is also
incorporated into DSM plan as a component part. Besides, government and
manufacturers of fluorescence lamp also reached an agreement, i.e., reduce the
power of lamp from 40 to 36 W (non-mandatory). The government also decided to
implement energy standard project in ballast, air conditioner, industrial motor
industry, and to carry out nonmandatory energy label activity in industrial motor,
etc.
3.6.1.1 Management Activities of Energy Efciency Label
Thailand Electric Power Bureau Established Average Energy Efficiency

Standard through Energy Efficiency Test
First, Thailand implemented energy efficiency label system in two largest energy
consumption productsrefrigerators and AC in household electrical appliance
field. The department that has the power to formulate standard or label is Thailand
Electric Power Bureau and other government agencies. The latter includes
National Energy Policy Office (NEPO), Thai Industrial Standards Institute (TISI),
Energy Development and Promotion Department, and Office of Consumer Pro-
tection (OCP).
Thailand Electric Power Bureau chose refrigerators with various models for
energy efficiency test in the autumn of 1994 and established average energy
efficiency level. Finally, it set the model of refrigerators whose energy efficiency
level is less than 10 % higher than the average level as Grade 3, 1025 % higher as
Table 3.9 Grading of air conditioner label

Grading No. Definition of grading of Grading No. Definition of grading of
energy efficiency coefficient energy efficiency coefficient
1 ERR \ 7.6 4 9.6 \ ERR \ 10.6
2 7.6 \ ERR \ 8.6 5 10.6 \ ERR
3 8.6 \ ERR \ 9.6
Note ERR means average energy efficiency
Grade 4, and more than 25 % higher as Grade 5. The grade of energy efficiency
label of refrigerators varies from 1 to 5, Grade 3 represents general energy effi-
ciency level, and Grade 5 represents the highest energy efficiency level. The
energy efficiency label of refrigerators covers the refrigerators with the specifi-
cation of 150200 L, which constituted the mainstream products in the sales
market of refrigerators in Thailand.
Thailand Electric Power Bureau has got 55 air conditioner manufacturers to
participate in energy efficiency label activity. This activity encourages manufac-
tures to increase high efficient products and improve the existing model so as to
achieve the purpose of energy conservation. Energy efficiency project of air
conditioner covers split type and unitary (window/wall hanging) air conditioner
whose cooling capacity is between 2 and 7 kW. The grading of AC is as shown in
Table 3.9.
The energy efficiency label of refrigerators in Thai has become mandatory since
early 1999 after several years of practice, and so on the energy efficiency label of
AC since the beginning of 2000.
Government Sets up Special Energy Conservation Fund
In accordance with the stipulation of requiring government to set up special fund,

establish energy efficiency standard and label for energy utilization products in
Article 23 of Promotion of Energy Conservation Law, Thai government and
National Electric Power Bureau created energy conservation fund in 1992 under
the assistance of international energy conservation organization, through measures
such as collecting tax from petroleum products. Total amount of the fund has
reached USD 5 billion, and the annual fund injection is about USD 6080 million.
It has become one of the largest energy conservation funds in the world.
Thailand Electric Power Bureau Implements Subsidy and Prompts

High Efficient Products
Thailand Electric Power Bureau carried out high efficient products promotion
project in 1996 with the purpose of 40 MW annual load reduction and 265 GWh
accumulative electricity conservation achieved by the end of 1998. Thailand
Electric Power Bureau guides consumers to purchase high efficient products with
economic measure, i.e., provide subsidy to consumers who purchase high efficient
products. For instance, provide interest free loan that is about 2530 % of the
selling price to consumers purchasing AC with the highest grade of energy effi-
ciency (Grade 5).
Relevant Government Departments and Electric Power Bureau Joint in

Certification Activity of Green Label of Products
Thailand Environment Institute (TEI) also set green label certification for lots of
products. This certification belongs to endorsement label of voluntary participa-
tion. Green label involves four kinds of energy consumption products: power
saving fluorescent lamps, environmental protection refrigerators, low power con-
sumption AC, and high efficient industrial motors. TISI, NEPO, and Thailand
Electric Power Bureau have all jointed in the action of TEI.
3.6.1.2 Effect for the Promotion of Energy Efciency Label in Thailand
Effect for the Promotion of Energy Efficiency Label
In February 1995, when Thailand initiated the energy efficiency label of refrig-
erators, only one sample reached Grade Five. One year and a half later after the
implementation, 32 % products in the market were Grade 3, 55 % were Grade 4,
and 13 % were Grade 5. By the end of 1996, the number of refrigerators with
energy efficiency label had doubled and 70 % models in the market were Grade 5.
According to the estimate of Thailand Electric Power Bureau, the average energy
consumption of refrigerators that participate in the energy efficiency label program
was reduced by 14 % in the first 2 years. The energy efficiency label of AC was
carried out on the basis of successful implementation of energy efficiency label of
refrigerator. The average energy efficiency of AC was increased by 4 % in 2 years.
From 1995 to 1998, Thailand reduced 65 MW peak the load demand, which had
exceeded 133 % of the initial expected benefits by prompting energy efficiency
label of refrigerators and AC. 643 GWh was accumulatively conserved and
70,00080,000 tons CO2 emission was reduced accordingly. Although the con-
served load only occupied about 0.5 % of the installed capacity, good investment
benefits had been achieved. The long-term marginal cost of Thailand Electric
Power Bureau is USD 0.05/kWh, while the cost for the implementation of all DSM
projects is only USD 0.012/kWh. Therefore, energy efficiency label activity has
become one of the projects with the highest inputoutput ratio in Thailand Electric
Power Bureau.
Comprehensive Evaluation Method of Energy Conservation Label of Products
The success of energy efficiency label encouraged Thailand Electric Power Bureau
to start other energy efficiency projects to participate in the activity of determining
the minimum energy efficiency standard of household electrical appliances. Thai
DSM office launched the comprehensive evaluation of energy efficiency label in
1999. The evaluation includes three main components:
1. Collect the qualitative data, such as actions and attitudes of related consumers
and manufacturers as well as their responses to energy efficiency label. This
research mainly adopted the following two methods for data collection: man-
ufacturers carry out investigation. This method should decide the detailed
questionnaires and these questionnaires are used for personal interview with
marketing personnel and production personnel of 50 manufacturers and dis-
tribution companies. Let an investigation group composing eight investigators
carry out investigation to 2,000 households in Bangkok and other three interior
cities with a detailed five-page questionnaire.
2. Evaluate the impact of energy efficiency label to decision making of manu-
facturers and market share of products.
3. Evaluate the impact of energy efficiency label to energy conservation and
reduction of demand.
Impact evaluation is established and carried out on the basis of direct mea-
surement of refrigerators and AC in several hundreds of households. The evaluator
combines the directly measured data and the data obtained from the investigation
of households and manufacturers, and model, size, and dimension of relevant
products with the planned data in the aspect of energy efficiency to determine the
energy conservation and demand reduction produced by energy efficiency label.
3.6.1.3 Successful Experience in Promotion of Energy Efciency Label

in Thailand
The smooth and successful implementation of promotion of energy efficiency label

is jointly propelled by factors in many aspects and the following are the main
aspects:
1. National legislation and promulgation of relevant laws and regulations is the
prerequisite for ensuring the success of energy efficiency label.
2. Establishment of corresponding national incentive mechanism and increase of
policy guide is a necessary measure for prompting the success of the system.
3. Increase of capital injection and carrying out of large-scale publicity by
national government department is an important factor for the smooth
launching and maintaining of sustainable vitality of the system.
4. Power utilities responsible for power supply engages in evaluation and pro-
motion of energy efficiency label to stimulate the rapid enhancement of energy
efficiency of electric terminal equipment.
Thailand established perfect energy efficiency system and energy conservation
incentive mechanism just through these systems and incentives, which make it
become one of the most successful and comprehensive energy efficiency system in
Asia.
3.6.2 Energy Star Program in the United States
The United States is one of the most developed countries in the world and has high
dependence on resources. The population in the US had exceeded 300 million in
October 2006 and its GDP had passed USD 10 billion in 2002. The United States is
rich in natural resources. The statistic data in 2003 shows the recoverable reserves
of raw coal are 269.6 billion tons, the recoverable reserves of crude oil and
liquefied natural gas are 3.8 billion tons, and the recoverable reserves of natural
gas are 5.198 trillion tons. However, the energy self-sufficiency rate (energy self-
sufficiency rate equals to production output divides demand) is only about 0.7.
Although the United State is a large oil production country, it is also a major oil
importing country at the same time. Its import volume is almost two times of the
production output of the country. The energy self-sufficiency rate of it was about
0.85 in 1970. Oil crisis in 1973 and 1979 exerted profound influence on the
development of economy in the United States. Therefore, the United States is the
No. 1 to study IRP/DSM and by now have accumulated lots of experience and
lesson that worth to be learned and drawn from. Besides, the United States has
always attached great importance to DSM.
Energy star is a cooperation program jointly participated by DOE, EPA,
manufacturers, public utilities departments, energy efficiency advocators, con-
sumers and other organizations. It increases energy efficiency by combing the
endorsement label and information of products, and publicity and promotion
activities with selective activities. This program has been promoted to other
countries, for instance, Japan and Australia has participated in international energy
star program. Energy star program has the common energy efficiency specification
and an international common mark. Countries participating in the program give
mutual recognition to qualified products and the products with energy star are valid
in all the participating countries.
3.6.2.1 The Main Contents of US Energy Star Program
1. Form a product label. Establish energy efficiency specification for the existing
technologies that have been certified through the joint efforts made by DOE,
EPA, manufacturers, and other related groups. The product model exceeding
the requirement of this specification could be recognized by energy label.
2. Provide objective information. This program provides non-technical instruction,
brochure and interactive website to help consumers to understand the economic
and environmental benefits brought about by the utilization of high perfor-
mance products. This information also provides a way for consumers to verify
the statement made by manufacturers for the efficiency of their products.
3. Promotion activity of energy efciency. This program is actively cooperated by
the state, region, and local organizations (including energy efficiency advocacy
groups, public utilities departments, retailers, and other organizations) to
enhance peoples understanding about energy star program and label. Besides,
it shall be ensured that this information could reflect the questions and requests
concerned by local public. One of the methods for promotion activity is mass
media advertisement.
4. Selective nancing. This program cooperates with financial institutions and
helps them make and prompt the sale of selective financing business in order to
lower the expense for purchasing energy efficiency equipment and products.
More than 500 manufacturers had provided over 13,000 kinds of products that
conform to the requirement of energy star label by November 1999. The
products include household electrical appliances, heating and cooling equip-
ment, home electronic products, office equipment, lighting fixtures and lamp
bulbs, and windows and buildings. In addition, over 200 constructors and
developers have decided to construct more than 15,000 residences that conform
to the standard of energy star. In April 1993, Federal Government of the United
States requested all Federal Agencies must purchase computers, monitors, and
printers with energy star label. This request is one of the main driving forces for
the success of this program as it have greatly prompted this program and also
affected the increase of market share of equipment with energy star to a large
extent.
3.6.2.2 Financing Policies and Measures of Energy Star Program
Implementation of Energy Star program has the advantages of small investment,

quick returns, great influence, remarkable energy conservation, and environmental
protection effects. Government and organizations at all levels of the United States
have attached highly importance to Energy Star program. In order to enhance
energy conservation awareness of residents and increase the market sales volume
of high efficient energy conservation products, US Government took economic
incentive policies and measures as an important mean for application, and had
achieved remarkable effects. Among it, Economic incentive program vigorously
implemented and developed by the federal government, state government at all
levels, and public utility units of water, electricity, and gas is also one of the most
important economic means to prompt energy conservation products to enter into

tens of thousand of households and form good energy conservation consciousness
and atmosphere in the society.
National Energy Conservation Policy Act promulgated and implemented by
the United States in 1992 made the following clear stipulations for implementation
of incentive program by utility units: (1) Encourage and authorize some organi-
zations to participate in programs that could increase energy efficiency and water
conservation, or participate in DSM work of water, electricity, and gas utility
units; (2) All organizations could get certain financial aids such as capital, material
objects or service from water, electricity, and gas utility units so as to improve
energy efficiency and carry out more effective management to water conservation
and energy conservation work; (3) Encourage all organizations to make and carry
out economic incentive program of demand management and energy efficient
management with less investment and quick returns after making consultation with
water, electricity, and gas utility units.
Federal Government, State Government, and water, electricity, and gas utility
units all adopted a series of economic incentives to prompt the development of
Energy Star program. These measures mainly include three forms: cash subsidy
to energy conservation products, tax relief, and mortgage loan.
Cash Subsidy
The US Federal Government, State Government, and power utilities have carried
out energy conservation cash subsidy policy, which includes both national policy
and regional policy in the whole country or within regional scope in order to
propel energy conservation and environmental protection. The main purpose of
most energy conservation cash subsidy policies is to encourage users to purchase
energy conservation products, especially products certified by Energy Star.
Meanwhile, a few policies also encourage users to conserve electricity. The
characteristics for carrying out cash subsidy to energy conservation products are:
1. Lots of participating departments. Government departments at all levels, and
water, electricity, and gas utility units all actively carry out cash subsidy on
energy conservation products. According to preliminary statistics, nearly 40
units and departments organized and carried out cash subsidy on household
electrical appliances and six units organized and carried out cash subsidy on
lighting products in 2001.
2. Many beneting groups. Most residents could enjoy cash subsidy policy for
energy conservation products. For instance, the cash subsidy policy to residence
household electrical appliances covered more than 40 million residents and
cash subsidy policy to lighting products covered more than 56 million residents
in 2001.
3. Large amount of investment funds. The US State Government and organizations
at all levels have inputted large amount of funds for publicity and promotion of
Energy Star. The financial fund used by US Federal Government for pro-
motion of Energy Star was about USD 35 million in 2001, in which, the
financial fund provided for cash subsidy policy to energy conservation
household electrical appliances was about USD 8 million. Budgetary fund used
by 40 state-level government departments or organizations for carrying out
energy conservation subsidy to home household electrical appliances and
lighting products was as high as USD 63.3 million and USD 50 million,
respectively.
4. Strict subsidy scope. Most policies request subsidized products must be the
products certified by Energy Star. The amount of cash subsidy also varies
from several dollars to several hundred dollars, or even thousands of dollars
according to the categories of products.
Some programs also have supporting prompting plans and measures so as to
ensure more residents could understand and participate in this activity. For
example:
1. Users of energy conservation products only need to submit the basic data of
purchased products and purchasing voucher to government department
responsible for it to get subsidy. If distributors of products purchased by users
have agreement with units implementing cash subsidy, users could get subsidy
cash directly from distributors during purchase.
2. Some programs include the certification and training in it to facilitate the
auxiliary activities of field sales of energy conservation products.
3. Besides the cash subsidy to purchasers, part of the programs also provide cash
subsidy programs to manufacturers, distributors, and real estate developers at
all levels so as to let more people participate in energy conservation programs
and thereby enhance energy conservation and environmental protection con-
sciousness of the whole society.
Tax Relief Policy
Partial tax relief to energy conservation products is an important measure for US

Federal Government and State Government at all levels to improve energy utili-
zation efficiency and enhance energy conservation awareness of ordinary citizens.
Tax relief policy was implemented to high efficient equipment in the financial
budget of government in 2001.
Tax reduction limit of various energy conservation buildings and equipment is
10 or 20 %, respectively, according to the difference of energy efficiency index
being judged. For instance, tax reduction for each electric heat pump that conforms
to testing procedure and standard of Ministry of Energy and whose energy effi-
ciency coefficient is above 1.7 through testing could be as high as USD 500; tax
reduction for each natural heat gas pump whose heating energy efficiency coef-
ficient is above 1.25 and cooling energy efficiency coefficient is above 0.70 could
be as high as USD 1000. Tax reduction limit for these two kinds of equipment are
all around 20 %.
Tax relief policy for energy conservation equipment effectively prompted the
large-scale promotion and utilization of energy conservation products and equip-
ment, and realized the purpose of energy conservation and environmental pro-
tection in a better way. Besides, government in each State also formulated local tax
relief policy for energy conservation products separately according to the actual
local conditions. Now, a simple explanation will be made with tax relief policy
program of energy conservation products in Oregon as example:
1. Household electrical appliances. The tax relief limit of energy conservation
dishwashers, washing machines, and water heating equipment is between USD
50 and 200, but it is required that all the models of these products must be in the
catalog of energy conservation electrical products certified by Oregon. The
amount for tax reduction depends on energy efficiency effects and price of the
products.
2. Testing and service heat pump and central air conditioner system. Mainly to
provide some testing service organizations and tax reduction could be as high
as USD250.
3. Energy conservation pipe system. Tax reduction could be as high as USD 250
for sealing treatment to existing pipe or installation of pipe system with good
sealing in new residences in order to reduce the loss caused by air leakage in
pipe system.
4. Geothermal heating system. Tax reduction could be as high as USD 1500 for
installation of geothermal heating system.
5. Solar water heating system. Tax reduction could be as high as USD 1500 for
purchasing solar water heating system.
6. Solar heating system. Tax reduction could reach USD 1500 at most as long as
solar heating system could provide more than 10 % of the energy required by
the family.
7. Solar power generation. Tax reduction could reach USD 1500 at most as long
as solar energy photovoltaic system could provide more than 10 % of the
energy required by the family.
Mortgage Loan
Some loan institutions provide Energy Star mortgage loan services. Residents
could apply for mortgage loan to these banks while purchasing buildings certified
by Energy Star. The implementation of Energy Star program in architectural
field could not only effectively prompt the construction and development of energy
conservation buildings and reduce energy consumption and maintenance expenses
of buildings, what is more, it could drive the development of wall heat preser-
vation and thermal insulation technology, stimulate construction materials market,
increase employment opportunity, and prompt the development of social economy
in the United States. Mortgage loan service increased the value of buildings cer-
tified by Energy Star and provided convenient lending channel for users at the
same time.
References
1. Zhao Y (2006) Review of demand-side management (DSM). China science and technology
information, (24)
2. State Power Economic Research Center, Energy Research Institute of State Development
Planning Commission, The Resources Economize & Comprehensive Utilization Department
of State Economic and Trade Commission, etc. (2002) US electric power DSM incentive
policy and its enlightenment to Chinainvestigation report of the United States
3. State Power Economic Research Center, Energy Research Institute of State Development
Planning Commission, Natural Resources Defense Council (2002) Policy research for
implementation of demand-side management (DSM) in China
4. National Development and Reform Commission, State Grid Energy Research Institute, etc.
(2007) Revelation of Californians quadruple the per capita GDP in 30 years and the per capita
electricity remained unchangedinvestigation report on the policy and practices of energy
efficiency power plant in the United States
5. About energy star. http://www.energystar.gov/index.cfm?c=about.ab_index. Cited 20 Oct
2012
6. Website of http://www.energylabel.gov.cn/. Cited 12 Sep 2012
7. Website of Hebei province Demand-side Management. http://www.hbdsm.com/. Cited 10
Feb 2009
8. National Development and Reform Commission (2007) Power demand-side management in
China (white book). China Electric Power Press, Beijing
9. Sang X (2007) The improvement of standard leads to the acceleration of industry
competition. China Consumers, 2007-01-08
10. State Grid Energy Research Institute (2012) Relevant knowledge and basic data menu of
integrated resource strategic planning (2011)
11. IEA. Electricity Information 2011
12. Chinese Government (2010) China Compendium Plan for National Economic and Social
Development of 12th Five-year Plan (2011). Peoples Publishing House, Beijing
13. IEA (2000) Developing mechanisms for promoting demand-side management and energy
efficiency in changing electricity businesses
14. Energy Management Company Association (EMCA) (2011) Annual report of energy
management industry in China (2011), p. 201
Chapter 4
The Implementers of Demand-Side
Management: Power Grid Enterprises
4.1 Power Grid Enterprises: Subjects of Demand-Side

Management Implementation
Since the 1980s, the power industry in China has experienced many system
reforms. However, no matter how it is evolved, energy conservation and the
improvement of end-use power consumption efficiency have never been inter-
rupted. The energy departments, hydraulic and electric engineering departments,
power industry departments and the State Economic and Trade Commission which
have government functions, the national electricity corporation and power grid
enterprises (State Grid Corporation of China and China Southern Power Grid Co.,
Ltd., etc.) which does not have government functions, as the subjects of social
power saving, scientific power consumption, rational power consumption, and
demand-side management (DSM) implementation, play important roles in pro-
moting the improvement of overall social power consumption efficiency and the
development of DSM work.
1. Power Grid Enterprises are the Best Choices for the Subjects of DSM Imple-
mentation [13]
After the separation of power plant and power grid, power grid enterprises as
the windows which directly face a great number of power users have favorable
conditions for developing DSM and are the undertakers and implementers of DSM
work. The National Development and Reform Commission and the State Elec-
tricity Regulatory Commission jointly issued Guiding Opinions on Strengthening
Demand-side Management Work in 2004, while six ministries and commissions
including National Development and Reform Commission (NDRC) jointly issued
Demand-side Management Regulations in 2010. In the two documents, the main
point to the Power Grid Enterprises is that Power Grid Enterprises as the
Subjects of DSM Implementation. State Grid Corporation of China and China
Southern Power Grid Co., Ltd. as well as their affiliated enterprises undertake
important tasks in DSM.

220 4 The Implementers of Demand-Side Management
In the vertical integration stage of electric power industry, the government grant
power grid enterprises to operate DSM to make it play its functions in energy
efficiency management and load management. As the power market reform has
been gradually moved on, the implementation of reform measures like the
separation of power plant and power grid, price bidding, breaking monopoly as
well as introducing competition, and others formed the original management
system of the power industry changed. The subjects of DSM implementation
change from power utilities to power grid enterprises. Certainly, the power
generation enterprises also plan certain implementation functions.
With the support by the government departments, power grid enterprises
encourage users to save power with market tool and incentive means, which not
only facilitates a sustainable development path for the power industry but also
accord with the long-term benefit of social development.
As power utilities undertake power supply and sale tasks and take the respon-
sibility of keeping the balance between electric power and electric energy, they
have technological advantage and power consumption information advantage of
power resource distribution and load management, have the favorable condi-
tions for developing load analysis and prediction, electricity and electricity price
analysis and prediction, and have positions that cannot be replaced by other
subjects in the aspects of DSM object making, planning, and decision making.
In the power supply and consumption process, the power grid enterprises and
users have an indivisible relation. In the power consumption information con-
sultation service aspect, the power grid enterprises which have very favorable
advantages in guiding users to use power scientifically and rationally by using
scientific management methods and advanced technical means and through
support platform like power marketing management information system or
power consumption business management information system and in providing
excellent power services for users.
Power generation, transmission, supply, and consumption form a unity con-
nected by the power grid. The process is finished at the same time, from the
power generation to the power consumption. The reliability and economical
efficiency of each link like power generation, transmission, and supply has a
direct relation with the power consumption behavior of users to a great extent,
and the operation cost also is reflected in electricity price for users to different
extent. This kind of interactive relationship between power utilities and users is
the basis for implementing DSM. The power system reform has not broken up
the power system flows. The basic condition for power utilities to implement
DSM still exists and the power grid enterprises are still the best choices for the
subjects of DSM implementation.
As the subjects of DSM implementation, power grid enterprises can consider the
long-term development goals more. Power grid enterprises have standard
operation, high credit degree, strong implementation ability, and outstanding
scale benefit. They can not only provide comparatively complete technical
support for integrated resource strategic planning but also take the group interest
4.1 Power Grid Enterprises: Subjects of Demand-Side Management Implementation 221
into consideration to make and implement a DSM plan which can be easily
accepted by all parties.
As the main implementers and operators of DSM plan, power grid enterprises
can bring energy efficiency management and load management into the com-
mercial operation field. In this way, both power and efficiency are sold, the
integration of power supply and saving operation is fulfilled and sustainable
power saving activity is formed. It is not only a successful international expe-
rience but also a main direction of DSM development in China.
The load management system constructed by the power grid enterprises pro-
vides basic conditions for accomplishing Orderly Power Utilization, which can
effectively ensure Orderly Power Utilization by each social side in the power
supply shortage period and maintain social stability and harmony.
2. Power Grid Enterprises are the Important Links for Connecting Main Partici-
pants [13]
Power grid enterprises which have unique advantages that the other relevant
subjects do not have are the links for connecting all parties like government, power
generation enterprise, energy service company (ESCO), and power user and oth-
ers. Power grid enterprises give DSM policy suggestions to the governments, and
carry out DSM projects, technology promotion (including energy efficiency
management, load management, and Orderly Power Utilization, etc.), and idea
promotion and others, carry through the government regulations and policies to the
users and promote energy conservation of the whole society and the improvement
of overall power utilization efficiency and overall efficiency under the general
guidance by the government departments. The users and power generation
enterprises are connected together by means of implementing DSM time-of-use
price linkage with the power generation enterprises and others and the benefit
generated at the power saving at the terminal user side is transferred to the power
generation enterprises with price signal platform. The implementation and pro-
motion of DSM projects are promoted jointly through the strategic cooperation
with the affiliated ESCO and the third-party ESCO.
The position of a power grid enterprise in DSM is shown in Fig. 4.1.
3. DSM Implementation is the Effective Path for Improving Load Characteristics
and Optimizing Power Grid Operation
With the economic development and the improvement of peoples living
standard, the peak load demand of the power grid increases quickly and the load
characteristics change, which are mainly shown in the following aspects: the load
rate is decreased; the increase of the proportion of the seasonal load (summer
cooling load winter heating load) in the maximum load promotes the gradual
increases of power grid peak and valley difference and peak-valley different rate;
the peak load becomes outstanding gradually and the lasing period gradually
decreases, such as the time increase of 95 or 97 % maximum load. The economic
Government
DSM policies and regulations;

DSM planning;
DSM funds;
DSM promotion
DSM linkage;
Power Generation Electricity price linkage; Power Grid DSM strategy Energy Service
Enterprises Power saving efficiency Enterprises cooperation Companies (ESCOs)
and obligation share
Affiliated ESCOs of the

Power Grid Enterprises
DSM project,
DSM technology and
DSM promotion
User
Fig. 4.1 The position of power grid enterprise in DSM
efficiency is comparatively bad only by enlarging the investment scale and

increasing installed capacity and power transmission and transformation equip-
ment to meet transitory peak power consumption.
Cutting down part of load demand of users from the power grid peak load
period and shifting it to the power grid valley load period through load reforming
technologies like peak clipping, valley filling, and peak load shifting can increase
the power grid load factor, improve load characteristics, optimize power grid
operation, and improve the stability, reliability, and economic efficiency of the
power system operation. At the same time, developing DSM can help users to use
power more rationally and decrease electricity charge expenditure, which is good
for improving excellent service level of power grid enterprises.
4. Implementing DSM is the Important Foundation Stone for Power Grid Enter-
prises to Carry out Scientific Development View and Constructing Harmonious
Society
Implementing the scientific development view in an all-round way and con-
structing harmonious socialist society relating to the overall economic and social
development in China. Except the human-oriented requirement and the require-
ment of persisting in the concept that human is the basic purpose and basic power,
the more important requirements of the scientific development is complete, har-
monious and sustainable development of economy, society, and environment. At
the same time, Harmonious Society requires both realizing harmony between
human beings and maintaining harmony between human and nature. Power grid
enterprises that undertake social responsibilities exceed the single profit making
goal, by implementing DSM, to consider the overall social benefit, to pay attention
4.1 Power Grid Enterprises: Subjects of Demand-Side Management Implementation 223
to each factor like man, environment, and resource in the enterprise regeneration
process in an all-round way, actively undertaking social responsibilities, promot-
ing power saving, scientific power consumption and rational power consumption
of the whole society, improving social terminal power utilization efficiency and
providing an important basis for implementing scientific development view in an
all-round way, promoting sustainable development of power industry, promoting
energy conservation and emission reduction of the whole society, accomplishing
harmonious development of energy, power, economy and society, and constructing
harmonious society.
4.2 Work Contents of Demand-Side Management

Implementation by Power Grid Enterprises
4.2.1 Organization Structure of Demand-Side Management

The organization structure of DSM implemented by power grid enterprises is

divided into three levels: national power grid enterprises, regional and provincial
power grid enterprises, municipal power grid enterprises. From the vertical view,
the guidance is carried out from national level to municipal level and the sum-
marization is made from the municipal level to national level; from the transverse
view, except the regional power grid enterprises, the other enterprises all have
close relations with the governments, which work with the guidance and support of
the governments, raise policies and proposals to related government departments,
and report DSM implementation status.
The DSM organization structure of power grid enterprises is shown in Fig. 4.2.
Demand-side management Guidance and support Demand-side management functional

departments of national power grid departments of relevant national
enterprises Raising policies and proposals
; government departments
reporting DSM implementation status
Report Guidance

departments of regional and departments of relevant provincial
provincial power grid enterprises Raising policies and proposals
Report Guidance

departments of municipal power grid departments of relevant local
enterprises Raising policies and proposals
Fig. 4.2 DSM organization structure of power grid enterprises

1. National power grid enterprises. The national power grid enterprises set DSM
departments as the centralized management departments of DSM work of the
system, which are the main departments for implementing DSM.
2. Regional and provincial power grid enterprises. The DSM departments of
regional and provincial power grid enterprises are the specified management
departments of the region, province (district and city), and are the direct
management departments of local demand-side management.
3. Municipal power grid enterprises. The municipal power grid enterprises are
important implementation departments of DSM and the main departments
which carry out DSM to users.
4.2.2 Work Contents of Demand-Side Management

4.2.2.1 Providing Proposals for the Government to Stipulate Demand-

Side Management Policies and Regulations
The power grid enterprises at each level cooperate with the governments to stip-
ulate relevant DSM regulations, policy measures and technical standards, and
actively carry out them. They cooperate with the governments to plan, organize,
lead, and coordinate the area DSM activities and promote all social parties to
participate in them, and at the same time, to promote the establishment of fast
response mechanism among relevant government departments, power grid enter-
prises, power generation enterprises, energy conservation service companies and
power users, and report the DSM implementation condition to ensure smooth
information flow.
According to the DSM development condition, the power grid enterprises
research and stipulate internal scientific and rational DSM regulations, policies,
and standards and are responsible for collecting, summarizing, and reporting
power users production power consumption load condition and product unit
consumption statement and analysis report of DSM plan implementation which
shall be executed after being reviewed and approved by the government admin-
istrative department in charge of demand-side management.
The power grid enterprises are responsible for making statistics, analysis, and
evaluation of DSM resource conservation condition and forming rational energy
consumption and resource conservation analysis report which shall be submitted to
the government administrative department in charge of power, superior power grid
enterprises, or planning management department.
The power grid enterprises use the special funds of DSM set the by government
departments to develop organization and special activities of DSM work. The
special funds are mainly used to promotion, training and demonstrative projects of
4.2 Work Contents of Demand-Side Management 225
DSM, support users to carry out power saving technology reform to buy power
saving products, to implement economic subsidy of the interruptible load, and to
construct load management system, etc. The special funds of DSM must be used
for specified purposes under the supervision by the government. The fund use
condition should be reported to the administrative department of government in
charge of DSM regularly and the government supervision and inspection should be
accepted.
4.2.2.2 Establishing Mechanisms in Favor of Promoting Demand-Side

Management
The power grid enterprises at each level bring DSM into generator expansion
planning construction, power grid dispatch operation, power supply and demand
balance work, and others by establishing mechanisms in favor of promoting DSMs
and also take it as the specific content of power supply consultation and user
service to bring it into the full process of power marketing management work.
The excellent service level should be improved and excellent service conno-
tation should be developed by implementing DSM. Professionals should be
assigned in the internal parts of the power grid enterprises at each level to engage
in DSM work and the training on their service consciousness, technical standard,
and business ability should be emphasized and strengthened to accomplish DSM
standardization and institutionalization step by step.
By energy efficiency management and load management, the power grid
enterprises promote user end-use power saving, improve power utilization effi-
ciency, introduce new power saving technology into end-use service, and coop-
erate with relevant social departments and manufacturers to research and develop
innovative high-efficiency power saving products and apply new technologies like
information, communication, automatic control, remote metering, and measure-
ment to improve DSM service efficiency.
4.2.2.3 Analyzing and Predicting Demand-Side Management Resource

Potential and Market
The power grid enterprises at each level find out the key points for implementing
DSM, raising the DSM work targets based on different areas, different industries,
and different projects, and providing basis for making DSM plan through inves-
tigation and analysis of demand-side resources in the ruled areas.
Improve the load prediction level through power market analysis and prediction
work. Deeply analyze important industries, high energy consumption industries
and load change rules of important users, explore and shift the power consumption
load in peak load period of power grid and improve end-use energy efficiency
potential to provide references for selecting rational DSM objects and targets.
4.2.2.4 Making Demand-Side Management Plan and Work Plan
The power grid enterprises at each level make DSM strategy plan on the basis of
fully investigating and surveying the demand-side resource potential of the ruled
areas, and the planning period can be 35 years. At the same time, they make
annual work plans according to the DSM plans every year, raise specific DSM
projects, load management targets and power saving management targets and
implementation schemes, and organize the implementation carefully.
The DSM implementation plan made by a power grid enterprise at the lower
level must be reviewed and approved by the superior management department
before implementation and the implementation condition should be reported
regularly.
4.2.2.5 Cooperating with the Government to Make Electricity Price

Measures for Promoting Demand-Side Management
According to the actual condition of the area, every provincial/municipal power

grid enterprise should study the peak load shifting effect made by the policies
including time-of-use price, peak electricity price, seasonal electricity price, and
interruptible electricity price (or interruptible load compensation) and analyze and
estimate possible effect and influence on users after policies like time-of-use
linkage and avoidable peak load electricity price are implemented to feed-in and
sale link. Based on this, it raises rational proposals for promoting DSM devel-
opment in aspects like electricity price policy range, object and specific scheme to
the government administrative department in charge of price to promote making
rational electricity price scheme, and guide users to shift peak and fill valley and
power consumption scientifically and rationally.
4.2.2.6 Improving Load Characteristics Through Load Management
The power grid enterprises at each level organize establishing DSM technology
and information support system and carry out demand analysis, power consump-
tion evaluation, power consumption extension service, and promotion of new load
transfer technology and research technology. They establish new load management
mechanisms which master the area, industry, and user information. Through load
management measures like peak clipping, valley filling, peak load shifting, and
flexible load, they improve the load curve shape and load factor, decrease peal
load, stabilize system load, and improve the operation reliability and economic
efficiency of the whole power system.
4.2.2.7 Promoting Advanced and Suitable Demand-Side Management

Technologies
Through idea promotion, project implementation, the power grid enterprises at

each level continuously promote advanced and suitable DSM technologies and
products so as to adjust the load curve, optimize power grid operation, improve
energy consumption structure, decrease environmental pollution, improve electric
energy utilization rate, and save energy resources. The technologies promoted
specifically include the following aspects: green lighting technologies, products,
and energy-saving household appliances; electric heat storage and cooling energy
storage technologies, technologies for decreasing auxiliary power consumption,
and power supply line loss of power plants; residual heat, residual pressure and
new energy power consumption, co-generation of heat and power, combined
cooling heating and power generation, and comprehensive utilization power
plants; transformation and renovation of low-efficiency fans, water pumps, motors
and transformers, and system operation efficiency improvement; voltage-adjust-
ment devices with high-frequency thyristor and energy-saving transformers; AC
motor speed regulation and power saving technology; specialized production of
processes like heat treatment, electroplating, casting, and oxygen generation; heat
pump, fuel gas-steam combined circulation power generation technology; far
infrared and microwave heating technology; reactive power automatic compen-
sation technology, etc.
4.2.2.8 Developing Demand-Side Management Promotion

and Training
The power grid enterprises at each level develop DSM promotion activity by
cooperating with the government or independently. They introduce DSM idea,
knowledge, technologies, products, and successful cases to the society through
promotion channels including business halls, exhibition halls, Internet websites
(such as establishing power information network and DSM website, etc.), cus-
tomer service telephones, professional journals, newspapers, magazines, optical
disks, film, and TV media and others, and make DSM exhibition halls promote
DSM to develop user service connotation and guide users to take advanced pro-
cesses, equipment, technologies and materials, and use power in scientific and
rational ways.
They carry on the training for DSM team and develop relevant projects and
technology lectures appropriately, such as special topics including Power Con-
sumption Auditing, Power Resource Management, Electricity Balance
Testing Power Saving Technology Energy Storage Technology, and
Electric Heating Technology, to make the DSM manager the DSM work
methods and means in the new situation, know relevant technologies and equip-
ment, widen management train of thoughts when updating knowledge, and
improve business ability and management level.
4.2.2.9 Cooperating with the Government to Carry out Orderly Power

Utilization Work Properly
In the power supply shortage period, in order to ensure safe power supply and meet
the load demands of different users to the maximum degree, the power grid
enterprises at each level should fully consider the seasonal and time interval
characteristics according to the power supply and demand situation and power
balance condition, specify power consumption proportion and elaborately organize
and make the Orderly Power Utilization schemes according to the power supply
capability of the power grid, and further specify and carry out them, highlight the
consistence of power utilization policy and industrial policy as well as environ-
mental protection policy and arrange enterprises with different production char-
acteristics in different scheme. At the same time, they should supervise the
implementation condition of peak removing, peak load shifting, or peak averting
scheme.
The Orderly Power Utilization is a special measure taken for ensuring social
stability and power grid security in the power supply shortage period. The prin-
ciples of making Orderly Power Utilization scheme are mainly as follows: meeting
the requirement of filling the peak load gap and leaving a margin according to the
power supply capability and load growth expectation of the power grid; the least
influence on the society, the least economic loss, and the best implementation
effect; the enterprise shift peak load firstly and actively, and then issue dispatch
command to shift and avoid peak and finally take control means to limit power;
multiple schemes are used in a alternating way and implemented in a rolling way.
4.2.2.10 Establishing Affiliated Energy Conservation Service

Companies of Power Grid Enterprises
In order to effectively develop DSM projects, the power grid enterprises at each
level can establish affiliated energy conservation service companies of the enter-
prises. The services provided by an affiliated ESCO of a power grid enterprise
include energy conservation information consultation and energy conservation
technology training services, energy conservation technology reform work of
power system enterprises or users, distributing new energy-saving products and
materials, developing energy-saving product lease business, new energy-saving
product and technology exhibition, promotion and application, and supporting the
energy-saving technology reform projects of domestic enterprises, etc. The energy
conservation projects of government organizations can be developed in the initial
stage and then the range can be gradually expanded to the DSM business of
different kinds of power consumption enterprises.
Establishing affiliated energy conservation service companies of power grid
enterprises and develop energy conservation project services is a very effective
method for promoting DSM plan implementation. On one hand, establishing
affiliated energy conservation service companies of power grid enterprises is good
for fully combining the load management technology with power saving tech-
nology, helping user to arrange power consumption mode with the self-owned
technology and information advantages, objectively and correctly carrying out
power saving diagnosis, making rational energy conservation reform schemes, and
helping users to get the maximum energy conservation benefit. On the other hand,
the affiliated energy conservation service companies of power grid enterprises
have strong strength, comparatively higher personnel quality and technological
level as well as standard management, and can easily get customers trust. Through
the services of the energy conservation service companies, the power supply
quality can be improved and the power supply security and stability can be
ensured. In addition, the power grid enterprises can know the power consumption
condition of power users in a real and detailed way, which is helpful for correctly
master the social power consumption demand development trend.
4.2.3 Main Responsibilities of Power Grid Enterprises

During Demand-Side Management Implementation
Aiming at the DSM work contents, the main responsibilities of power grid
enterprises at each level are specified as follows.
4.2.3.1 Main Responsibilities of National Power Grid Enterprises
1. Carry out national energy policies; according to relevant national laws, regu-
lations and standards, establish and complete enterprise DSM mechanism;
according to the experiences and problems existing in practice, raise proposals
of making, revising the DSM regulations, standards and plans to relevant
national government departments.
2. Bring DSM into routine work of the enterprises and into power grid develop-
ment planning.
3. Establish the enterprise DSM working system and guide DSM work of regional
and provincial power grid enterprises.
4. Organize and develop technological, academic and experience communication,
and training about DSM through different kinds of medium and by promoting
new ideas, new technologies, new products, and new equipment of DSM;
summarize and promote advanced work experiences; promote DSM work
development.
5. Assist the government to make DSM plans and implementation schemes,
including DSM prediction and DSM preplans, project design, project promo-
tion, and implementation, etc.
4.2.3.2 Main Responsibilities of Regional and Provincial Power Grid

Enterprises
1. Carry out relevant national and local DSM laws, regulations, and polices as
well as relevant systems and methods made by national power grid
enterprises.
2. Bring DSM work into routine work of the enterprises and the local power grid
development planning.
3. Organize and develop work including DSM technology promotion and
application, information communication, consultation service and training,
etc.
4. Carry out DSM scheme design and cost-benefit analysis.
5. Be responsible for tracing and effect evaluation of DSM project
implementation.
6. The provincial power grid enterprises are responsible for guiding, supervising,
inspecting, and evaluating the DSM work of municipal power grid enterprises.
7. The provincial power grid enterprises carry out systematic research according
to the DSM work conditions, then raise relevant policies and planning pro-
posals to the government, assist the local government to stipulate local DSM
regulations, standards and plans and others, play the function of connecting
the government with the enterprises, convert the demand-side resources to
supply-side substitute resources through DSM projects, improve power system
equipment utilization rate, and accomplish highly effective, rational, and fully
utilization of current production capacity.
8. The provincial power grid enterprises are responsible for making DSM plans
and programs and fully utilizing economic policies, market mechanisms, and
technological measures to promote local DSM work.
9. The provincial power grid enterprises organize and promote DSM electricity
price analysis, make electricity price regulation application report, and raise
rational electricity price schemes and proposals to the local government.
10. The provincial power grid enterprises submit DSM fund use report and budget
to the provincial government and the superior management department; their
using of DSM funds is supervised by the government department; they deliver
special funds for DSM to the municipal power grid enterprises and supervise
the use of special funds.
4.2.3.3 Main Responsibilities of Municipal Power Grid Enterprises
1. According to the DSM plan issued by the relevant government department or

the superior power grid enterprise, under the guidance of local DSM depart-
ment, municipal Power Grid Enterprises are responsible for implementing the
DSM project and reporting the implementation condition to the superior DSM
department and provincial power grid enterprises for recording.
2. Make DSM policy regulation application reports; make relevant DSM rewards
and punishment regulations, and report them to relevant government depart-
ment for approval.
3. Preside local daily work of DSM; be responsible for contacting other indus-
tries and departments relating to DSM activity; set special positions and
personnel to carry out specific DSM work.
4. Be responsible for organizing the implementation of DSM projects and pro-
viding excellent, high-efficiency, and low-cost power services for users.
5. Carry out survey on users; understand users demands thoroughly; establish
and manage user information files and DSM project files.
6. Carry out statistic analysis and prediction of load, and make seasonal peak
load analysis and prediction; carry out load investigation and data statistics
according to area, industry, and user classification and track to monitor the
operation load information of the DSM project implemented; make area DSM
targets and DSM implementation schemes according to area load
characteristics.
7. Summarize annual DSM implementation status and fund use status; amend the
annual plan according to technical indexes like accomplished load charac-
teristics, etc.
8. Publish information of DSM plans, projects, and relevant policies to mass
users through various promotion channels and the DSM website.
9. Carry out publication and maintenance of information on the DSM website
and computer database management and maintenance, etc.
10. Carry out energy conservation project testing and evaluation; invite scientific
research institutes and energy conservation consultation service companies
excluding relevant units which participate in the DSM project to carry out
technological and economic evaluation on DSM projects.
11. Carry out technical analysis and statistics of DSM schemes.
12. According to accomplished technical indexes of DSM projects and in accor-
dance with rewards and punishment regulation approved by the government to
accomplish rewards and punishment.
4.2.4 Steps of Demand-Side Management Implementation

by Power Grid Enterprises
Power grid enterprises implement the DSM through several steps as shown in
Fig. 4.3.
Fig. 4.3 Flow chart of DSM

implementation by power
grid enterprises
Analyzing and selecting an object
Scheme feasibility evaluation
Confirming the scheme
Project implementation
Project supervision and control
4.2.4.1 Analyzing and Selecting a Demand-Side Management Object
Select an object and confirm the implementation object according to the power
load data, power supply and demand balance investigation, and analysis condition.
Power grid enterprises are responsible for carrying out power supply and
demand balance analysis and investigation, selecting the DSM implementation
object, confirming the overall object of area DSM, specific peak load shifting and
power saving objects based on different industries and areas, and various randomly
sampled typical user load shape objects and carrying out decomposing peak load
shifting and power saving indexes of load objects of each layer.
The important point for selecting a DSM object rationally is to carry out market
investigation and analysis and research work. The market investigation is an
important content of DSM work. By carrying out market investigation, the power
market condition and load characteristics can be identified and mastered step by
step and the key points of DSM implementation can be found so as to promote DSM
technology and provide basis for strengthening energy efficiency management, load
management, and Orderly Power Utilization. Carry out the investigation of elec-
tricity increase and industry composition and analysis as well as investigation and
analysis of related parameters like area load characteristics, load increase, and
composition as well as the maximum load and load factor, etc. It is also allowed to
carry out DSM potential evaluation by delivering questionnaire and conducting
field study. Aiming at seasonal peak load, pay more attention to analyzing peak load
shifting and power saving potential; master the power consumption compositions of
different seasons and different industries; deeply investigate typical users to carry
out DSM pilot work. Raise the important points of DSM by analyzing critical links
and areas influencing DSM and relevant factors of user power increase; and
research and make corresponding DSM measures by combining the characteristics
of users in each industry to carry out DSM pilot scheme designing and effect
evaluation (evaluation on energy consumption for power) for typical users of large-
scale industries and service industries and develop a set of effective methods for
users in different industries to develop DSM work.
4.2.4.2 Evaluation of Demand-Side Management Scheme Feasibility

Program
Estimate technical indexes as well as cost and benefit of DSM implementation

schemes formed preliminarily to confirm the best one.
According to the power user information, establish information files of different
types of user and DSM project information database; accomplish comparison
analysis and statistical analysis of different schemes of various technological
projects; carry out investigation and research and find out problems; make policy
adjustment, controlling and innovation against the problems.
Carry out electricity price analysis as well as benefit and loss prediction
analysis of multiple kinds of flexible electricity price schemes in different areas, in
different industries, and of typical users; confirm electricity charge balance
between income and expenditure of different object and different electricity price
type; carry out tracing monitoring and analysis of electricity charge gain and loss
condition resulting from load curve change caused by the DSM measures.
4.2.4.3 Confirming the DSM Project and Its Implementation Scheme
Select some alternative projects and analyze them; select the best scheme in an
optimizing way according to the object; make the implementation plan.
Make corresponding technical implementation schemes of DSM aiming at dif-
ferent objects. Cooperate with the manufacturer, ESCO, and design implementation
unit to make effective DSM schemes aiming at different power users, by
demonstrative project case analysis, technical, and economic evaluation of the

project, auditing of energy consumption for power and power energy balance testing
and others, including energy-saving and power saving technology, energy storage
power consumption technology and load management technology schemes, etc.
4.2.4.4 Implementation of DSM Project
The project implementation includes demonstrative project construction, experi-

ence summarization, policy stipulation, and all-round promotion, etc.
Fully use the DSM decision support system of the power grid enterprise to make
DSM implementation schemes and carry out DSM training and promotion. Carry
out case analysis and preferential policy information publishing through the DSM
website and publicize the DSM achievements and effect to the mass power users.
Construct demonstrative DSM projects and get more detailed basic decision
analysis data. Successful demonstrative projects can make the power grid enter-
prises, the government administration departments, and power users trust the
effectiveness of the recommended DSM plan and measures. Carry out amendment
and improvement of the project to some degree by summarizing the achievements
and experiences of the demonstrative projects, so as to make the DSM imple-
mentation measures more effective.
4.2.4.5 Supervision and Control of DSM Project
Supervise the implementation condition of the DSM project; adjust some measures
properly; control the project schedule and implementation condition. In addition,
raise proposals for making or improving relevant regulations and policies to the
government according to the feedback information collected.
Carry out effective evaluation of the DSM plan, scheme, and measures; imple-
ment overall process evaluation; supervise and trace the DSM implementation
process; analyze the DSM market potential as well as the factors which influences
DSM design and implementation; make fair evaluation on technology influences,
saving effect and fund use condition of each DSM technology measure project at any
time and make amendment to the disadvantage according to the evaluation result;
ensure effective implementation of DSM through project tracing and supervision.
4.3 Conditions for Promoting Power Grid

Enterprises to Actively Develop Demand-Side
Management Program
The DSM work which is a system project involved in the whole society needs the
organic coordination and joint efforts of the whole society. In the period when
vertical integration management system is executed, power utilities can consider
4.3 Conditions for Promoting Power Grid Enterprises 235
users saving as a part of resources and make uniform planning. However, with the
gradual deepening of power market reform and separation of power plant and
power grid, from the aspects of interest relation and function division, power grid
enterprises have not been responsible for power supply planning and construction
any more, so it is required to establish a set of integrated mechanism to ensure the
benefits of power grid enterprises by implementing DSM.
In order to fully play the functions of power grid enterprises as the subjects of
DSM implementation, the State needs to make complete policies and regulations,
establish effective incentive mechanisms, and provide rational fund resources. At
the same time, power grid enterprises can also actively raise relevant policy
proposals to the government department and strive for necessary support.
4.3.1 Completing Policies and Regulations Step by Step
Complete policies and regulations are the foundation for promoting persistent and
effective development of DSM work. DSM implementation relates to the interests
of all participants, so it is necessary that the government plays dominant functions
to coordinate multiple departments including regulation, standard, fiscal taxation,
and commodity price departments and make complete policies and regulations.
Only if good legal environment is provided, the rights and interests of all DSM
project participants can be guaranteed and they get benefits and returns in time so
that their confidence and resolutions in DSM implementation shall increase.
Putting DSM into the main business scope of power grid enterprises: as power
supplies, power grid enterprises have wide advantages in contacting users and can
play dominant roles in DSM work. To specify the point that power grid enterprises
are subjects of DSM implementation needs to put DSM is needed to be put into the
main business scope of power grid enterprises in policies and regulations. Con-
firming their dominant positions is good for encouraging power grid enterprises to
develop DSM actively and for power users to support the work of power grid
enterprises. For example, in the State Energy Conservation Law issued in 1978, the
American Federal Government raised that DSM is a kind of work in the function
scope of power grid enterprises.
Making supporting encouragement policies: the main goal for implementing
DSM power saving plan is to decrease power consumption, whereas, the business
objective of a power grid enterprises is to increase profit, so a certain contradiction
exists between the two. Thus, from the business point of view, not all power grid
enterprises are willing to be the subjects of DSM implementation. Power grid
enterprises which are engaged in commercial operation should actively implement
DSM power saving plans which need to be accomplished through legislation and
corresponding encouragement polices should be provided for power grid enter-
prises. For example, the power grid enterprises in America are required to
implement DSM plans by state governments; at the same time, in order to elim-
inate the economic loss caused by DSM implementation, profit index is not taken
as the main point for the evaluation on the power grid enterprises and the eval-
uation is not connected with the increase of electricity sale. In addition, the DSM
performance incentive is established and corresponding economic encouragement
is provided according to the power saving quantity accomplished by the power
enterprises.
Establishing benefit sharing mechanism: in the DSM process, all participants
shall get certain benefits, so corresponding benefit sharing mechanism must be
established to make that the benefits shared by power grid enterprises are directly
proportional to social benefits that can be got through DSM. In this way, the target
that power grid enterprises pursue its own profit can be consistent with the social
target as the minimum power cost so as to effectively arouse power grid enter-
prises enthusiasm for promoting DSM projects.
4.3.2 Completing Electricity Price System Step by Step
Scientific and rational electricity price level and structure are the critical points for
guiding power resource allocation optimization and its precondition is that users
undertake burden fairly. Irrational electricity price level and structure are not good
for the improvement of power saving consciousness, DSM fund raising, and DSM
work development.
Improving electricity price level step by step: low electricity price level cannot
reflect the problem of resource shortage, while people still keep the old under-
standing that China is a big country with abundant resources, so it is not easy to
improve peoples power saving consciousness. From the standpoint of scientific
development, power grid enterprises can carry out some researches and raise
rational proposals to improve electricity price step by step.
Making the electricity price structure clear step by step: the power grid line loss
rate generally is decreased as the voltage grade is improved; the industrial
enterprises with high load factor and high power consumption generally are
connected to high voltage grade and commercial and residential users generally
are connected to low voltage grade. Theoretically, the electricity price for resi-
dential users should be higher than that for industrial users, otherwise, industrial
users with low electricity loss rate subsidize the residential users with high elec-
tricity loss rate, and thus their burden is increased. Power grid enterprises can carry
out some researches and raise rational proposals to let the State make the elec-
tricity price structure clear step by step and make the electricity price classification
and price difference based on voltage truly reflect corresponding cost levels.
Setting rational peak-valley price ratio and peak-valley time period: through
implementing peak-valley price, try to enlarge peak-valley price execution scope,
and confirm rational peak-valley price ratio and peak-valley time period. If the
experiences in the other areas are referred to in an area and are used directly
without improvement, certain peak load shifting effect is achieved based on
implementation result but the power sale income might be decreased or the
4.3 Conditions for Promoting Power Grid Enterprises 237
original evening peak load is decreased but new night peak appears (for example,
the peak is shifted from 19:0021:00 to 0:003:00 and the load is even higher than
the original peak load), and the expected effect cannot be achieved. Thus, it is
required to research rational peak-valley price ratio and peak-valley time period
aiming at local conditions.
Establishing on-grid and sale price linkage mechanism (time-of-use price tariff
mechanism based on power plant and grid settlement): the income of a power grid
enterprise is related to the electricity prices of the Two Sides, namely, which
includes on-grid price and sale price. If the electricity price of one side changes
and the electricity price of the other side does not change or change reversely,
great influences shall be caused to the income of the power grid enterprise. If peak-
valley price is executed to the sale side and it also can be executed to the on-grid
side, it shall be a kind of encouragement on the peak load shifting work of power
grid enterprises. Establishing on-grid and sale price linkage mechanism also can
change the situation that power grid enterprises promote DSM projects whereas
the electricity charge recovery is decreased. Only when the economic benefits got
by power generation, transmission, and distribution parties through DSM are
distributed rationally the enthusiasm of power grid enterprises can be aroused
fully.
4.3.3 Practical and Effective Fiscal Taxation Incentive

and Demand-Side Management Fund Mechanism
Fiscal taxation preferential means and other incentive means are effective methods
for arousing the enthusiasm of power grid enterprises to active DSM. Practical and
feasible fiscal taxation policies can effectively impel power grid enterprises to
promote DSM actively and make them to move on in a development way of good
circulation. For example, the State provides financial fund support for DSM pro-
jects; power grid enterprises withdraw special fund to DSM according to certain
proportion of sales income of main business and disburse it before paying the
taxes; the sales income converted according to the actual energy conservation and
emission reduction benefit accomplished in DSM projects is included into the
preferential category of income tax and should be included into the taxable income
based on reduced proportion.
Establishing stable DSM fund sources is the foundation for promoting power
grid enterprises to carry out DSM work persistently and effectively. When power
grid enterprises promote the implementation of DSM work, market investigation,
project evaluation, demonstrative project, promotion and personnel and mecha-
nism, necessary equipment are involved in investment and cost expenditure. Since
DSM is a kind of resource which has comparatively lower investment cost and
comparatively better benefit, it should be as same as the other resources to cope
with fund sources and investment channels properly and establish a set of complete
fund mechanism. The experience of the developed countries is ensuring fund

sources for the power grid enterprises to develop DSM through system benefit
charge (withdrawing 0.0010.002 Yuan/kWh from the electricity price as the
special fund), public fund, energy tax support, direct government fund raising and
power plant fund raising policies and others, and the funds are mainly used for
paying management cost that must be paid for the power grid enterprises to carry
out DSM activities and for compensating the power sale income reduced due to the
DSM implemented by the power grid enterprises.
4.4 Experiences of Power Grid Enterprises in DSM

Implementation
As an effective method for resource allocation optimization of integrated resource

planning (IRP) and integrated resource strategic planning (IRSP), DSM has been
the key point researched all over the world all the time. Especially under energy
resource pressure and environment pressure, effective measures and advanced
technologies for promoting DSM are researched in all countries. Power grid
enterprises also promote DSM implementation with different means. The methods
that the power grid enterprises promote users to accept DSM are mainly classified
as six types: direct contact by users, user education, business alliance, advertise-
ment and sales promotion, various electricity prices, and direct economic stimulus.
1. Direct contact by users means the enterprise representatives communicate with
users face to face to help users know deeply about the enterprise planning and
make more active responses in order to make users accept DSM of power
enterprises more.
2. User education refers to the method that education material, handbooks,
information data bags and others which are enclosed in the electricity bill are
directly posted to users to raise users consciousness of and interests in DSM.
3. Business alliance refers to the implementation of cooperation with residential
construction contractors, professional associations, technical product business
organizations, commercial corporations and power consumption equipment
wholesalers and retail companies, etc. Different business alliance partners
engage in different services, including standard and software development,
technology transfer, training, inspection, qualification authentication, market
development and sale as well as installation and maintenance, to promote DSM
implementation.
4. Advertisement and sales promotion refers to various media like radio, TV,
newspapers, and periodicals which transfer information to users to persuade
them to accept DSM and refer to means including news publishing, sales
promotion by celebrities, exhibition and prize contest are taken to develop
promotion activities.
4.4 Experiences of Power Grid Enterprises 239
5. Various electricity prices are implemented to stimulate user to change power

consumption behavior. Various electricity prices include electricity price of
maximum demand, time-of-use price, seasonal electricity price, and others
which are suitable for specified DSM measures respectively.
6. Direct economic stimulus refers to the fund required for purchasing equipment
is decreased or the recovery period is shortened (namely, increasing rate of
return) while the attractiveness of DSM project is enhanced so short-term
market promotion strength of DSM investment increase. The direct economic
stimulus modes include fund subsidy, discount, and low-interest or interest-free
load, etc.
4.4.1 Energy Efficiency Labeling Activity and User-Oriented

Scheme Design of Efficiency Electricity Generating
Authority of Thailand
The energy efficiency labeling activity of Thailand is one of its all DSM activities
in which the inputoutput ratio is highest. This activity was started in about 1995
and it succeeded. The energy efficiency labeling activity of Thailand which was
managed and implemented by Electricity Generating Authority of Thailand
(EGAT) with the government support offers reference for power grid enterprises
participating in DSM. Refer to Sect. 3.6 of this book for details. In addition, EGAT
also applied Green Building Scheme for user-oriented energy conservation
promotion, and references also can be taken in the aspect of cooperating with
ESCO in the project implementation process.
4.4.1.1 User-Oriented Scheme Design of EGAT
EGAT applied Green Building Scheme for user-oriented energy conservation

promotion. Based on project scale, energy conservation type and fund require-
ments, every user is special, so EGAT raised flexible scheme design, which adapts
to every user in equipment selection and investment aspects. For example,
according to Green Building Scheme, EGAT installed load monitoring equip-
ment in a hotel to help to carry out energy management for the hotel. The key
places like the refrigerating, kitchen, laundry, and meeting center are monitored in
this hotel to transfer important load to non-peak period in the condition that the
normal business is not influenced. By taking these measures, the monthly power
consumption of this hotel was decreased from 1,360 to 1,200 kWh, decreasing by
11.8 %. About 380 building owners agreed to participate in Green Building
Scheme and load monitoring devices were installed in the 140 buildings.
4.4.1.2 Cooperation Between Public and Private Departments
To encourage private departments to participate in energy services, EGAT takes

the method of signing contract to provide funds for early projects of industrial
energy conservation service companies. These projects are named the plan of
industrial cost reduction. Energy conservation service companies are some private
companies. They provide paid services related to energy conservation or load
decrease in a wide range for users who have plants and buildings. The charging
standard depends on the energy conservation quantity. According to the plan of
decreasing industrial cost, EGAT shall provide funds to support the further
implementation of the projects according to the energy conservation contract,
including energy auditing, project design, project management as well as equip-
ment purchase and installation. The industrial energy conservation service com-
panies sign turn-key project contracts of providing energy conservation investment
with users and ensure the energy conservation characteristics of the equipment
installed. The users shall pay the investment cost in the contract period with energy
conservation benefit. In the early stage of project implementation, EAGT shall
provide certain no-interest loans for the energy conservation service companies,
and the energy conservation service companies only need to pay the loan principal
repayment. The development of DSM projects is promoted through strategic
cooperation.
4.4.2 Energy Conservation Cash Subsidy Policies

Implemented by American Power Utilities
in Regional Range
The main purpose of energy conservation cash subsidy policies by American

power utilities is to encourage users to buy energy-saving products, especially
products with Energy Star certification. A small number of polices also
encourage users to save power at the same time so as to ease the outstanding
contradictionpower shortage. The annual cash subsidy projects in 2001 of
Pacific gas and electric company (PG&E) in California are shown in Table 4.1.
Thereinto, the household appliance cash subsidy condition is shown in Table 4.2.
4.4.3 Various Measures Taken by Power Utilities of Canada

to Promote Demand-Side Management
From 1989 to 1992, the power installed capacity saved by implementing DSM
projects in Canada is about 700 MW. The main measures taken by the power
enterprises include the following aspects.
Table 4.1 Annual cash subsidy projects in 2001 of Pacific gas and electric company (PG&E) in
California
Name Object
Energy-saving equipment cash Users of energy-saving products and equipment
subsidy projects
Light emitting diode traffic signal Urban and rural departments with purchased light emitting
indicating lamp projects diode traffic signal indicating lamps with energy star
product certification
Newly built residential buildings Real estate developers, designers, owners, and building
operation managers of high-efficiency residential
buildings
Commercial buildings Designers of high-efficiency non-residential buildings
Clean air transportation projects Owners of cars with electricity and natural gas as main
power
1. Providing information support and financial encouragement for industrial users

to implement DSM.
2. Providing energy-saving light subsidy for commercial users.
3. To residential users, mainly assisting the government to establish and imple-
ment building energy conservation standard and requiring applying encourage
standard the same as commercial users to lighting power consumption.
4. To strengthen the internal energy conservation work, such as making specified
energy conservation plan and action plan, improving energy conservation
consciousness of all members and completing internal energy conservation
organization and institution, etc. Except a series of technical measures, charge
the house-service power according to corresponding price uniformly.
5. To innovating the type of the tariff. The spot price which reflects short-run
marginal cost is applied to users with load adjustment capability. The spot price
includes two parts: fixed charge based on user reference consumption value and
marginal charge based on the difference between actual consumption of user
and the reference consumption. This charge standard was put into effect from
November, 1994, and the implementation result one-year later was that the user
power consumption demand growth rate decreased by 3 % in the general
condition. The interruptible price is implemented; the discount part of inter-
ruptible price is based on long-term marginal cost; in the early stage of inter-
ruptible plan implementation, 1.3 GW peak load was reduced. Time-of-use
(TOU) price is used; take Quebec as an example; in the early stage of time-of-
use price implementation, the electricity expenditure of the residents decreased
by 44 % in average; the peak clipping of the residential users got to 600 MW;
and the peak clipping of the commercial, industrial, and business departments
got to 950 MW. By implementing interruptible price and time-of-use (TOU)
price, the total peak clipping got to 2.8 GW, which was close to 10 % of peak
load.
Table 4.2 Household appliance cash subsidy condition table of Pacific gas and electric company
(PG&E) in California
Name Description
Project unit Pacific gas and electric company (PG&E)
Requirement to Products with energy star certification
subsidized
products
Project coverage 13 Million residents in North and Central California
Project name Energy-saving equipment cash subsidy project
Project period Lighting fixture subsidy From March 21, 2001 to Dec. 31, 2001
project
Washing machine, From March 21, 2001 to Dec. 31, 2001
dishwasher, and
refrigerator subsidy
project
Room air conditioner subsidy From May to September, 2001
project
Budget fund in USD 25 million in total for household appliance and lighting
2001
Expected target Available cash subsidy for 25,000 washing machines, 12,000 dishwashers, and
50,000 refrigerators
Amount of Lighting fixture Subsidy fund depending on lighting fixture
subsidy funds type; the highest subsidy as 60 Dollars
Washing machines 75 Dollars/set
Dishwashers 50 Dollars/set
Refrigerators 75125 Dollars/set (The subsidy shall change
if users replace old refrigerators with new
ones.)
Room air conditioners 50 Dollars/set
Sales site The on-site project representatives train the retailers and explain related
guarantee project contents
The retailers need to sign a retailer participation contract which requires goods
purchased by retailers must accord with the project quality requirements
and there must be products provided with cash subsidy in the shops
In 2000, there were about 400 household appliance retail shops and 71 lighting
products retail shops which signed the contract with Pacific gas and
electric Company (PG&E)
Promotion Various promotion modes are applied to the project, such as advertisement,
project mail information, and website publication, etc. In addition, the mode of
implementing promotion with manufacturers was also used
The DSM projects in Canada mainly focus on residential, commercial, and

industrial users.
For the residential users, the implemented projects include providing energy
consumption analysis and energy conservation suggestions for users without
charge, providing economic encouragement on users who buy energy-saving
products, and strengthening incentive to retailers to promote energy-saving
products widely.
For the commercial and public utilities, the implemented projects include
energy-saving lighting project which provided fund support for commercial users,
building energy analysis project (mainly analyzing present energy conservation
condition and energy consumption habit and raising corresponding energy con-
servation measures recommended to be implemented; analyzing energy conser-
vation quantity, energy cost decrease, implementation cost and investment
recovery period after implementing the measures; listing energy conservation
measures which can be selected but are not recommended due to some special
reasons, and providing building equipment list and energy-saving product list) and
building energy efficiency improvement project as well as high-efficiency motor
project. Corresponding fund encouragement is provided according to the contri-
bution to load decrease.
In the industrial aspect, high-efficiency motor project and energy-saving
lighting project are mainly implemented. According to statistics, about 85 % of
industrial users can get comparatively high benefits from motor energy conser-
vation and about 20 % of industrial users can get certain benefits from energy-
saving lighting projects.
4.4.4 Economic Reward Implemented to Energy-Saving

Product Users by German Power Utilities
The reward by German power utilities is carried out in two modes: cash and
deducting corresponding rewarding amount from the electricity charge. Subsidy
policy is implemented to users who buy energy-saving products with compara-
tively higher prices; energy conservation consultation service and other services
which are good for improving energy conservation are provided for users without
charge, and energy conservation schemes are provided for industrial users. To
residential users, the provided consultation services include design of lighting,
electric heating, hot water supply, bathroom and kitchen utilities, and relevant
technical information of products. To commercial users, the consultation services
provided include energy-saving product, energy storage product, power con-
sumption equipment condition introduction, and technologies used as well as
benefit generated from energy conservation reform. To public utilities and
municipal organizations, the provided consultation services mainly include
building energy conservation technologies, public electric traffic tools, and clean
energy. To industrial users, the consultation services mainly aim at industrial
process flow, promoting high-efficiency heat pumps and compressors. Various
incentive means (mainly fund support) are taken to encourage the application of
renewable energy and clean energy for power generation; support is provided for
energy conservation technology research and development, promotion, and gen-
eralization; support (such as high-efficiency lighting equipment and heat storage
equipment, etc.) is provided for users who implement energy conservation
projects; power purchase contract and interruptible power supply contract are
signed with industrial departments to make them get benefits according to the
electricity price structure and further to make them change power utilization
modes; training aimed at social competence, professional proficiency, and tech-
nological capability is regularly carried out to relevant responsible persons of
DSM projects.
Hereinafter, the successful experiences of two power utilities in developing
DSM shall be introduced.
[Case 4-1] Southern California Edison
Southern California Edison (SCE) is one of the five commercial divisions of
Edison International which is the parent company of Southern California Edison,
Edison Mission Energy, Edison Investment, Edison Resources, and Edison EV and
others. Edison International is an investment company and its total asset exceeds
USD 24 billion and the income is USD 8.2 billion. SCE which has 16,000
employees is the largest subsidiary company of Edison International and also the
power utility which has the second largest number of users in America. This
company has provided power and services for southern California, coastal and
central places for more than 110 years. Its service range covers 50,000 km2 and 13
million people. The total power generation capacity is 21.6 GW and there is
14.2 % reserve capacity. The annual sales electricity is 74.3 TWh. SCE has five
business divisions: power generation, power grid, power distribution, QF contract
(the third-party power purchase), and user strategy.
For more than 20 years, SCE which pays much attention to environment and
natural resources has been one of the leading enterprises of DSM in America. The
target of DSM is to improve the power utilization efficiency of all users and
decrease energy waste through education and load management. If DSM can be
implemented successfully, the enterprises can delay new power plant construction.
At present, SCE has 10 DSM projects for residential users and 14 projects for non-
residential users. These projects include hardware discount, encouraging high-
efficiency equipment application, new buildings, load management, technology
transfer, and education, etc. To large users, special persons generally are desig-
nated to introduce the projects; to small users, the project conditions are introduced
through mailing. All users can get the project information through the website of
SCE (http://www.sce.com/).
From 1973 to 1995, SCE invested 1.23 trillion dollars. In this way, 21 TWh
power was saved and the maximum load demand as 8.05 GW was cut.
[Case 4-2] Tokyo Electric Power Company
Tokyo Electric Power Company which is the largest power utility in Japan is in
charge of providing power for 42 million people in the area with the coverage as
40,000 km2. From 1960 to 1994, the peak load of Tokyo Electric Power Company
was increased by 12 times and got to 59 GW. After 1970, the peak load season was
changed from winter to summer and the peak appearance time every day is at
14:0015:00 when the outdoor temperature is highest. With the linear growth of
the peak load, the annual load factor is decreased gradually.
To meet the continuous growth of peak load, a large number of power gener-
ation and transmission equipment must be invested and established every year. In
1994, the investment on power equipment got to USD 14 billion. Building new
power plants needs not only a lot of funds but also proper places. In addition,
power plants get away from the load center farther and farther. Especially in
Tokyo, the proportion of investment on power transmission and distribution
equipment in the total investment becomes higher and higher. The investment on
power equipment has been increased gradually but the load factor has been
increased, which certainly shall cause economic pressure to the enterprises.
Therefore, people have paid more and more attention to DSM in recent years. The
market development department (called user relationship department energy
conservation center) of Tokyo Electric Power Company, which researches and
promotes DSM, was established in 1983. At present, there are 770 employees who
engage in work related to DSM in Tokyo Electric Power Company; 170 of them
work in the company head quarter; and the others work in the branches in different
places or important areas where DSM is applied. The DSM market strategies of
Tokyo Electric Power Company are mainly shown in the following aspects:
Market research;
Technology development and on-side test;
Establishment of various load demand adjustment measures;
Public relation and consultation service;
Arranging subsidy promotion and generalizing DSM methods;
Management of relevant DSM affairs (district heating and cooling devices as
well as heat storage devices).
Thereinto, the efforts made by Tokyo Electric Power Company for public
relation and consultation service account for the largest proportion, especially for
consultation service. As a matter of fact, this kind of consultation service is mainly
provided for users who build new plants, commercial and residential buildings, or
commence renovating and repairing facilities. Tokyo Electric Power Company
also is active to make it come true. In fact, this kind of service provides a kind of
solution to improve energy utilization efficiency of existing equipment, raises
various energy conservation measures including heat storage and supply as well as
air conditioning (AC) system, introduces some encouragement measures for
electricity billing, and provides feasible learning means for understanding and
learning relevant measures.
In 1995, by taking these measures above, Tokyo Electric Power Company had
the peak load decreased by 3.1 GW compared with that in 1994 and the decrease
rate was 5.3 %.
4.5 Experiences of Power Grid Enterprises

in Demand-Side Management Implementation in China
As the subjects of DSM work, the main responsibility of power grid enterprises is
carrying out DSM regulations, standards, plans, and polices published by gov-
ernments in production and operation management. Power grid enterprises develop
DSM work a kind of long-term system engineering. Its system composition mainly
includes three aspects: the first one is basic promotion and system construction
process; the second one is the implementation of work including various measures
like electricity price incentive project, public consciousness project as well as
energy efficiency incentive project and others and activities from pilot imple-
mentation to gradual promotion; the third one is the accomplishment process how
DSM is taken as an important resource to be embedded in the power market in the
gradual completion process of market mechanism and power grid structure. The
three aspects above have logic progressive relations in time arrangement. In actual
implementation, they are also progressively deepened and gradually completed.
With nearly 20 years efforts, the power grid enterprises in China have accu-
mulated lots of experiences in DSM system construction, strategic plan imple-
mentation, promotion, technical support system and pilot implementation, and
promotion of DSM projects, etc.
4.5.1 Completing Demand-Side Management

Organization System
In DSM implementation process, the role orientation and interest coordination of

power grid enterprises, power generation enterprises, energy conservation service
companies as well as power users, and others are very important. In recent years,
some local governments have established DSM leading groups which are formed
by local power management departments and power grid enterprises, established
DSM mechanisms, gradually completed the organization systems, specified
management department and functional department, actively developed DSM
plan, policy, measure, and incentive mechanism researches, provided feasible
scheme suggestions, fully developed the functions of power grid enterprises as the
subjects of DSM work and promoted the development of DSM work.
[Case 4-3] A certain power grid enterprise in east China actively constructs the
organization and institution ensuring system to promote orderly development of
DSM work.
The provincial DSM work group was established in the early development stage
of DSM work in a province in east China. The leader of the provincial economic
and trade committee is appointed as the group leader and the leader of the
provincial price control administration as assistant group leader, and the quarterly
regular work meeting system is established to intensify control and coordination of
DSM work.
After the establishment of the provincial leading group, DSM work groups and
official departments at each level are established in provincial and municipal
power grid enterprises respectively and positions with special responsibilities for
DSM are established. Under the complete DSM system, a series of work is
developed, which mainly includes the following aspects:
1. Intensifying system construction of regulations and rules. The DSM work is
standardized by establishing a series of regulations and rules like DSM
implementation regulations, performance appraisal methods, statistic analysis
management methods, special fund management methods, Orderly Power
Utilization management methods, Orderly Power Utilization scheme making
guide, and solutions to power supply and demand early warning, etc.
2. Intensifying professional management team construction. Positions with special
responsibilities for DSM are provided; DSM post training material is compiled;
training on DSM personnel before going on duty is implemented; DSM work
website is established; national energy policies, DSM laws and regulation,
standard systems, policy measures, knowledge learning related to DSM tech-
nology and equipment, and others are intensified; a DSM professional team is
trained, familiar with technologies, and good at management; thus, a good basis
is created to guide and help users to implement DSM better.
3. Actively developing policy and measure research. Special fund is provided;
lever adjustment capability of electricity price is deeply researched; a series of
important subject researches are developed, such as peak-valley price, seasonal
electricity price, interruptible electricity price policy and implementation
method research, research on DSM measures, research on relation between
climate and power and electricity as well as the application research.
4. Developing DSM consultation service for large users. DSM consultation ser-
vice for large users is organized and developed by combining related subject
research achievements; DSM consultation service report is provided through
510 users with comparatively high DSM potential selected from each
municipalities; the DSM concept is promoted to terminal users, and the
application space of various new energy conservation technologies is also
developed at the same time.
[Case 4-4] State Grid Corporation of China (SGCC) Established Energy Effi-
ciency Service Activity Group
State Grid Corporation of China (SGCC) put forward the concept of the energy
service network with the energy efficiency service activity group as the basic
working unit, that is learnt from the European experience and combining the actual
situation of energy consumption and energy-saving management in China and the
advantages of the company.
In April 2011, SGCC held the launch ceremony of the first energy efficiency
service activity group in Changzhou, Jiangsu Province. That indicates the com-
prehensive commencement of the establishment of the energy efficiency service
network. By the end of June 2012, the company had successively established 342
energy-saving service activity groups, covering all the power supply companies
with 4,600 member units.
The energy efficiency service activity group provided an excellent information
and technology exchange platform for each party participating in the power DSM,
promoted the further implementation of energy efficiency work, realized the
energy conservation and emission reduction effect, and won the full recognition of
the government at various levels.
4.5.2 Making Plans and Continuously Adjusting Targets
Combined with the actual power grid operation conditions in local areas, the
subject researches related to DSM are commonly developed in provinces where
the DSM work development is comparatively good in China. According to the
development status of DSM work and summarizing experiences summarized
carefully, the power grid enterprises at each level carefully carry out investigation
and analysis, commonly have established the medium- and long-term DSM tasks
and target of the local area, cooperate with the government to make relevant
polices and regulations. In addition, according to local DSM work condition, DSM
work planning and scheme are made, which creates conditions for promoting DSM
work further. For example, a power grid enterprise specified the DSM work target
and cooperated with the provincial government to issue Opinions on Intensifying
Power Saving Work (referred to as the Opinions) in 2005 and Notice of Intensi-
fying Energy Conservation and Consumption Reduction (referred to as the Notice)
in 2006. Thereinto, The Opinions specifies The comprehensive energy con-
sumption of total output value (10,000 Yuan) in the future three years shall be
decreased by 5 % and the peak load demand shall be decreased by about 1 GW.
In The Notice, the target that the energy consumption intensity of total output value
(10,000 Yuan) in 2010 (calculated according to the comparable price in 2000)
shall be decreased by 20 % compared with that in 2005 and the ten important
points of energy conservation and consumption reduction as well as six measures
for intensifying energy conservation are specified.
4.5.3 Striving for Government Support and Continuously

Widening Project Fund Channels
Reliable fund resources and financial guarantee are the basis for persistent
development of DSM project. At the beginning of implementation, power grid
enterprises should actively communicate with the government and attract the
relevant government departments to pay attention to DSM fund resources. Espe-

cially, the role of power generation enterprises, power grid enterprises, energy
service departments and power users as well as the interest balance, and coordi-
nation mechanism should be specified in relevant documents to create a basis for
forming the mechanism that all parties actively participate in DSM work. Certain
fund input is required for interruptible load compensation, load management
system construction and power saving product development, and promotion
involved in implementing DSM. After the separation of power plant and power
grid, power grid enterprises, as independent management entities, objectively need
to be guided and encouraged by the government through economic measures like
price, finance, tax revenue, and others in the condition that the electricity price has
not been opened. In order to ensure sustainable development of DSM work, in the
early stage of the work development, the raising and application of DSM fund
should be especially completely defined.
[Case 4-5] Special fund for DSM is withdrawn from additional charge of urban
public utilities.
A provincial power grid enterprise actively coordinated with the government
department and issued local regulations on fund raising of DSM. In 2006, the
provincial government specified Withdrawing 0.001 Yuan/kWh from the addi-
tional charge of urban public utilities included in the provincial sales power price
to be special fund for provincial DSM and the fund was mainly used for Car-
rying out DSM promotion, training and demonstrative project construction, sup-
porting users to carry out power saving technology reform as well as new product
and technology research, development and production, and supporting the power
grid enterprises to construct load management systems and others in Opinions on
Greatly Developing DSM. In addition, for specific implementation of DSM pro-
jects, aiming at the application of special fund for DSM, this power grid enterprise
actively cooperated with the government to make Provisional Measures for
Demand-side Project Management of the province, which specifies the collection
procedures of special fund, fund application emphasis and direction as well as fund
supervision measures for implementing DSM projects.
During one-years fund application practice, the promotion of technologies
including low-frequency smelting, reactive power compensation, frequency con-
trolling in industrial field is greatly impelled by developing energy conservation
technological support to 50 pilot enterprises which have comparatively higher
energy conservation potential in high energy consumption industries like steel,
non-ferrous metal, coal, power, chemical engineering, building materials, and
others.
4.5.4 Applying Price Lever and Rationally Allocating Power

Resources
One of the targets of DSM is changing users power consumption modes, but this
kind of change often brings certain inconvenience to users. Thus, fair compen-
sation needs to be made to users. Thereinto, the most widely used mode is various
time-of-use price policies. In China, some provincial power grid enterprises and
relevant government departments jointly have issued time-of-use price and inter-
ruptible load compensation polices and others, certain effect, and promotion
experiences have been got.
[Case 4-6] Electricity price incentive means in East China [3]
East China is one of the areas where electricity price measures are taken to
regulate demand most completely in China. At present, the implemented elec-
tricity price systems mainly include time-of-use price, seasonal electricity price,
interruptible load compensation, and preferential electricity price based on energy
storage, etc.
1. Time-of-use Price
Time-of-use price is a comparatively basic electricity price regulation mode in
DSM. Time-of-use price tariff mechanism has been established in every province
(city) in east China and comparatively good effect has been achieved.
Time-of-use price was implemented in six main power consumption industries
in Jiangsu province in 1999 and the peak-to-valley ratio is 3:1; on Aug. 1, 2003,
the peak-to-valley ratio was increased to 5:1, and the annual transferable peak load
is above 600 MW or so.
On the basis of implementing time-of-use price in the pilot place at the
beginning of the 1990s, the time-of-use price policy was completely implemented
in the whole province during The 10th Five-year (20012005) Plan period in
Anhui province. Through the lever function of time-of-use price, the power grid
peak power consumption press is released. At the same time, the total annual
reduced electricity charge expenditure amount of users to whom time-of-use price
is implemented is about RMB 100 million Yuan. In this way, the comprehensive
economic benefit of the whole society has been effectively improved.
Time-of-use price make more details in Fujian province. On the basis of
implementing peak-valley price, peak price has been promoted, and the critical
peak price has been increased by 70 % based on the off-peak price; in this way,
good peak regulation effect has been achieved. At the same time, multi-step
electricity price has been implemented to the resident, and the household electric
energy of residents is divided into three levels according to the monthly electric
energy, so as to implement multi-step electricity price policy.
2. Preferential electricity price based on energy storage

In order to encourage users to use heat storage electric boilers and ice storage
air conditioners, preferential electricity price is applied to this kind of power
consumption in Jiangsu and Zhejiang. the preferential electricity price imple-
mentation range focuses on hotels, restaurants, marketplaces, office buildings as
well as hospitals and others; two-stage electricity price is applied to power con-
sumption for heat storage electric boilers and ice storage air conditioners, that is to
say, valley electricity price is implemented to power consumption in valley load
period and off-peak electricity price is implemented to power consumption in the
other periods; the valley electricity price is decreased by above 50 % on the basis
of off-peak electricity price. In addition, to encourage users to actively change to
use heat storage equipment, the power grid enterprises are responsible for
installing and maintaining the time-of-use metering devices and undertake the
charges; what the users should do is only actively cooperating with the power grid
enterprises to regulate the time-of-use (TOU) meter. Up to the end of 2006,
67 MW peak load has been transferred by using ice storage air conditioning
technology.
3. Interruptible load compensation
Funds are raised in Jiangsu from 2002 to implement interruptible load peak
averting mode. 5 steel plants in Wuxi are selected where peak load is in shortage.
The maximum peak averting load is about 400 MW. According to the standard
that RMB 10,000 Yuan is compensated to an enterprise for the interruption of
10 MW power lasting for one hour, the total compensation is RMB 7.86 million
Yuan. According to the calculation of peak averting capacity, RMB 2 billion Yuan
is required for constructing a unit with the same capacity and the supporting power
grid equipment. In 2003, the maximum interruptible load got to 1 GW and
comparatively good effect was achieved.
4. Seasonal electricity price
Aiming at the big power consumption peak and valley load difference of several
industries, the target of improving summer power consumption load factor has
been promoted in the provinces/cities like Shanghai and Fujian. when electricity
price is adjusted in Shanghai, the method of adding more prices and increasing
peak and valley electricity price difference is also used to have the peak-to-valley
electricity price ratio adjusted from 3:5:1 to 4:5:1, and the electricity price in
summer is 0.03 Yuan/kWh more than that in other seasons so as to promote users
to carry out peak load shifting and save power. After this policy was issued, users
respond actively; the increase of valley power consumption load exceeded that of
peak power consumption load and the power consumption load factor was
improved from 83.8 % in 2003 to over 85 % in 2010. The electricity price for 47
important tourism hotels and trade enterprises was increased by 10 % in the peak
power consumption season in Fujian province, and comparatively good peak load
shifting effect was also achieved.
4.5.5 Promoting Demand-Side Management Technology

Support Means
Most traditional load management systems only have simple terminal equipment
and the overall power consumption load analysis still depends on manual pro-
cessing. At present, load control systems have been established in 35 provincial
capital cities and separate planning cities as well as more than 200 municipal cities
and county-level cities at different levels. Except that terminal equipment can meet
basic control function, the information acquisition function is also strengthened
further and the software system functions are developed further; thus, the data
collected can be effectively analyzed and saved to provide scientific support for
power consumption decision making.
With the deepening of modern management, load management system, as an
import technical means for DSM, has shown its practical value more and more. Its
promotion and application degree reflects the modernization level of DSM in a
sense. The load management system not only plays important role in Orderly
Power Utilization aspect but also has great functions in aspects like load moni-
toring, load analysis, and DSM scheme design, etc. The continuous development
of computer and communication technology provides powerful support for new
function extension of DSM system; the continuous appearance of new technolo-
gies is greatly convenient for system function extension. The load management
system completion and construction is an important basis for whether DSM can be
persistently developed in a long term.
[Case 4-7] The experiences of a certain power grid enterprise in load manage-
ment system construction
Difficulties that the investment amount is large and construction period is long
usually exist in the load management and control system construction. In order to
accomplish persistent promotion of DSM work, a power grid enterprise insists on
completing the load management system and improving the technical content of
DSM in the condition of fund shortage.
In 2005, this power grid enterprise started to take the load management system
construction as the infrastructure of administrative, economic, and technical means
like comprehensive peak load shifting power consumption, peak-valley price, load
control as well as energy conservation and storage, and others to bring it into the
power grid development planning. In that year, the fund as RMB 400 million Yuan
was raised and the installation of main stations and 50,000 on-site terminal devices
of 21 power supply bureaus were accomplished in the whole province. In 2006,
more than RMB 300 million Yuan was invested continuously and 50,000 on-site
terminal devices were installed in addition.
After two years large-scale central construction, nearly 100,000 load terminal
devices have been installed. The installation range has been extended to special
transformer users no less than 100 kVA. The coverage of monitoring large users
has got to above 85 %, which exceeds the appointment in DSM Regulations
(FA GAI YUN XING [2010] No. 2643) issued in 2010. In this ware, great support
has been provided for the government to establish energy conservation and con-
sumption reduction electricity price mechanism.
4.5.6 Popularizing the Successful Experience and Promoting

Demand-Side Management Implementation
Whether a pilot project can be promoted successfully or not has important sig-
nificance to whether DSM work can be persistently and successfully promoted. In
recent years, most provinces in China have selected proper projects to have ben-
eficial tries at large-scale promotion, and good demonstration effect and further
promotion experiences have been got. For example, a power grid enterprise
actively participated in Public Green Lights Promotion Activity implemented
by China Green Lights Project Office in 2002. As the main implementation unit, it
participated in the whole process of pilot work from basic promotion to large-
range promotion. In 2003, this power grid enterprise actively carried out green
lights medium promotion activity in the whole province, implemented question-
naire and held knowledge training to design, purchase and maintenance personnel
and others. Based on it, seven units were selected as green lights exemplary bases
from 2003 to 2004. 70,000 energy-saving lights were sold accumulatively and the
annual average power saving quantity exceeded 11 GWh. Through more than two
years pilot exploration and after all activities got to the expected effect, 10
schools, marketplaces, hotels, and office buildings that had comparatively high
lighting load were selected in 2006 for further promotion of the green lights
project implementation through guidance based on economic incentive means.
[Case 4-8] Promotion and application of industrial motor energy conservation
technology
In 2010, a provincial power grid enterprise implemented energy efficiency
auditing and tracking management of energy conservation and power saving in a
group of important energy consumption enterprises. The power consumption
conditions of six important high power consumption industries (including metal-
lurgy, chemical engineering, coalfield, building materials, power and mechanical
industries) and important areas were investigated. Eighty enterprises with high
power consumption and comparatively power saving potential were selected as the
pilot enterprises for DSM implementation; support were given to them through
fund and policy aspects; technology reforms like low-frequency smelting, reactive
power compensation, and frequency control were actively carried out. Then very
good effect was achieved.
[Case 4-9] Promotion and application of cooling energy and heat storage
technologies
With the national economic development and living standard improvement of
urban and rural residents, the proportion of air conditioning cooling and heating
load as the maximum load gradually tends to increase, and the power grid peak
load shall be increased under the effect of climate. Therefore, transferring air
conditioning load with cooling energy and heat storage technologies has important
significance to load structure optimization by power grid enterprises.
A power grid enterprise selected newly built projects and old user technology
reconstruction projects like residential district, large shopping mall, commercial
building, university town, office building, playground and entertainment places
which meet the conditions, and started with the demonstrative projects to greatly
promote and apply ice storage air conditioning technology. To users who use
cooling energy storage technology, this power grid enterprise used special fund for
DSM to provide subsidy as 100200 Yuan/kVA and 300500 Yuan/kVA for newly
installing and reconstructing ice storage air conditioning equipment during the
purchase and installation of cooling energy storage equipment, which greatly
impels the promotion of cooling energy and heat storage projects. The imple-
mentation of economic policies has effectively encouraged users to have confidence
in installing ice storage air conditioning equipment. Only in 2010, this power grid
enterprise promoted 10 projects in some enterprises like marketplaces, schools,
hotels, and so on, lays out 2 million subsidy and cut down 5 MW of the peak load.
4.5.7 Arranging Plan Elaborately and Organizing Orderly

Power Utilization
Administrative, economic, and technical means should be applied comprehen-

sively to strengthen DSM, cut down and control irrational load demands, and
reduce power supply and consumption shortage. Good effect has been got in power
supply shortage period. According to historical experiences, even if the power
supply and demand are balanced or power supply is abundant in the whole
country, the situation that power supply shortage in some areas still cannot be
excluded. Therefore, Orderly Power Utilization is an effective means for solving
this condition.
[Case 4-10] Multilevel Orderly Power Utilization scheme of a certain power grid
enterprise
From 2003 to 2005, the load demand of a power grid had kept quick growth and
the relationship between power supply and demand was in a persistently tension
status. During this period, as an important power consumption guarantee means,
Orderly Power Utilization played an important role. The main experience is as the
following:
1. Comprehensive application of administrative, economic, and technical means.

Due to high power supply shortage for consumption and different specific
conditions in different places and if it was balanced through direct dispatch, the
management focus would be too high, the power supply requirements of dif-
ferent users in different places could not be met, the enthusiasm for partici-
pating in carrying out peak load shifting tasks of the local government at each
level could not be aroused and the Limit and Guarantee requirement for
Orderly Power Utilization cannot be met. In 2004, this power grid enterprise
issued Distribution Regulation of Unified Dispatched Power Consumption
Quota and Unified Dispatched Power Consumption Curve Evaluation Method
to carry out multilevel management to power consumption of the whole
province and distribute the unified dispatch power resource to each city in
proportion to be allocated and regulated according to the power supply con-
dition in each place. At the same time, the peak load shifting and averting task
was carried out by establishing and completing Orderly Power Utilization
mechanism, implementing multilevel management, and use Four-level Link-
age (four levels: province, city, county, and township) mode. At the beginning
of 2005, aiming at the actual condition that the loss in peak load shifting and
averting task implementation by the enterprise was comparatively high but
there was no economic compensation, this power grid enterprise cooperated
with the government to issue the policy of trying out electricity charge com-
pensation for users who undertake Orderly Power Utilization tasks and
attempted using economic means to promote the enterprise to consciously try to
carry out peak load shifting and averting task. At the same time, aiming at the
actual condition that it was difficult to control the peak load shifting and
averting load implementation, the purchased power was uncertain and the
power supply capability fluctuated greatly, the enterprise decided to speed up
promoting and applying new load management system in the whole province.
In a very short time, all installation work that the capacity was 100 kVA and
above for users was accomplished and Unit Tripping without Line Tripping
was really realized. In 2006, the power supply shortage was shortened, so the
Orderly Power Utilization for load reduction mode of this province was
changed from Focusing on Central Shifting to Focusing on Peak Load
Shifting and Averting, which increased the dynamic load arrangement and
implementation intensity. The peak load shifting and averting load response
speed was improved and special emergency rehearsal in the whole province
was carried out for it to inspect the fast decision making and coordination
treatment capability practically; efforts were made to accomplish the target of
no power interruption of the power grid during peak load shifting to effectively
guarantee the living power consumption of urban and rural residents and
maintain social stability and sustainable and fast economic development. By
effective Orderly Power Utilization work, the maximum utilization of limited
power resource was accomplished in this province.
2. Carrying out the principle of combining Orderly Power Utilization with
industry, energy, and environment protection policies actively and promoting
social harmony and sustainable development by reducing irrational power

demand. In 2004, according to the increase of the power consumption pro-
portion of high energy consumption and high pollution enterprises, the power
grid enterprise implemented relevant national industry policies actively and
issued 8 specific measures for reducing load, such as immediate power supply
to enterprises and power consumption equipment listed in the clearing and
shutdown category, listing cement, quarry, and brick manufacture enterprises as
the first group of power limiting and peak load shifting objects to implement
seasonal production suspension during peak demand period; arranging stage
production suspension and maintenance for high power consumption enter-
prises and equipment like electric furnace steelmaking and casting and
implementing half load reduction operation during high temperature period in
summer and arranging production suspension and maintenance by turns in
central time by taking 1015 days as a period for continuous production
enterprises (or production lines) like chemical engineering, paper making,
chemical fiber, and glass manufacture. In 2005, the requirement of Small
Influence and Few Loss was raised for the Orderly Power Utilization work and
19 GW nine-level peak load shifting scheme was made to put enterprises with
excellent economic benefits, high technical content, and good market prospect
in the prior power utilization guarantee sequence to speed up industry structure
adjustment progress and further eliminate enterprises with undeveloped pro-
duction processes like shaft kiln cement. By carrying out the policy of differ-
ential electricity price for high energy consumption industries, blind
development of high energy consumption industries was powerfully restricted,
the elimination of enterprises with undeveloped production capability was
expedited and irrational load demands were decreased.
4.5.8 Exhibition Window Establishment and Wide

Promotion
At the beginning of the implementation, DSM is only taken as a measure for

Orderly Power Utilization to some power grid enterprises during power supply
shortage. At present, it is gradually developed to be a power marketing regulation
means which all social classes participate in widely and has rich connotation of
economic incentive and active participation of users. In this process, promotion
plays an important role. Through the construction of DSM exhibition window and
different kinds of promotion by power grid enterprises at all levels, DSM concept
continuously attracts the wide attention from all social sectors. For example,
Beijing Electric Power Company established customer service center and DSM
exhibition center, which had very good promotion effect.
Beijing DSM Exhibition Center formally started to exhibit on December 18,
1998. It is located in the urban center of Xuanwu District, Beijing and covers an
area of 700 m2. It mainly aims at generalizing rational and safe power con-
sumption knowledge to the whole society, popularizing DSM knowledge and
policy, guiding power users to use scientific power consumption modes, advanced
power consumption technologies and equipment materials, improving effective
electricity utilization degree, decreasing consumption, reducing waste, and pro-
moting technical reform and process transform of power consumption equipment
so as to achieve the goal of improving production efficiency, product quality,
power generation, and supply equipment utilization rate, saving resources and
protecting environment [4].
The Exhibition Center consists of three parts: industrial power consumption,
non-industrial power consumption, and living power consumption of residents,
which mainly exhibits DSM technologies, products, and equipment like green
lighting, ice storage air conditioning system, heat storage type electric boiler
heating, frequency control devices and preferential policies and scientific knowl-
edge about electric power of power grid enterprises to industrial units, hotels,
schools, official departments, as well as military units, etc. Good social response is
reflected.
By regularly changing promotion subjects, rational energy utilization promo-
tion, electricity utilization rate improvement, environment protection, the
accomplishment of sustainable economic development can be accomplished,
which is an important and beneficial event to the country, people, and society.
Multiple exhibitions about different subjects have been held in the Exhibition
Center, such as rational power utilization, benefiting the society, developing
electric power undertaking, enriching peoples life, environment protection to
promote development, electric power contribution to green Olympics, promoting
electricity heating and rational power utilization, serving the society and rational
power utilization, saving power, and implementing DSM as well as constructing
an economical society, etc.
Since the establishment of the Exhibition Center, leaders at various level and
power system personnel from different provinces in China as well as teams and
citizens from various fields and industries have been received, and more than
10,000 visitors per year are received in average. The Exhibition Center fully
develops the advantage of possessing material objects, models and special pro-
grams to greatly promote advanced energy conservation and environment pro-
tection power consumption technologies and equipment on one hand and actively
make consultation service for users, strive for adjusting power consumption
structures of users, and enlarge power consumption demand on the other hand. At
the same time, it actively promotes and exhibits advanced household appliance to
residents to change peoples power consumption habit step by step and promote
the electrification level improvement of household life. The establishment of the
Exhibition Center shows the poer grid enterprises service attitude of Getting
Close to Users, Serving the Society, Focusing on Users and Demand-oriented.
In order to develop the functions of the Exhibition Center better, Beijing
Electric Power Company established Beijing DSM website in 2002. In 2003,
Customer Power Consumption Consultation Exhibition Center of Beijing Power
Supply Company was formally renamed to Beijing DSM Exhibition Center

and the center service functions was extended: firstly, network technologies were
fully used to set programs like consultation service, ration power utilization, green
energy and industry information were set on the website through which the
meaning of DSM as well as some advanced technologies, work situations of DSM
development, the power utilization policy of Beijing are introduced to users and
general knowledge like green energy, green lighting as well as power saving and
rational electricity utilization is introduced and consulted; secondly, the Exhibition
Center is taken as the platform to provide energy conservation services like
rational energy utilization testing and evaluation, power saving technology reform
scheme, holding DSM lecture for users, which expands the promotion of DSM.
4.6 Load Management
4.6.1 Important Means for Power Grid Enterprise

to Implement DSM: Load Management
The load management can improve the load curve shape effectively to make load
curve tend to be flat, decrease difference between peak and valley load, accomplish
the best distribution of load in certain space and time and improve user and power
grid load factor so as to improve the utilization rate of power generation, supply
and consumption equipment, meet the requirements of safe and economical
operation of the power system, improve investment benefit, which is very bene-
ficial to power generation, supply and consumption as well as the whole society.
With the development of national economy, power grid increase, load man-
agement plays a more and more important role in power grid dispatch. Load
management which is mainly oriented to users can change system load curve shape
and serves for safe and economical operation of the power system with various
economic and technical means when power grid reliability is ensured.
The load management usually can be divided into indirect and direct means.
The direct means refers to a method that a power grid enterprise is allowed to
control terminal user load unilaterally and cut part of interruptible power supply
load during peak power consumption period. In fact, this is a technical means.
Indirect means refers to the method that users are stimulated and guided through
different electricity price charge according to their maximum power consumption
demand to make them control their load autonomous under the push of electricity
price signal so as to accomplish peak load shifting. In fact, this is a economic
means.
To users, through load management, power rationing can be prevented, which is
convenient for them to arrange production. Besides, they can get benefits from
time-of-use price policy. To power generation enterprises, load management can
help them to solve peak load shifting problems and is good for improve economic
4.6 Load Management 259
efficiency and security of power generation. To power grid enterprises, on the

surface, promoting load management to accomplish peak load shifting might
decrease the average electricity price for consumption, which may cause overall
economic benefit decrease of power grid enterprises. However, in fact, it is good
for power enterprises to implement load management and the benefits are also very
obvious:
1. Advancing the efficiency. If users pay much attention to peak load shifting, it
shall push power grid load to increase; in this way, the utilization rate of power
transmission and distribution equipment shall also be increased correspond-
ingly and the power grid operation condition shall be improved. In addition, as
the line loss is directly proportional to load square, the peak load is controlled
and the load factor is increased; in this way, the power transmission and dis-
tribution grid loss can be decreased and thus the economic efficiency of the
power grid shall be improved on the whole.
2. Saving the investment. The social responsibilities of power grid enterprises are
performed and the power transmission and transformation investment of power
grid enterprises is saved. Using power supply capacity saved in peak load
period to meet the demands for different users can not only greatly decrease the
probability of power rationing and meet the requirements of social rational
power utilization but also improve unit utilization unit, decrease or slow down
power construction. Not only the social responsibilities are performed but also
the power transmission and transformation investment is saved.
4.6.1.1 Load Management Accomplishment Means
Accomplishing the common resource utilization plan with the minimum cost of
both the supplier and demander in the rational and high-efficiency principle is the
basic principle of load curve adjustment. In order to achieve the goal of load curve
adjustment, the following methods can be used:
1. Accomplishment through compulsive load control means. The regulations that
RMB 0.05 Yuan/kWh shall be collected additionally for the excessive one if
electricity is beyond the plan in peak load period are stipulated in some places.
These methods can balance the peak load but do not belong to time-of-use price
means. As all these measures provided unilaterally have less consideration to
the end-user and impact production and life orders, they are not popular to
users.
2. Using cooling energy and heat storage technologies. Applying cooling energy
technology to central air conditioning equipment is the most effective means for
peak load shifting. It refers to the method that cooling energy storage medium
like ice or cold water is produced or is stored in the power grid valley load
period after midnight and the cooling energy is released in power grid peak load
period in the day or before the midnight to convert it to cooling air to achieve
the goal of peak load shifting. Compared with traditional central air condi-
tioning equipment, ice storage central air conditioning equipment has low
evaporation temperature and relatively low cooling efficiency; besides, plus
cooling energy storage loss, it consumes more power in the condition of pro-
viding same cooling energy. However, it is favorable to valley filling electric
energy of power grid. Heat storage technology refers to the method that thermal
energy is produced with electric boilers or electric heaters and is stored in steam
or hot water heat accumulator in power grid valley load period after midnight
and then the thermal energy is used for production or life and others in power
grid peak load period in the day or before midnight to accomplish peak load
shifting. User use heat storage technology not only decrease high price peak
power expenditure but also can regulate heat consumption peak, stabilize boiler
load, and decrease newly increased boiler capacity. Heat storage technology is
also a kind of mature technology in use. It is an effective technical means for
peak load shifting and especially suitable for industrial enterprises and service
industries which have much heat consumption, high thermal load fluctuation,
insufficient boiler capacity or limited capacity increase. Certainly, whether
users are willing to use cooling energy and heat storage technologies mainly
depends on whether the peak electricity charge expenditure reduced by them
can compensate the electricity charge of consuming more valley electricity and
get proper benefits. Therefore, time-of-use price should be made properly.
3. Adjusting the production and work procedures of industrial enterprises.
Adjusting the production and work procedures of industrial enterprises is a
common method that was used by some countries to balance daily peak load of
power grid in a long time to change one-shift system work to two-shift system
work and change two-shift system work to three-shift system work in industrial
enterprises. The large-scale adjustment of work system plays an important role
to peak load shifting but also disturbs the normal life rhythm and family life
rhythm of the employees to a great extent and increases additional burden to the
enterprises, especially, under compulsory electricity price regulation, this kind
of additional burden of enterprises can not be compensated, so it is not easily
accepted by the society. Practices show that, with the development of market
economy, the method of promoting multi-shift continuous work method com-
pulsorily without considering users acceptance ability shall be invalid gradu-
ally. To these enterprises which do not need multi-shift continuous work
objectively, it is required to accomplish peak load shifting by adjusting the
work procedures and more powerful market means must be taken.
4. Developing flexible load consumers [3, 5]. Power grid enterprises and users
reach an agreement, and the users allow the power grid enterprises to interrupt
or decrease power consumption of part of users in an emergency and share a
certain proportion of discount electricity price. This kind of method generally is
used to users who have self-provided power generation units and makes users
be willing to undertake the excessive expenditure of putting the self-provided
units into operation when necessary.
5. Implementing time-of-use price. Time-of-use price refers to a day divided into

different periods like peak period, off-peak period, and valley period according
to the load characteristic of the power grid and electricity charge is collected for
the electricity in each period according to different electricity price. Generally,
the electricity price during peak/valley period is increased/decreased by a
certain proportion on the basis of electricity price during off-peak period.
Different electricity price during different period reflects the supply cost of
electricity and is good for guiding users to use power rationally, peak load
shifting, improving load curve, and achieving the goal of DSM.
4.6.1.2 Load Management System
Load management system is not only an effective means for strengthening load
management and accomplishing Orderly Power Utilization, power saving, and safe
power consumption but also an important technical means for implementing DSM.
During power shortage period, load management system can play an important
role, and some people may think load management system the equipment prepared
for Orderly Power Utilization in a misunderstand way. In fact, DSM in a real sense
is not planned power rationing, instead, it emphasizes getting the optimized
allocation of power resource on the basis of improving power utilization efficiency
to make power grid stay in safe and economic operation state, which not only
meets the requirements of power supply but also has good load characteristics, to
improve power grid operation efficiency and make users get the minimum power
consumption cost to meet the goal of both power saving with no influence on self
production and lift, and thus to establish the mutual benefit and winwin partner
relationship between power grid enterprises and users and guide users to actively
optimize power utilization modes. During power supply and demand balance
period, load management system also can play an important role.
Structure of Load Management System
Load management system is a comprehensive information management system

that communication technology, computer technology and automatic control
technology are applied to monitor and manage load.
The structure of load management system is shown in Fig. 4.4.
The traditional load management system consists of three parts: management
center, communication channel, and load management.
1. The management center which is the core part of the system. It is made up of an
internal local area network of computer and the corresponding main control
software.
2. The communication channel which is the communication line of the system is

used to transfer information between the management center and load man-
agement terminal. Its quality directly influences the accomplishment of system
functions. For the selection of communication link type in the system, wireless,
microwave, or carrier channel can be selected according to the local specific
conditions (including terrain, landform, noise source, and frequency reuse,
etc.).
3. The load management terminal which consists of microprocessor system which
has data acquisition and processing capability and data transmission channel
system can collect various power consumption data like users power con-
sumption information, power supply condition, electricity information, and
metering data on watt-hour meter in real time and send them to the manage-
ment center through the data transmission channel.
Functions of Load Management System
The wide application of load management system which is a trend of automation

technology development of power utilities plays a very important role in pro-
duction and operation as well as DSM development of power utilities. By using
Load Management Load Management

Terminal Terminal
Wireless Wireless Communication

Terminal Terminal
Terminal based on Public
Network or Internet
Radio
Radio Station
Station
Wireless
Terminal
Remote Optical Optical Remote

Workstation Terminal Terminal Workstation
Internet
Radio
Station
Optical
Terminal
Management
Center Switch Firewall
Fig. 4.4 Structure of load management system

load management technology, the power consumption load, electric energy and
time period change conditions of power users can be monitored and controlled and
the function of providing user information service and the function of providing
basic marketing data can be development, and the modernization and multiple
functions of power grid load management can be realized. The functions of some
systems are continuously expanded and multiple practical and effective functions
like meter reading, abnormal power consumption alarm, information publishing,
load analysis and self-load management of users and others are increased.
1. Remote automatic meter reading. The remoter automatic meter reading to all
large users can be accomplished by using the communication function of full-
electronic multifunctional meter as well as the radio channel resource and
terminal equipment. The application of remote automatic meter reading solves
problems like wrong reading, estimated reading and missing reading, improves
the correctness and timeliness of meter reading and avoids economic loss of
power grid enterprises.
2. Load analysis and prediction. The basic function of load management system is
data acquisition. The system can directly monitor users power consumption
conditions. It not only can collect various power consumption data like users
load, electricity, voltage and current but also can accomplish real time or
regular automatic reading or watt-hour meter data through the remote meter
reading function. These data which can meet the demand of load analysis and
prediction provide powerful data services for power production, marketing, and
DSM and supplies reliable first-hand data to power consumption analysis.
Comparatively correct prediction result can be got by combining multiple
advanced prediction models and computer technology, carrying out statistical
analysis on data collected through load management computer network, and
then taking the actual conditions of users and the market as the basis.
3. Electricity theft prevention and metering loop monitoring. By analysis and
comparison of real-time data and historical data of users, whether electricity
theft behavior occurs or not and the working state of watt-hour meters can be
known to accomplish on-site monitoring of watt-hour meters, be convenient for
finding meter faults in time, taking solutions quickly and recovering electricity
charge in time.
4. Electricity purchase management. The management function of electricity
purchase with prepayment can be realized through load management terminal.
That is to say, the load management center sends the fixed value of electric
energy purchased in advance and the fixed value of excessive electricity to the
load management terminal. The terminal shall urge users to pay the electricity
charge or carry out load control selectively according to the electric energy of
users and by referring to the external factors like present market condition,
etc. In this way, the occurrence of overdue bill behavior can be reduced
effectively.
In addition, the load management system also can accomplish peak load
shifting, meet the requirement of power consumption limitation without switching
off power, reduce capital investment and decrease loss caused by unit startup and
shutdown load adjustment. Through load management, power distribution line
load factor adjustment and necessary monitoring to local power plants and self-
provided power plants of on-grid enterprises can be accomplished. The power
consumption information like planned power consumption and emergency power
limiting can be sent to users through multiple functions of the user load man-
agement terminal, which is convenient for users to arrange production rationally.
Power management can be deepen into households and a normal power supply and
consumption order can be established by fully making use of central load control
means in some places like Shanghai and cooperating with legal and economic
measures [6].
Development Course of Load Management System
Load control technology was applied widely in Europe first. The research of audio
load control technology was started in Britain from the 1930s. After World War II,
this kind of audio load control technology has been widely applied in countries
like France, West Germany, and Switzerland. The research of load control tech-
nology started from the 1960s in Japan; manufacturing technology was introduced
from Europe; up to the 1970s, audio pulse control devices were widely installed
and used. Attention was paid to the development of load control technology in
America from the 1970s; not only the manufacture technology of audio load
control system equipment was introduced from western Europe but also the
research and development of wireless load control was begun. At present, various
load control system have been applied in many countries in the world.
The history of developed countries using load control devices is more than
60 years. It has been developed in the condition of no power shortage. At present,
scores of countries in the world have used load control technology and there are
more than 10 million terminals that have been installed and used. Load control
technology has been a mature and practical technology with lots of experiences in
the world. The main purpose of developed countries to use this kind of technology
is to improve power grid load curve, accomplish peak load shifting, improve
economic efficiency and security of power grid operation, and benefits from power
generation equipment investment and investment on postpone power facility
construction. The attention to general load control is turned to power distribution
automation, DSM, and technical support to power market.
China started the research and application of load control technology from the
end of 1977 in and the course generally can be divided into the following stages
[7]:
19771986 is the exploration stage. Various methods applied to the load control
technology were studied and multiple kinds of devices like audio, power line
carrier, and wireless control devices were researched and developed independently.
At the same time, a group of audio control equipment which was introduced from
other countries was installed in Beijing, Shanghai, and Shenyang, etc.
19871989 is the organized experimental stage. The homemade audio and
wireless load control systems were developed through experiment and were
installed and applied in Jinan, Shijiazhuang, Nantong, and Zhengzhou. Successes
were achieved.
19891997 is the complete promotion and application stage. On the basis of
successful experiment, the national planning power utilization meeting was held in
Zhengzhou at the end of 1989; it was required that the load control system should
be mainly promoted and applied in national municipalities directly under the
central authority, provincial capital cities, and main open cities and then com-
pletely promoted in all prefecture-level cities. Through more than 7 years efforts,
load control systems were established in different scales in nearly 200 prefecture
level cities in the whole country and this work was also developed in some county-
level cities. Radio was taken as the network channel in these systems in common;
audio frequency or power line carrier was used in some systems; dispersible
devices were used in some systems to supplement the control to users which
cannot be reached through radio channels. From 1996 to 1997, load control
practicality standard reaching and acceptance organized by the national electric
power development was passed in cities like Chongqing, Yantan, Zhengzhou,
Shaoxing, Hefei, Wuhan, Fuzhou, and Zhangjiakou one after another. This indi-
cates that the promotion and application of load control in China has come to a
new stage. Putting load control equipment into operation has made the load curve
of each place have obvious improvement.
The period after 1997 is the stage that load control system develops from single
control to management application. In addition, load control system played an
important role in power supply shortage period during the 10th Five-year
(20012005) Plan. During power supply and demand balance period, the function
of load control system turns to establish normal power supply order, ensure power
grid security, and marketing management, etc. Power consumption management
functions have been increased to the system, including power consumption
information management, remote meter reading, power consumption information
service, etc. These functions extended have improved the economic value and
viability of load control system. They also have broken the previous limitations in
the system data processing aspect and extended the network function. In order to
express this system more exactly, the name of load control system thus has been
changed to load management system. At present, the load management center can
be connected with different system networks through databases and bridges to send
a large quantity of data information of the load management system to manage-
ment network, dispatch network, and business network of the power system, which
plays an important role in power grid management, power marketing, as well as
scientific process and modernization of DSM.
4.6.1.3 Case Analysis on Load Management
China has many application experiences in load management. Hereinafter, Jiangsu

province shall be taken as an example to give an introduction.
[Case 4-11] Load management application experiences of Jiangsu province
With the rapid development of national economy, during The 10th Five-year
(20012005) Plan, the power consumption of Jiangsu province increased quickly;
the unified dispatched load had been increased gradually; the difference between
peak load and valley load had been gradually increased; the power supply shortage
which was released once had become obvious day by day; the power interruption
and limiting became frequent; power supply shortage formed new Bottleneck
restriction to economic development. In order to release the power supply and
demand tension, in the condition that the total quantity of power resources was
certain, Jiangsu Electric Power Company developed price lever functions actively,
made efforts to apply economic means to accomplish peak load shifting, released
power supply and demand tension situation, and achieved good effect.
Approved by the National Development and Reform Commission, from Oct.
1st, 1999, time-of-use price was implemented for industrial users (mainly
including machinery, metallurgy, chemical engineering, medical treatment,
building materials, and textile) with capacity of more than 315 kVA and above and
electric boiler (including ice storage refrigeration). The peak-to-valley ratio was
3:1. That is to say, the peak price was increased by 50 % on the basis of the par
price while the valley price would be decreased by 50 % on the basis of the par
price. The implementation of time-of-use price had certain effect on peak load
shifting of the peak load. The annual transferable peak load was 600 MW. At the
same time, the power consumption burden of some users was lightened.
After coming into 2003, due to the rapid increase of power consumption and
increasingly aggravation of power supply and demand contradiction, the power
shortage in that year was estimated to be 7.5 million. In order to release power
demand and demand contraction, the price lever functions were fully developed in
Jiangsu province; the implementation intensity of time-of-use price was increased;
the time-of-use policy implantation was extend to residential users; the power
consumption peak-to-valley ratio of the enterprises was adjusted from 3:1 to 5:1;
two-system electricity price was implemented power consumption of ice storage
refrigeration and electric boilers in hotels, restaurants, marketplaces, and offices.
That is to say, valley electricity price was implemented during valley power
consumption period and par electricity price was implemented during other peri-
ods so as to reduce users burdens and arouse load adjustment of these industries.
Time-of-use price policy was tried for residential users. The power consumption
time is divided into peak period and valley period. 8:00 am to 21:00 is peak period
while 21:00 to 8:00 am next day is valley period. The electricity price during peak
period is 0.55 Yuan/kWh while the electricity price during valley period is
0.30 Yuan/kWh.
Applying price lever to guide the enterprises and residents to use power
rationally and carry out peak load shifting through the implementation of time-of-
use price has released the peak power consumption tension situation effectively. Its
active functions are very obvious, which are mainly shown in the following
aspects:
1. The users have been promoted to carry out peak load shifting and the power
grid load factor has been improved, and it is good for safe operation of the
power grid. After the implementation of time-of-use price, under the push and
guide of price lever functions, the enterprises and residential users could
consciously adjust power consumption time, avoid the peak power consump-
tion, and carry out peak load shifting. In 2003, load transferred got to 1 GW;
the maximum peak-to-valley ratio was decreased obviously; the load factor was
improved to some extent; good promotion effect was achieved on security; and
excellent operation of the whole power grid.
2. The electricity charge burden of users has been lightened and the domestic
demand growth has been promoted. From Aug. 1st, 2003 to the end of 2003,
about RMB 370 million Yuan electricity charge burden of enterprises was
reduced and RMB 45 million Yuan electricity charge burden of residential
users was reduced. Due to the implementation of time-of-use price, the pro-
motion and application of cooling energy and heat storage technologies and
equipment have been impelled; the development of related industries has been
driven; consumption demand has been enlarged.
3. Rational power resource allocation has been promoted and it is good for
developing demand-side resources and improving social benefit. According to
the effect of peak load transfer in 2003, it is equivalent to reduce the con-
struction of a 1 GW power plant and application of corresponding supporting
power grid facilities and 5 billion Yuan can be saved. Compared with investing
new power plant construction, the advantages of developing demand-side
resources and implementing time-of-use price are very obvious, which not only
can improve power equipment utilization rate and avoid repeated construction
and investment waste, but also can leave out the comparatively longer con-
struction period for building a new power plant.
4. The intervention of administrative means has been reduced and the market
accommodate function of economic lever has been developed. Implementing
time-of-use price is namely to apply economic means to promote the organic
combination of the adjustment objective and users interests. It changes the
methods which mainly depend on administrative method to adjust peak load,
such as power rationing and meets the requirement of the market economy law
more.
4.6.2 Necessary Means for Power Grid Enterprise

to Implement DSM: Orderly Power Utilization
Orderly Power Utilization is one of main tasks of DSM. It refers to a management

method through administration, economic means, and technical method to legally
and partially control power utilization and maintain a stable power supply in
shortage of power supply and emergency. Orderly Power Utilization is mainly
realized by technical methods like control of peak load or limit of power supply to
deal with tight power supply and demand due to many reasons to ensure a normal
and stable power supply, with measures including administration, economic
means, and technical methods. So far, the former two methods have been more
frequently used.
In order to make limited power supply play the important role, the government
accredits power grid enterprise to carry out the approbatory measure in the doc-
ument signed by the government. As the basis task, power grid enterprise should
compile the Orderly Power Utilization Scenario through deep investigation, sci-
entific analysis and prediction, rational load arrangement such as shifting peak
load, cutting off-peak load, and filling up valley period. The main purpose is to
meet the sound demand as soon as possible, while to save resources, protect
environment, decrease power supply and power grid investment, decrease power
consumption cost of users, and so on.
During the 10th Five-year (20012005), the economic development in China
was rapid; with the improvement of peoples living standard, the power con-
sumption load rose rapidly; however, the power supply construction relatively
lagged; power supply and demand tension situation started to appear in China in
the second half year of 2002. Power shortage appeared in most places in China.
Aiming at the power consumption tension situation, in order to ensure power
consumption of important power users and residents and meet the requirements of
Peak Load Shifting First, Peak Averting Second, Power Limiting Third and
Power Interruption Last, the power grid enterprises in each place cooperated with
the government and carried out many Orderly Power Utilization measures.
Through these measures, the influences caused due to power shortage were
reduced and safe power grid operation and power supply order stability were
guaranteed. In addition, a local tension or periodical tension situation might appear
even in power supply and demand balance period. Through Orderly Power Uti-
lization, electric energy resource allocation can be optimized; end-use power
consumption level, utilization rates of electricity, and power grid equipment as
well as excellent service level of power grid enterprises can be improved.
During the 10th Five-year Plan (20012005), the maximum shortage for
national power supply was approximately 40 GW, among which SGCC had up to
29.87 GW. In response to this shortage, each power grid companies were actively
and timely establishing Orderly Power Utilization schemes that achieving peak
shift of 21.86 GW, accounting for 73.3 % of overall shortage to ensure safe and
stable operation of the power grid and maintain normal power supply for the
society and peoples lives.
In 2008, the disaster from snow and ice resulted in serious power supply
shortage in 16 provincial power grids covered by SGCC, among which 10 prov-
inces shifted all power shortages by using Orderly Power Utilization. Hunan was
the most outstanding, its shortage was up to 23.61 GW, and 27,505 households
took part in the Orderly Power Utilization. For the countermeasure took in this
year, the proportion of limited load to pulled load was up to 9.64:1, while it was
7.19:1 in 2005 when power supply and demand was the most intense, indicating
that Orderly Power Utilization was more scientific as well as load control tech-
nology and management level was greatly improved.
To drive scientific development of Orderly Power Utilization, National
Development and Reform Commission issued Orderly Power Utilization Practice
(FA GAI YUN XING [2011] No. 832) in 2011, detailing key points for Orderly
Power Utilization and emphasizing the importance of load management technol-
ogy. Orderly Power Utilization Guide is currently under compilation which will
provide guidances for better implementing Orderly Power Utilization works.
4.6.2.1 Establishment Basis and Organization Mode of Orderly Power

Utilization Scheme
Establishment Gist
Correct load prediction is a necessary basis for making an Orderly Power Utili-
zation scheme. Only after the future load demand in the local area is known,
pertinent measures can be taken, the load demand distribution in time sequence
can be changed, and the system load demand can be reduced during peak period or
be transferred to valley period.
Besides, the establishment of rational Orderly Power Utilization measures must
be set on the basis of analysis on user load and load characteristic data. Usually,
before making an Orderly Power Utilization scheme, the power grid enterprises in
each place should analyze user load data with their marketing system data and load
system data first, master the production power consumption rules of various
enterprises, establish a power consumption database which covers every important
user, and updates regularly.
Certainly, when the power grid enterprises investigate user load characteristics,
they need to take the individual requirements of users into account:
1. Get to know users power distribution transformer capacity, the installed
capacity of power consumption equipment, actual power consumption equip-
ment load, equipment utilization rate, power consumption equipment installa-
tion position, power characteristics, the functions of the equipment in
production line, and production line attribution, etc., clearly.
2. Get to know the influences of sudden power interruption on users and even each
power consumption device and the influences of the equipment outage on the
working staff clearly.
3. Get to know the name, capacity, and available interval time of equipment which
can be used at intervals clearly.
4. Get to know the relationship between power consumption production load of
users and other factors, such as air temperature, etc., clearly.
5. Get to know the actual power consumption load in different power consumption
periods of users clearly.
Organization Mode
In the power supply shortage time during The 10th Five-year (20012005) Plan,
the Orderly Power Utilization organization structure in some places in China is
shown in Fig. 4.5.
As peak load shifting may cause losses and influences on economic benefit and
production arrangement of power grid enterprises to a certain degree and the
enterprises themselves lack of working enthusiasm for active peak load shifting, so
the implementation of Orderly Power Utilization scheme usually is compulsory.
Although power grid enterprises are the main implementers for it, the adminis-
trative commands of the government department are very necessary conditions for
ensuring the specific implementation of peak load shifting scheme. Seeing from
the comprehensive conditions of the orderly utilization organization modes in
China, especially in Jiangsu and Zhejiang, etc., the Orderly Power Utilization work
is usually implemented by establishing multi-level Orderly Power Utilization
organization guarantee system. For example, in 2004, to guarantee the successful
implementation of Orderly Power Utilization work in Nanjing, the Orderly Power
Utilization coordination leading group was established, mainly made up of Nan-
jing economic development committee and power supply company personnel, the
Orderly Power Utilization coordination leading group office and Orderly Power
Utilization inspection team [8]. Thereinto, the Orderly Power Utilization coordi-
nation leading group is responsible for coordinating and commanding the peak
load shifting and orderly power supply work of the whole city, holding meeting
regularly according to the load change condition, and researching and deciding
important affairs and making important decisions for ensuring normal power
supply and consumption order of the whole city. The Orderly Power Utilization
coordination leading group office is responsible for carrying out various Orderly
Power Utilization measures of the whole city, handling daily peak load shifting
management affairs, carrying out information communication and relevant coor-
dination work, and undertaking specific peak load shifting work and tasks of the
whole city. The Orderly Power Utilization inspection team is responsible for
inspecting the condition during the implementation of the peak load shifting
scheme, warning the unit which does not carry out the implementation or does not
The Orderly Power Utilization group confirms the

peak load shifting scheme and informs the
responsible department of basic unit .
Each basic unit informs the enterprises and Not

Implement implement
institutions which participate in the peak load
shifting scheme to implement it after receiving the
information.
The enterprises and institutions implement Implement The Orderly Power

the peak load shifting scheme , such as Utilization coordination
equipment shutdown, power shifting group office carry out
production and working by turns . coordination.
The power shifting supervisors carry out Not

implement
supervision and inspection .
Ineffective
implementation
Scheme implementation effect
Effective It is approved by the Orderly Power Utilization

coordination office , and then the load control
Summarization and report center (or dispatch) can carry out power limiting
to users according to the command .
Fig. 4.5 Schematic diagram of orderly power utilization organization structure in some
provinces in China in the power supply shortage time during the 10th Five-year (20012005)
period
carry it out in accordance with the relevant requirements found during the
inspection, making a report to the relevant units to publish a corresponding notice
of criticism or giving power interruption punishment to the unit which still does
not carry out the implementation after it has been warned, summarizing the
supervision and inspection conditions every day, and making statistics and
reporting it to the Orderly Power Utilization coordination leading group office
every week; during severe power supply shortage period, a report also can be
submitted to the leading group office every day.
4.6.2.2 Implementation Principles and Means for Orderly Power

Utilization Scheme
Compilation and Implementation Principle
During making an Orderly Power Utilization scheme, in order to have it imple-

mented practically, accomplish orderly, and effective power utilization of the
whole society and meet the requirements of economic development and peoples
life to power, the power grid enterprise at each level usually need to pay attention
to the following principles in the implementation process of the Orderly Power

Utilization scheme:
1. Scientific dispatch principle. It is required to carry out scientific dispatch,
guarantee safe and stable operation of the power grid and ensure stable social
and economic development. In the implementation process of the Orderly Power
Utilization process, it is required to follow the principle of The Utilization
Based on the Quantity and the Peak Load Shifting Based on the Shortage and
fair share principle strictly, meet the requirements of Peak Shifting First, Peak
Averting Second, Power Limiting Third and Power Interruption Last, carry out
Fixed Enterprise, Fixed Equipment, Fixed Capacity, and Fixed Time to peak
load shifting and averting load, and carry out the Orderly Power Utilization
scheme compilation and the implementation work properly.
2. People-oriented principle. It is required to carry out people-oriented principle
and to focus on the important part. It is required to guarantee the household
power consumption of residents is not influenced and ensure the power con-
sumption of important industries like agricultural production power consump-
tion which relates to national economy and the peoples livelihood is not
influenced as far as possible.
3. Whole sector principle. The Orderly Power Utilization must be combined with
relevant national policies. Implementing Orderly Power Utilization and
developing Orderly Power Utilization work must be combined with the
implementation of national industry policy, energy policy, and environmental
protection policy. It is required to set up scientific development view, change
economic growth mode, strengthen power resource optimization allocation,
meet the requirements of Guarantee and Limit practically and improve the
overall utilization efficiency of power resources.
4. Territorial Responsibility principle. It is required to implement the combi-
nation of central and regional system while giving priority to the regional
system and territorial management. For example, during summer peak load
period, the unified dispatched load is distributed to each city according to the
preset distribution scheme in a province; the respective peak load shifting
scheme is made by each city; each county (city) and the local power supply
company is responsible for the Orderly Power Utilization work of this
administrative region according to the distributed load index.
5. Winwin principle. It is required to achieve the winwin goal of social benefit
and economic benefit. When the power consumption peak is coming, the power
grid enterprises at all places should carry out peak load shifting rationally and
quickly according to the Orderly Power Utilization schemes and reduce the loss
caused by power shortage to the maximum extent; when the peak power
consumption load is falling back, they should release power consumption load
in time, meet the social power consumption requirements to the maximum
extent and accomplish winwin goal of social benefit and economic benefit.
6. Warning classification principle. It is required to set up power balance warning
classification mechanism in each place according to the local load characteristic
change rules and make different Orderly Power Utilization modes according to
the situation of power shortage situations of different grades and in accordance
with the principle of small social influence, good peak load shifting effect, and
few losses. When power shortage situations of different grades appear, corre-
sponding Orderly Power Utilization schemes should be used to avoid loss
caused by too low or too high Orderly Power Utilization implementation
intensity to the society.
Implementation Measures
When the Orderly Power Utilization scheme is made in each area, different
Orderly Power Utilization means can be implemented by combining the actual
local power consumption condition and aiming at different conditions. Usually, the
following means can be taken: (1) high energy consumption enterprise peak load
shifting, (2) discontinuous production enterprise peak load shifting, (3) peak load
shifting by arranging enterprise production in rotation, and (4) power limiting
through the load management system.
1. High energy consumption enterprise peak load shifting scheme. As most high
energy consumption enterprises are three-shift system enterprises in China at
present and their power consumption load curves are comparatively flat, taking
power limiting measures to them may cause severe economic loss and security
problems; however, some power consumption equipment of the high energy
consumption enterprises can participate in peak load shifting and the produc-
tion basically is not influenced, so this type of equipment can be required to be
stopped in fixed time during peak load period every day to reduce the basic load
during the peak load period and transfer it to social power consumption and
household power consumption of residents.
2. Discontinuous production enterprise peak load shifting scheme. As the loads of
the power grids in many areas are highest during night peak load period and the
loads during other peak periods are lower than it, this characteristic can be used
to adjust the working time of discontinuous production enterprises. For
example, the production time of a one-shift system enterprise can be adjusted to
the time after night peak load period till the time before morning peak load
period in the next day to avoid morning and night peak power consumption of
the power grid; to the two-shift system production, the production can be
arranged by avoiding night peak load period.
3. Peak load shifting scheme based on rotational enterprise production prear-
rangement. At present, the weekly holidays of most enterprises and institutions
in China are concentrated on Saturday and Sunday, which makes the peak load
during Saturday and Sunday is lower than that during Monday to Friday.
Increasing the power consumption load during Saturday and Sunday can reduce
the difference between load during the workdays and weekly holidays. Rational
production can be arranged for enterprises in each area from Monday to Sunday
and the working system based on Five Days for Work and Two Days for
Holidays in a Week and Rotational Working Time and Holidays for Different
Units can be implemented.
4. Load shifting based on load management system. Sometimes, due to temporary
unit repair and temporary faults of the power grid, the condition that the power
supply cant meet the demand might be caused. At this time, corresponding
power limiting measures can be taken through the load management system and
the power consumption enterprises can be informed in advance when imple-
menting the scheme to be convenient for the enterprises to have time to
adjustment the production modes. The power limiting through load manage-
ment system mainly focuses on self control of the power consumption enter-
prises. When the self control of the power consumption enterprises is not so
effective, the load management system can be used to implement remote
control tripping operation, but attention should be paid to that the remote
control tripping must be implemented from low level to high level in order.
4.6.2.3 Case Analysis on Orderly Power Utilization
During the 10th Five-year Plan (20012005), many Orderly Power Utilization
experiences were accumulated in the process of coping with power supply
shortage in many areas in China.
[Case 4-12] Orderly Power Utilization application experiences of Guangdong
province [9, 10]
In 2004, as economic development speed is increased, the power consumption
demand of Guangdong province continuously increased; the total electricity in the
whole year was 238.713 TWh, which was increased by 17.50 % compared with
that during the same period in 2003; the maximum load of the whole province
reached 37.83 GW (Aug. 10), which was increased by 14.69 % compared with the
maximum unified dispatched load in 2003. Thereinto, the maximum provincial
unified dispatched load was 29.25 GW (Aug. 10), which was increased by 15.55 %
compared with the maximum unified dispatched load in 2003. Compared with the
rapid increasing power consumption demand, the power supply capacity of
Guangdong power grid was obviously insufficient. When the power consumption
load is the maximum in August, the actual available total dispatched capacity of
Guangdong power grid was only about 40 GW.
Due to the power and electricity shortage and insufficient power supply
capacity of some areas, an annual and overall-grid power shortage situation of
Guangdong power grid appeared; peak load shifting became the main means for
balancing power; the peak load shifting power consumption scheme all over the
whole system was forced to be implemented in advance from January. Only in
January, compulsory peak load shifting was carried out in 17 cities; the maximum
compulsory shifting peak load was 960 MW and the electricity of compulsory
peak load shifting was 28.71 GWh; they far exceeded the annual maximum
compulsory peak load shifting (460 MW) and the total electricity (10.63 GWh)
respectively. In February, the compulsory peak load shifting implementation range
was extended to 21 cities in the province and the maximum shifting peak load was
1.84 GW. From March, the power shortage became more severe and the maximum
shifting peak load got to 2.16 GW.
Facing this kind of power supply shortage situation, a practical and feasible
Orderly Power Utilization management system was made and issued for Guang-
dong power grid, which specified the implementation mode, scheme establishment
principles, operation process flow, responsibility division and performance eval-
uation and others of peak load shifting power consumption, and the peak load
shifting warning mechanism was established to control the peak load shifting
degree of each area by sending different peak load shifting warning signals.
During the implementation, the Guangdong power grid dispatch department
made the next days grid power supply index of each city according to the active
balance prediction condition of the next day every day; at the same time, to avoid
unnecessary peak load shifting behavior in the condition of excessive power
consumption allowed in the system, a peak load shifting warning mechanism was
made specially. Later, the provincial power grid dispatch department sent signals
with specified meanings to the SCADA system of local dispatch center of each
branch office separately through EMS automation system, and each local dispatch
center implemented peak load shifting measures at different degrees according to
the signal meanings.
In the process of making a local peak load shifting scheme, each branch office
first made the local peak load shifting scheme according to the local user data, load
characteristic and the annual power consumption demand estimate of the whole
society in the current year and then reported it to the local city government for
approval and then implementation. During making the scheme, emphasis was put
on reducing industrial power users; the peak load shifting did not cover residential
and commercial users; the principle of ensuring power consumption demands of
important institutions, important municipal facilities and important places were
followed as far as possible. Under the condition of meeting the requirement of total
peak load shifting capacity, a lined connected for important load was not included
in the arrangement of rotational work; to non-power gird emergencies, it was not
allowed to interrupt the power of this line compulsorily at any time. Each branch
office also implemented dynamic management to peak load shifting power con-
sumption and adjusted the peak load shifting implementation scheme regularly
(daily to some branch offices) according to the actual conditions. Due to different
specific conditions, different special and effective methods were formed for each
branch office.
After the implementation of the Orderly Power Utilization scheme, the peak
and valley electricity proportions of Guangdong province have changed a lot. To
the main peak load shifting objectslarge industrial users, the electricity pro-
portion during peak load period increased while that during valley period
increased. In May, the electricity during peak load period of large industrial users
was 26.03 %, which was decreased by 0.57 % compared with that during overall
time-of-use price implementation period adjustment in November, 2003; the
electricity during valley load period of large industrial users was 31.24 %, which
was increased by 1.99 % compared with that in November, 2003.
In addition, after the implementation of the Orderly Power Utilization scheme,
the system load factor has increased gradually. In April, the average load factor of
Guangdong province was 82.64 %, which was increased by 3.34 %; in May, the
average load factor of Guangdong province was 84.78 %, which was increased by
5.19 %; in June, the average load factor of Guangdong province was 87.25 %,
which was increased by 6.92 %; in July, the average load factor of Guangdong
province was 81.69 %, which was increased by 4.48 %; in August, the average
load factor of Guangdong province was 81.95 %, which was increased by 3.69 %.
[Case 4-13] Orderly Power Utilization application experiences of Haishu District,
Ningbo [10, 11]
Haishu District is located in the center of Ningbo city, 28.7 km2, has a resi-
dential population of 263,000 and is the political, economic and cultural center of
Ningbo city. The largest comprehensive marketplace and hotel in the city is
centered in the district, as well as the main financial institutions, commodity
inspection and customs departments and others. The power consumption has
extremely obvious local characteristics:
1. There are 132,000 residential households, 526 industrial users, 6,177 building
and commercial users, 1,647 enterprise and institution office power users and
204 bank and security users in the district, which shows the characteristic of a
large quantity of the Party and government organizations, residents and
important users, and a small quantity of plants and enterprises.
2. The characteristic that the load curves of residents, institutions, and market-
places change along with season and temperature is very obvious; plus air
conditioning power consumption, the characteristic that the load changes along
with the season and temperature changes is very clear; besides, the difference
between peak and valley loads is also very great.
3. The area of Haishu District is less than 30 km2, and 46 out of 108 lines are
involved in double-power supply. Double-power supply users can transfer the
load to the other power supply line without power limiting through switching
operation when the power of one line is interrupted. In this way, the phe-
nomenon that The power of more lines is interrupted but the load cant be
reduced may appear. To control the load in the normal range, it is required to
interrupt the power of other relevant lines; this may cause large area power
interruption to single-power supply users in important units and departments
like many urban and rural residents, the Party and government organizations,
troops, hospitals as well as financial institutions and cause great social
influences.
In order to cope with the power shortage situation in 2004, to meet people-
oriented, guarantee-related and limit-related requirements, to ensure basic house-
hold power consumption of residents and power consumption of important users
and to accomplish orderly power supply and limiting practically and properly, the
specific methods taken in Haishu District are as follows:
1. Implementing promotion work actively and properly and striving for under-
standing and supports by the whole society. Haishu electric power supply
bureau let relevant departments in the district together specially focus on power
supply shortage situation promotion and discuss how to carry out the Orderly
Power Utilization work properly together, and asked for opinions and pro-
posals. Moreover, various home service activities were developed to promote
Orderly Power Utilization, safe power consumption and power saving; various
energy conservation promotion painting booklets and small energy-saving fans
of more than 2,000 were distributed. In this way, the energy conservation
consciousness of residents was intensified and the understanding was enhanced.
2. Establishing and completing basic data of important users, correctly predicting
load change trend and making preparations for detailing Orderly Power Uti-
lization. The marketing department collected the name list, power consumption
addresses and contact modes of users including relevant communities, troops,
hospitals, banks and business departments of security companies through vis-
iting and contacting; the production and technology department carried out the
power supply from house to house. The information of power supply lines of
above 190 residential districts, 33 hospitals, 204 business departments of banks
and security companies, 24 military subarea cadre sanatoriums and 5 geroco-
miums and welfare institutes were investigated clearly. At the same time, the
relation between load change and temperature in 2004 was carefully calculated
and predicted according to various load proportions and the change conditions
based on air temperature in the past years to make preparations for dividing
power shortage grades and making countermeasures.
3. Detailing the Orderly Power Utilization scheme further, carrying out scientific
power dispatching and compiling power limiting order list. The dispatch
department compiled a power limiting order list rationally, investigated the user
conditions of every line clearly, listed the names of the involved residential
districts, important users, financial and security companies, hospitals and
schools in detail and divided the rotational power interruption lines into three
rounds according to the importance: the first round was the lines, of which the
power supply could be interrupted directly according to the command sent by
the dispatch department; the second round was the lines related to important
users, of which the power should be interrupted after permission was got; the
third round was the lines that was not suitable for power limiting at that time.
Relevant departments were required to consider the situation comprehensively
and carry out power rationing orderly according to the specified order list.
4. Combining power limiting, interruption and peak load shifting together and
striving for unit tripping without line tripping. To the industrial enterprises,
according to the load change condition, the regulation of three days for power
interruption and four days for power supply in a week was carried out and
power limiting, interruption and peak load shifting were combined together.
Aiming at the actual condition that the difference between peak load and valley
load during day and night was high and load factor was low in the district
center, from June 21, the regulation of three days for power interruption and
four days for power supply in a week was applied to the production time of
general enterprises, which was adjusted from 21:30 in the evening to 8:00 next
day; it was not allowed to arrange production in the other time. Some con-
tinuous operating enterprises whose product quality was greatly influenced by
power interruption and raw material waste was comparatively higher or
enterprises which have heat preservation requirements could carry out pro-
duction according to the capacity and time period approved by the chief
administrative department. However, with the aggravation of high temperature
and the increase of load shortage, the emergency load for part of continuous
operating enterprises was stopped and the production was stopped completely
in the daytime so as to give the power consumption priority to the residents. To
large marketplaces, hotels, and buildings, when power consumption peak
appeared, in the absolutely necessary condition, it was allowed to inform
building and hotel users and others to require them to stop using air condi-
tioning equipment for 0.51 h temporality to avoid passive situation of power
interruption of all lines through peak load shifting.
5. Intensifying inspection on enterprises, marketplaces, and hotels and developing
the regulation function of the load management system. In order to carry out the
measures mentioned above, Haishu electric power supply bureau also coop-
erated with the government to establish an Orderly Power Utilization super-
vision group, arrange special cars and persons and specify the responsibility of
every person, and set a real-time automatic power consumption load mentoring
network to carry out Orderly Power Utilization inspection pertinently by
combining the internal load control data monitoring with external on-site patrol
inspection. The units which violated the regulations were punished intensively,
were warned and disclosed to compel users to carry out Orderly Power Utili-
zation work properly, and make corresponding power saving schemes to
overcome power shortage challenge together.
6. Providing excellent services in power shortage condition. Carrying out power
supply guarantee services in special periods by striving for power limiting
without feeling hurt, for power shortage without service shortage, for power
shortage without power supply guarantee.
Through the measures mentioned above, in the extreme difficult conditions with
high temperature at that time, efforts were made to meet the requirement of unit
tripping without line tripping; the load in the administration area of Haishu electric
power supply bureau has been basically maintained at about 210 MW, and about
80 MW has been decreased compared with the predicted 295 MW maximum load.
Moreover, through orderly regulation, the daily minimum load has been increased
from 60 to 100 MW; the peak load shifting has met the expected requirements; the
power consumption load factor has been greatly improved; obvious Orderly Power
Utilization achievements have been got.
4.7 Case Analysis
4.7.1 Demand-Side Management Work Condition of Hebei

Province
In recent years, in order to release the power supply shortage, Hebei Electric
Power Corporation has organized, initiated, and promoted DSM work actively and
comprehensively, established fixed DSM fund sources, developed pilot project
promotion actively, summarized experiences, and completed regulations. Through
many years development, a long-acting DSM promotion mechanism has been
gradually established in Hebei at present, which creates a good basis for the
establishment of the future DSM marketing mechanism [12].
4.7.1.1 Complete Organization Management System
In order to guarantee stable promotion of the DSM work, a multi-aspects and all-
round DSM organization system which is led by the government and supported by
the power utilities and society and has integrated provincial and city classification
has been established. The leading function of the government is highlighted and
the promotion of relevant DSM work is provided with supports. At the same time,
the subject functions of power grid enterprises guarantee the implementation of
specific policies. The good organization mechanism creates good basis for further
carrying on of the DSM work.
The DSM organization system structure of Hebei province is shown in Fig. 4.6.
Approved by relevant departments, Hebei DSM Instruction Center was estab-
lished in Hebei. Based on this, Hebei DSM Production Exhibition Center was
established. Special DSM institutions were also established in Shijiazhung, Han-
dan as well as Zhangjiakou, and others one after another. The construction of the
DSM institutions and team provide favorable organization guarantee for
strengthening DSM comprehensively.
The exhibition window has been established and wide promotion has been
carried out. Hebei DSM Production Exhibition Center was established in the
provincial capital trade center. By means of exhibition and sale combination, the
DSM knowledge and policy have been generalized; power users have been guided
to use scientific power consumption mode and advanced power consumption
technology and equipment material; a site for production and scientific research
units to exhibit and promote products has been provided.
Hebei Development and

Reform Commission
Implementation Inspection and

guide system acceptance system
Hebei Demand-side Development and Power Grid Hebei Electric Power Hebei Energy
Management reform Company Institute Conservation
Instruction Center commission of
each city
Inspection Center
Demand-side
management
instruction center of
each city
Power users
Fig. 4.6 DSM organization system structure of Hebei province
4.7.1.2 Completing the Policy System and Ensuring Multi-steps

Implementation of DSM Work
The policy, Opinions on Greatly Developing DSM, has been issued, which spec-
ifies the comprehensive arrangement for carrying out DSM work in the whole
province and the requirements. At the same time, around the DSM work a series of
basic supporting polices like Management Method of Special Fund for DSM in
Hebei Province, Method for Interruptible Load Compensation of Southern Hebei
Power Grid, Inspection Method for DSM Frequency Control Projects in Hebei
Province, and Inspection Method for DSM Cooling Energy and Heat Storage
Projects in Hebei Province have been issued to guide widespread development of
DSM work.
4.7.1.3 Striving for Fund Support Actively and Establishing Special

DSM Fund Sources
Under the active promotion of Hebei Electric Power Corporation, special fund for
DSM has been established. The fund raising path is withdrawing 0.001 Yuan/kWh
from the additional charge included in annual electricity price to take it as special
fund for the provincial DSM, and the fund has been mainly used as fund subsidy
for projects like DSM technology reform, new technology and product develop-
ment and research, which has provided effective fund support for carrying out
DSM project promotion.
4.7.1.4 Strengthening Orderly Power Utilization Planning

Management and Providing Multiple Guarantee Preplans
to Ensure Power Supply
Aiming at the condition that the power supply shortage of the southern Hebei
power grid in spring and summer is very obvious, in order to make power balance
between areas and industries proper, Hebei Electric Power Corporation made
Spring Power Consumption Index Distribution Scheme of Southern Hebei Power
Grid, and Summer Power Consumption Index Distribution Scheme of Southern
Hebei Power Grid continuously in these years. In each scheme, 16 dispatch
preplans were made according to taking every 300 MW as a degree (level); power
consumption plan management was strengthened and efforts were made to
accomplish orderly power supply and utilization. The complete preplan system has
guaranteed urban and rural residents life and relevant requirements of power
consumption of important units powerfully.
4.7.1.5 Selecting Pilot Projects for Breakthrough and Promoting

Energy-Saving Products Vigorously
The implementation of green lighting projects in Hebei which has been developed
gradually with the promotion of DSM work is an important part of DSM work. In
order to implement provincial green lighting projects, from 1996, a certain amount
of fund has been provided year after year in Hebei to implement and promote the
project of using high-efficiency energy-saving lights. According to the standard of
30 % price subsidy for an energy-saving light, by demonstration promotion to all
the enterprises and institutions in each city, 2 million lights have been promoted
accumulatively; the project terminal power saving quantity in the first phase was
close to 630 GWh and the CO2 emission reduction in the first phase was about 630
Mt. The two international cooperation projects, Demonstrative Project of DSM
Lighting Power Saving and Quality Assurance, which were implemented by
Chinese Government and the United Nations Development Programme, were
undertaken in Hebei; 3,20,000 high-efficiency lighting products were promoted to
the enterprises and institutions all over the province and the amount of fund
subsidized by the United Nations properly was RMB 1.2 million Yuan. In 2005,
the National Development and Reform Commission and China Green Lights
Office took Hebei as the experimental place to research the implementation
scheme of clean development mechanism (CDM) green lighting pilot project
under Kyoto Protocol frame. The government promoted about 3,000 energy-saving
lights to the residents in the city according to the standard of 50 % subsidy for an
energy-saving light in average.
4.7.1.6 Attempt Using Economic and Technical Means to Control Peak

Load
Approved by the provincial government, Hebei Electric Power Corporation

implemented Method for Interruptible Load Compensation of Southern Hebei
Power Grid during power consumption peak period and provided economic
compensation for the enterprises which were willing to interrupt load during peak
load period according to the principle of subsidizing 1 Yuan for every 1 kW load
interruption of 1 accumulative hour. The enterprises with the interruptible capacity
above 2 MW once can be put into the name list of interruptible load participating
enterprises through the method that the enterprises volunteer to apply for it and
they are approved by the provincial development and reform commission. In 2003,
36 enterprises implemented interruptible load in total and the daily maximum
reduced peak load was 200 MW; in 2004, 52 enterprises implemented interruptible
load in total and the daily maximum reduced peak load was 237 MW. The total
amount of subsidy in the two years was RMB 10 million Yuan. At the same time,
the promotion and application of peak load mentoring technology were strength-
ened. Peak load monitoring systems were established in all the 11 cities in the
whole province; the accumulative amount of terminal load control equipment was
more than 4,000; above 4 GW load could be monitored in real time. In this way,
the function of power limiting without power interruption or less power inter-
ruption was fully developed.
Referring to System Benefit Charge method abroad, Hebei Electric Power
Corporation has stipulated Management Method of Special Fund for DSM in Hebei
Province. According to the regulations of management method, special fund
subsidy based on the standard of 30 % of the project investment amount was
provided for DSM projects and high-efficiency green lighting products with
obvious effect such as power saving, peak load shifting, and improvement of
power grid operation stability. This incentive policy can drive more than RMB
200 million Yuan of DSM project investment every year. In recent 10 years,
through energy conservation reform and by strengthening management in Hebei
province, nearly 10 TWh electricity has been saved accumulatively in the whole
province; comparative energy of 3 million tce has been saved, while 7 million tons
CO2 emission, and 50,000 ton SO2 emission has been reduced.
4.7.1.7 Summarizing Experiences in Pilot Projects Carefully

and Establishing a Promotion System
In order to promote DSM comprehensively, in 2004 and 2005, Hebei Electric

Power Corporation and the government departments like the development and
reform commission and provincial financial department and others jointly issued
DSM project plans continuously in two years and confirmed Ten Green Pro-
jects, mainly including One Million Green Lights Project, High-efficiency
Power Saving Project, Cooling Energy and Heat Storage and Water Storage
Irrigation Project, Green Window Project, Green Household Appliance

Project and Green Industry Project and others, and 115 important projects with
cooling energy and heat storage project technology, speed-governing and power
saving technology, and harmonic wave control technology as key implementation
points. The implementation intensity was increased and fund support was pro-
vided. For two years, the total amount of subsidy fund for implemented projects
exceeded RMB 38 million Yuan; the average power saving rate of frequency
conversion reform projects got to above 30 %; the annual savable electricity
exceeds 100 GWh; the annually saved electricity charge exceeded RMB 50 mil-
lion Yuan; the project investment could be recovered in less than 2 years; the
annual peak load shifting electricity of the Cooling Energy and Heat Storage
project was 18 GWh and the project investment could be recovered 4 years later;
the harmonic waver control project played an active role in eliminating power grid
harmonic wave influences and improving safe power supply quality.
Through the work development of power grid enterprises, all social classes
have been deeply aware that DSM not only should be an expedient measure for
releasing power supply shortage but also should be a strategy for improving
electricity utilization efficiency in the whole society, effectively reducing resource,
environment, and fund cost, balancing supply and demand for resources,
encouraging people to directly participate in economical society construction.
Therefore, it must be developed and promoted comprehensively no matter in what
kind of power supply and demand situation. However, attention must be paid to the
present DSM work still stay in the preliminary and exploration stage to a great
extent, the means taken are mainly administrative commands, economic regulation
is insufficient, and powerful policy and law support is especially insufficient.
Power grid enterprises still need to summarize experiences continuously, solidify,
and develop the DSM achievements which have been got, explore new DSM fields
continuously, and establish a flexible and long-acting dynamic mechanism with
complete laws and regulations, policy support, powerful organization in future.
4.7.2 Demand-Side Management Work Condition of Power

Grid Enterprises in Jiangsu Province
In recent years, in order to promote standard and long-acting development of

DSM, according to the actual conditions, the DSM was combined with sustainable
energy development, improving energy terminal utilization efficiency, and
releasing power supply shortage; active exploration was carried out in both theory
and practice [3].
4.7.2.1 Developing Subject Research and Issuing Implementation

Method
The subject research on DSM in Jiangsu has been developed; the conception of
DSM implementation system in Jiangsu and corresponding countermeasures have
been raised in multiple aspects like policy, economy, and technology, etc.;
Implementation Method for DSM in Jiangsu Province (Trial) has been issued.
4.7.2.2 Strengthening Technical Innovation and Promoting

Demonstrative Projects
The raised funds has been mainly used for promoting DSM demonstrative projects,
encouraging enterprises to use advanced power saving technology and manage-
ment measures, guiding enterprises to carry out technical innovation and equip-
ment renovation, and improving overall electricity utilization efficiency. The total
amount of funds raised in the four years were RMB 240 million Yuan; over 400
DSM demonstrative projects including electricity storage, maximum demand
control, green lights and frequency control were organized and implemented.
In this way, 580 MW peak load was reduced; 2 TWh power was saved annually;
9,200 ton SO2 emission was reduced; nearly 2 million tons CO2 emission was
reduced; the economic and social benefits were obvious.
4.7.2.3 Applying Economic Lever and Adjusting Resources Rationally
From 2002, funds were raised in Jiangsu province to implement interruptible peak
load shifting to steel plants. The trial implementation of interruptible load
peak shifting mode was carried out in 5 steel plants in Suzhou and Wuxi where
peak load is insufficient, and the maximum shifting peak load was about 400 MW
in that year. Economic compensation was provided for the enterprises according to
the standard of compensating 10,000 Yuan for every 10 MW power interrupted
1 h, and RMB 7.86 million Yuan was compensated in total. Calculated according
to the peak load shifting capacity, about 2 billion Yuan was demanded for con-
structing a unit which has the same capacity. In 2003, the maximum interruptible
load was 1 GW; the power shortage was released powerfully and the effect was
good.
Time-of-use price was implemented to guide users to optimize power utiliza-
tion modes and improve electricity utilization efficiency. From Oct. 1st, 1999, the
3:1 time-of-use price was implemented in six main power consumption industries
in Jiangsu; it was extended to 5:1 since Aug. 1st, 2003. It had certain effect on
power grid peak load shifting. The annual transferable peak load during 2003 and
2005 was about 600 MW. In recent years, 12 h during the peak period was
selected as the tip peak period, and the electric price during the period was
enhanced about 1020 %. The effect is cheering that the annual transferable peak
load reaches above 3 GW.
4.7.2.4 Making Strategic Planning and Accomplishing Long-Acting

Management
Jiangsu Electric Power Company and the Natural Resource Defense Council
compiled DSM Strategic Planning in Jiangsu Province (First Draft). According to
the preliminary research, if the 10-year energy efficiency investment plan is
implemented, up to 2015, 42.4 TWh power can be saved annually, which is equal
to the electricity provided by twenty-six 300 MW power generation unit in a year.
At the same time, 15.33 GW power peak load demand can be reduced; 21.20
million tons coal consumption in that year can be reduced; the obtained energy
efficiency resources can meet 11 % newly increased load demand and above 25 %
nearly increased peak load in Jiangsu province. The average life cycle of these
DSM projects is about 14 years; in the life cycle, the electricity cost saved due to
implementation of the energy efficiency investment plan is about 0.12 Yuan/kWh,
which is only equal to about 1/4 of the cost of newly built power generation and
transmission equipment for increasing power supply.
4.7.2.5 Innovating Management Mechanism and Establishing EPP
In order to establish a set of systematic DSM operation mechanisms, the concept

of Jiangsu Efficiency power plant was raised in Jiangsu province and the
implementation of Jiangsu EPP construction work was started. At the end of 2005,
Jiangsu Electric Power Company printed and issued an uniform investigation
scheme and questionnaire, and carried out energy efficiency potential investigation
on totally 16,276 units including large industrial units with installed capacity as
500 kVA and above and commercial units with the installed capacity as
1,000 kVA and above as well as other lighting units in a half year. The total power
consumption of the investigated units was nearly 75 TWh, which accounted for
40 % in all social power consumption in that year. According to the analysis on the
investigation data, the reformable capacity potential rate was 12 %. After the
reform was implemented, 1.4 GW power could be saved annually. On the basis of
this investigation, in 2006, through the review by experts in the whole province,
more than 300 enterprises with comparatively high power saving potential were
selected as the target enterprises of Efficiency power plant construction in that
year. RMB 100 million Yuan was input to provide subsidy for four types (lighting
equipment, industrial motor, electric drive, and motor drive) of above 600 reno-
vation and reform projects of the target enterprises and the subsidy proportion was
30 % of the project investment. Based on it, the enterprises were driven to invest
more than 1 billion Yuan autonomously to carry out all-round power saving
equipment reform.
4.7.2.6 Developing Promotion Widely and Holding More Power

Saving Meetings
In recent years, power saving promotion has been developed powerfully in Jiangsu
Province; power saving activity climax was raised in various forms. Aiming at the
characteristic that the energy consumption of products of metallurgy, building
materials, chemical engineering, and machinery industries is high, to promote the
power saving consciousness of high energy consumption industries in the whole
province and the whole society and carry out scientific development view and
sustainable development strategy comprehensively, the on-the-spot power saving
management experience communication meetings were held Jiangsu province
according to industry classification to promote the experiences of enterprises with
outstanding energy conservation effect in strengthening power saving management
actively, implement comprehensive power saving technology reform, and advo-
cate more enterprises to develop DSM activities deeply.
References
1. National Development and Reform Commission (2007) Power demand-side management in

China (white book). China Electric Power Press, Beijing
2. Hu Z, Moskovitz D, Zhao J (2005) Demand-side Management in Chinas restructured power
industry: how regulation and policy can deliver demand-side management benefits to a
growing economy and a changing power system. ESMAP World Bank Report,
314(05):4344
3. Website of SGCC power demand-side management. http://www.dsm.com/. Cited 10 Jan
2008
4. Website of power demand-side management of Beijing electric power company. http://
www.bjdsm.com/web/. Cited 10 Jan 2008
5. Demand-side Management Instruction Center of State Grid Corporation of China (2005)
Practical technology of demand-side management. China Electric Power Press, Beijing
6. Zhang S (2006) Function and application of load management system, Yunnan Electric
Power, 34(3):69
7. Wang Y, Zhao Y, Pan Z (2003) load control technology. Northeast Electr Power Technol,
24(3):34
8. Jiang B (2004) Analysis and research on peak load shifting in Nanjing city. Energ Res
Utilization, (6):1215
9. Wang W (2004) Establishing complete power utilization mechanism and implementing
scientific and rational orderly power utilization. Demand-Side Manag 6(5):810
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Cited 12 Sep 2012
11. Shao W (2004) Planned electricity for dealing with power shortage in Ningbo metropolitan
district. Distribution and Utilization 6:36
12. Website of Hebei province power demand-side management. http://www.hbdsm.com/. Cited
10 Jan 2008
Chapter 5
The Backbone of DSM Implementation:
Energy Service Companies
5.1 Energy Service Companies are the Hardcore

for Implementing DSM Projects
Energy service company (ESCO) [sometimes spelling Energy-saving Service

Company abbreviated as ESCO or Energy Management Company (EMCO)
abbreviated as EMCO], it is the hardcore with qualification to assist the gov-
ernment and power utilities in carrying out demand-side management (DSM) plan
or voluntarily implementing DSM projects which grow together with DSM
projects.
ESCO is a successful international experience as the medium for carrying out
DSM, which makes energy-saving benefits from offering various energy services
to customers, jointly undertaking energy-saving investment risks, shares energy-
saving benefits and managing operation mechanism with customers, and greatly
reduces the investment risks in saving energy for power users. Its highlighted
advantage is to raise the ability of customers to overcome primary investment
obstacles, drive reasonable configuration of resources, and offer more employment
opportunities.
In light of development conditions, ESCOs were unlimited by the pattern and
scales, can be professional, comprehensive and managerial; can be independent
operation entity and subsidiaries under power utilities. They serve not only power
users but also administrative departments such as governmental organizations and
public utilities. ESCOs in many developed countries have carried out transnational
consultancies and services, among which some companies set DSM consultation
service department especially. It can be seen from practices and experience of
industrialized countries for the past over 20 years that it is an effective way for no
matter independently operated ESCOs and those subordinate to power utilities to
assist the government and power utilities in carrying out DSM plan and offer
energy-saving and electricity-saving services with cost benefits to customers.
At present, the following types of ESCOs are carrying out DSM businesses in
China:

288 5 The Backbone of DSM Implementation
1. Local or industrial energy-saving service center

Since the early 1980s, China has built the largest and the most unique energy-
saving system in the world, which has been operated by the central energy-saving
competent department, local or industrial energy-saving service center and energy-
saving management departments in enterprises; the country has offered special
funds to energy-saving demonstration projects. Under the original planned eco-
nomic system, local or industrial energy-saving service centers have played
important function in the planned energy-saving system.
Since 1990s, local or industrial energy-saving service centers have gradually
changed the operation mode according to instructions of the government in the
past, explored and carried out commercial operation for energy-saving technolo-
gies and services and offer information, consultancy, and technical services to
enterprises in all fields so as to adapt to new economic trends along with reform of
economic system in China, which mainly include: (1) reform project of energy-
saving technology; (2) push forward energy-saving technologies and products; (3)
test energy balance of enterprises and instruct enterprises in saving energy and
reducing consumption; (4) assess reform projects of energy-saving projects of
enterprises; (5) carry out researches on soft topics and offer grounds for the
government to make decisions; and (6) monitor energy conservation of enterprises.
2. ESCOs supported by the government
The Chinese Energy-saving Promotion Project funded by WB and GEF is
jointly carried out by the National Development and Reform Commission, the
World Bank (WB) and global environment facility (GEF), aiming at saving energy
sources, raising utilization ratio of energy sources, reducing discharging green-
house gases, and protecting large international cooperation projects in global
environment, which is also a large international cooperation project for govern-
ment to transform mechanism by foreign capital.
One of core contents of the project is to introduce, demonstrate, and publicize
the international advanced new concept in energy-saving projects of energy
management contract (EMC) or energy performance contracting (EPC) with the
capital and technical support of three international organizations include European
Union (EU), WB, and GEF.
Since the project was implemented in 1998, three demonstrative ESCOs and an
energy-saving information dissemination center have been established in Beijing,
Liaoning, and Shandong. They were Beijing Yuanshen Energy-saving Technology
Co. Ltd., Liaoning Energy-saving Technology Development Co. Ltd., Shandong
Energy-saving Engineering Co. Ltd., and national energy-saving information
dissemination center. Since EMC mechanism is a new concept in China, the three
demonstration companies have gained grants from EU and GEF and loans from the
WB in the beginning of establishment. Meanwhile, the former State Economic and
Trade Commission have offered relevant supports so as to help three ESCOs to
overcome development obstacles in the beginning. The three demonstration ES-
COs have conducted commercialized operation by operation modes of ESCOs in
5.1 Energy Service Companies are the Hardcore 289
developed countries; EMCs signed with customers are different due to different
service objects and detailed contents, including contracts ensuring energy-saving
effect, contracts sharing effects, and contracts of equipment leasing.
Since the beginning of establishment, the three ESCOs have started to imple-
ment energy-saving projects, energy-saving businesses and illumination reform,
dynamo speed-governing reform, fuel stratified injection reform of the boiler,
reform the electro-hydraulic hammer to the steam hammer, arc furnace short net
reform, and industrial furnace reform according to EMC mechanism; furthermore,
they have carried out energy-saving projects by grants, loans and personal capitals,
and exploring scaled business market in customer enterprises.
3. Other types of ESCOs
Since the 10th Five-year Plan (20012005), energy-saving and emission-
reduction has been focused gradually in order to restrict energy consumption in
GDP of enterprises high, bringing infinite business opportunities to energy-saving
markets and emerging plenty of ESCOs with obvious market characteristics. These
ESCOs take private enterprises as the main body and attract domestic and inter-
national famous large enterprise and electrical equipment giants such as Mainland
Hope, Broad Air Conditioning, ABB, Siemens, Schneider and Honeywell etc., to
join in energy-saving services in China.
5.2 ESCOs are the Professional Service Organization

in Energy-Saving Market
ESCOs operate flexibly with relatively simple operation procedures; energy-saving

projects implemented have strong replicability and are easy for transferring high-
quality and high-efficiency energy-saving products to users more rapidly. ESCOs
with qualification have broad development space in governmental institutions,
public utilities, culture, education and health, commerce and service industry, and
small and medium-sized industrial enterprises. In particular, Energy Conservation
Law revised and issued in 2007 confirms attitude of the country to support and
cultivate energy-saving service industry, so that it has broader development
prospect.
5.2.1 ESCO and EMC
EMC is an effective DSM operation mechanism, which is specifically introduced in

quarter IV of Chap. 3 in the book. ESCO is a kind of profession company operating
based on EMC mechanism with profitability as the direct aim, which signs energy-
saving service contract with power users willing to conduct energy-saving reform,
invests in or finances for energy-saving projects of power users, offers coordinated-

process services such as energy efficiency audit, energy-saving project design,
purchase of raw materials and equipments, construction, monitoring, training,
operation and management to power users, wins profits, and pushes forward
development through sharing energy-saving benefits from implementing projects
with power users. ESCO is a special industry; such particularity lies in that its sales
is not a kind of detailed product or technique but a series of energy-saving service
which offers energy-saving capacity to customers.
ESCO must guarantee the following aspects while carrying out energy-saving
projects for customers in form of EMC:
1. ESCO should sign energy-saving service contract with customers, offer coor-
dinated-process integrated services to them and ensure acquiring energy-saving
capacity regulated in the contract.
2. ESCO recovers investment and gains certain profits from benefits of energy-
saving projects.
3. ESCO offers energy-saving services to customers and undertakes most risks of
projects; while repayments to ESCO and personal benefits of customers all
come from energy-saving benefits; thus, the cash flow between customers and
enterprises is positive all the time.
5.2.2 Business Features of ESCO
EMC businesses carried out by ESCO have the following features [1]:
1. Commerciality: ESCO is a company operated commercially, which realizes
winwin through carrying out energy-saving projects in form of EMC mech-
anism. It is a commercialized entity of energy-saving service under market
economy, striving for survival and development in market competition and
distinguished fundamentally from energy-saving service centers subordinate to
local governments and those with some governmental functions.
2. Conformability: Business of ESCO is not to promote products, equipments, or
technologies in common sense but to offer integrated energy-saving services
and complete energy-saving solutions to customers through EMC mechanism
and carry out Turnkey Project for customers, which is not a financial organi-
zation but can offer capitals to energy-saving projects of customers; which is
not an energy-saving technique owner or energy-saving equipment manufac-
turer but can choose and offer advanced and mature energy-saving technologies
and equipments to customers; which does not definitely have engineering
ability to carry out energy-saving projects but can guarantee quality of projects
to customers. As for customers, the biggest value of ESCO is offering various
selective integrated engineering facilities and good operational services to
customers to carry out energy-saving projects so as to realize energy-saving
capacity or benefit stipulated with customers.
5.2 ESCOs are the Professional Service Organization in Energy-Saving Market 291
3. Winwin: A big feature of EMC business is that: successful implementation of

a project will make all parties involved in the project (ESCo, power users,
energy-saving equipment manufacturers or suppliers and banks etc.) share
relevant benefits so as to form a winwin situation. As for shared EMC busi-
nesses, ESCO can share most energy-saving benefits during the contract period
so as to recover investment and acquire reasonable profits; customers can share
some energy-saving benefits during the contract period and will acquire all
energy-saving benefits of the project and ownership of energy-saving equip-
ments invested by ESCO after the contract period. Furthermore, they can
acquire precious experience in construction and operation of energy-saving
technologies and equipments. Energy-saving equipment manufacturers sell
products and recover loans; banks can recover loans of projects with both
principal and interest. It is the winwin that entitles EMC with the potential of
sustainable development.
4. Risk: ESCO often invests in energy-saving projects and promises energy-saving
benefits to customers; thus, it bears most risks of energy-saving projects. We
can say EMC business is a business with high risks; its success depends on the
ability to analyze and manage various risks of energy-saving projects.
5.2.3 Type of ESCO
ESCO carrying out energy-saving projects by EMC mechanism forms different

types of development modes, because there are obvious differences in key
resources relied upon by it at the beginning of the establishment and during the
operation, which mainly take on as the following three types [2]:
1. Capital-reliable type. Three demonstration ESCOs are representatives,
including few new ESCOs. Abundant capital is an obvious advantage for them
to enter into markets; their operational characteristic is to take market demands
as the guide, integrate energy-saving technologies and products and carry out
energy-saving projects. Such ESCOs are not limited to a single energy-saving
technology and product with large flexibility, big market span and strong
radiation ability, which can carry out projects with diverse industrial and
technical types. However, its ability to choose energy-saving technologies,
energy-saving products, and control risks while operating energy-saving pro-
jects still needs strengthening.
2. Technique-reliable type. Energy-saving technologies and products of ESCOs
developing from these technologies and products are the core competitiveness,
through which ESCOs explore markets, gradually finish primary accumulation
of capitals, unceasingly seek new financing channels, and win larger market
shares. Such ESCOs have proprietary intellectual property rights mostly to
carry out controlling technical risks of energy-saving projects with high profits.
Besides, they have definite market orientation, which is good for forming
competitiveness in certain industry; they will develop rapidly if they can keep
continuous technical innovation and settle financing obstacles well.
3. Market-reliable type. ESCOs have advantageous customer resources in specific
industry and carry out energy-saving projects through integrating correspond-
ing energy-saving technologies and products by customer resources in hand,
which have low cost in exploring markets and few risks from customers due to
deeply cognition to customers; so it is good for establishing long-term coop-
erative relationship. They should collaborate with better partners for technology
risk control.
5.2.4 Service Type of ESCO
There are two types of technologies about energy-saving service: technological

energy conservation and energy conservation of EMC
1. Technological energy conservation refers to a kind of energy-saving method
raising energy utilization ratio of the whole process or equipment through
reforming original technological process or reforming or altering energy con-
servation to energy-consumption equipments in the original technological
process, which is often realized through obsoleting the old, improving tech-
nology, and retrofitting energy economizer etc. Many technologies about
technological energy conservation are mature and the period for recovery of
investment is often 15 years.
2. Energy conservation of EMC refers to carrying out corporatization, socializa-
tion, professionalization, and standardization management and maintenance to
various energy-consumption equipments which have been put into use by
modern management and service technologies according to entrusted man-
agement contract so as to control energy consumption of enterprises, raise
utilization ratio of energy, ensure reasonable and optimal utilization of cor-
porate energy, meet motive power and comfort level of corporate production
and office and offer safe, high-efficiency and considerate EMCs to enterprises,
which is an important part of property management service and business
management and the extension and supplement of energy supply service. EMC
is always realized through strengthening maintenance, staggering power con-
sumption, computer remote monitoring, and strengthening management etc.
At present, energy-saving service mainly takes the form of technological energy
conservation. Some projects with mature technologies and reasonable economy
have appeared in the society along with unceasing development of various energy-
saving technologies and equipments. Energy-saving management has become an
important content in energy-saving service industry in many European and
American countries; customers entrust management of energy-consumption
equipments to ESCOs as property management; and ESCOs offer EMCs to
customers in from of contracting their energy expenses etc. EMC will become a
leading way for energy-saving service in future.
As for energy conservation of EMC, ESCOs must have experts in energy audit
and energy management inside and harbor a batch of professional technicians
familiar with initiation, operation, management, and maintenance of various
energy-consumption equipments, namely must have their own professional talents
first. Then, they must have various instruments and equipments to monitor energy-
consumption time and condition of energy-consumption equipments to analyze
and judge operational condition of these equipments; moreover, they should
positively develop computer remote energy monitoring information system to
automatically record, analyze, and sort all parameters by which corporate energy
can operate and relieve labor intensity and population of maintenance personnel.
Furthermore, they must have advanced and mature energy management technol-
ogies and experience, create scientific and practical energy management method,
offer professional and practical energy-saving technologies and equipments, carry
out effective users side load management, formulate detailed manual for oper-
ating, running, maintaining and repairing equipments and rigid regulations, sys-
tems, and working processes for energy management for enterprises.
5.2.5 Operation Mode of ESCO
The most important part of the energy-saving service contract refers to how to
confirm the datum line of energy consumption, how to calculate and monitor
energy-saving capacity, how customers pay ESCOs etc.; it is extremely important
to clearly state the above contents and make customers understand in the contract.
The way of customers to pay ESCOs are different according to their own
responsibilities; and energy-saving service contract can be divided into different
types. The following basic types have come out along with unceasing development
of EMC in China, which is basically similar to situations in North America, Japan,
and Korea etc. [2, 3].
1. Guarantee payment mode of energy-saving capacity. All the investment and
risks of energy-saving reform projects are born by ESCOs, which promise
energy-saving capacity in certain proportion to enterprise during the contract
period for paying the cost of the project. ESCO should burden the part not
reaching the promised capacity; the surplus part should be burdened by both
parties till ESCO recovers all investments of energy-saving projects and cor-
responding profits. When the contract ends, advanced and efficiency energy-
saving equipments can be freely transferred to the company and corresponding
energy-saving benefits should all belong to the company. Such mode is suitable
for ordinary enterprises with high credibility degree and energy-saving
awareness.
2. Sharing mode of energy-saving benefit. All the investment and risks energy-
saving reform projects are born by ESCOs; after projects are implemented, both
parties should share energy-benefits in proportion during the contract period
after they confirm energy-saving efficiency jointly. After the contract ends,
advanced and efficient energy-saving equipments can be freely transferred to
companies, all corresponding benefits should shared by ESCOs in future; such
mode is suitable for enterprises with high creditability.
3. Trusteeship mode of energy expense. ESCO should take responsibility for
reforming equipments with high energy consumption of enterprises and manage
all energy-consumption equipments. During the contract period, both parties
would contract energy consumption and maintenance of enterprises according
to agreed energy expenses and management fee. After the contract ends,
advanced and efficient energy-saving equipments can be freely transferred to
companies, all corresponding benefits should shared by ESCOs in future; such
mode is suitable for enterprises with low creditability but without energy-
saving awareness.
4. Construction mode of reformed project. Enterprises entrust ESCOs to carry out
energy audit, integral saving-energy schematic design, energy-saving reform
engineering construction, pay an advance payment before the project, sched-
uling payment during the project and completion payment after the project
according to construction of ordinary projects; such mode is suitable for
enterprises with strong energy-saving awareness understanding energy-saving
technologies and benefits. ESCOs operating this mode have the lowest benefit,
because it is regulated in the contract that they cannot share tremendous ben-
efits from energy-saving projects.
5. Service mode of energy management. ESCO offers not only energy-saving
services and energy management. As for many operators, energy and its
management is not a part of the core ability of enterprises; self-management
and self-service is a way with low efficiency and high cost. It is good for
utilities to concentrate on raising core business and core competitiveness
through using professional services offered by ESCOs and realizing outsourcing
of energy management. There are two modes of EMCs: proportional contract of
energy expense and classified charge of device.
Any type of payment stated above can be properly flexible so as to adapt to
detailed situations of enterprises with different energy consumptions and special
requirements of energy-saving projects. Nevertheless, ESCOs and customers must
fully understand all clauses of the contract no matter in what type of payment; the
contract is fair to both ESCOs and customers, which is good for both parties to
keep good relationship. The contract should encourage both parties to devote to
pursuing the maximum possible energy-saving capacity, ensure that energy-saving
equipments can operate continuously and well in during the whole contract period
and both parties can win the maximum income from energy-saving benefits, which
is also the target mutually pursued by ESCOs and customers.
5.2.6 Operation Means of ESCO
Energy-saving operation means of ESCO mainly includes the following aspects

[1]:
1. Obsolete the oldraise energy efficiency. We can renew and obsolete old
electric equipments with high energy consumption, raise efficiency of energy-
consumption equipments, save energy down to earth by advanced technique,
and scientific method. For example, it can make remarking electricity-saving
benefits through replace filament lamps by energy-saving lamps, T8 lamps by
T5 lamps, and high-voltage mercury lamps by metal halide lamps and air-
condition host engines of by host engines of central air-conditioning with good
energy efficiency.
2. Improve technologydig out potential and strengthen efficiency. We can
improve the technological process to reach several services of one machine and
fully dig out potentials and enhance efficiency to raise comprehensive utiliza-
tion of energy. For example, we can adapt Water Source Heat Pump in areas
with abundant water resources, Ground Source Heat Pump to supply heat and
offer domestic hot water in areas with broad terrain, recovery of waste heat of
air conditioning unit to offer domestic hot water.
3. Strengthen maintenancereduce losses. Maintenance is very important for
energy-consumption equipments, which can reduce the fatigue wear of
equipment. We can reduce loss and maintenance cost of energy-consumption
equipments so as to effectively reduce energy expenditure of power users by
advanced and scientific equipments and technologies.
4. Install new energy economizerreduce energy consumption. We can install
new frequency converter and save energy through changing running speed and
soft start of motors. It is suitable for situations where loads of draught fans and
water pumps change often without constant speed. We can also new frequency
converter and save energy through reducing voltage, eliminate harmonic wave,
restrain electrical surge and adjust idle work, which is suitable for electrical
situations with insensitive change of voltage.
5. Remote monitoring of computerscientific energy utilization. We can realize
scientific management and effective utilization of terminal energy-consumption
equipments through monitoring time and condition to consume energy of
energy-consumption equipments by computer remote monitoring technique,
analyzing and judging operation condition of energy-consumption equipments,
reasonably adjusting load of energy, enabling energy-consumption equipments
to be at the best energy-consumption condition for a long time and utilizing
energy according to the principle that demand is supply.
6. Strengthen publicity and managementsave energy. We can strengthen
energy-saving awareness of people through broad and diverse publicity and
education activities; completely eradicate using unreasonable energy-con-
sumption equipments through rigid regulations and systems; prevent waste of
energy sources through field tour and inspection.
5.3 Current Situation and Prospect of Development

of ESCOs in China
5.3.1 Progress of Energy-Saving Promotion Projects

in China
5.3.1.1 Project Background
The Chinese Energy-saving Promotion Project funded by WB and GEF is a large

international cooperative project jointly organized and implemented by the former
State Economic and Trade Commission on behalf of government, the WB, and
GEF. It was practically implemented by the National Development and Reform
Commission (NDRC) since 2003. The project aims at introducing, demonstrating,
and publicizing the mode of EMC, establishing new energy-saving mechanism
based on market, overcoming market obstacles, promoting popular implementa-
tion of various energy-saving projects, raising energy efficiency in China, reducing
discharging of CO2 and other pollutants, protecting environment in the world and
various regions, publicizing new energy mechanism, organizing various new
ESCOs, forming energy-saving industry in China, attracting various investors,
making commercial investment to energy-saving projects, and promoting fast
development of energy-saving industry.
The project aims at supporting and establishing three demonstrative ESCOs,
building a national energy-saving information dissemination center and offer
technical supports to the project in phase 1; establishing more and diverse ESCOs
phase 2 based on successive demonstration in phase 1, offering strong supports to
establishment, operation and development, and promoting formation of energy-
saving industry in China [2].
5.3.1.2 Progress of the First Phase of the Project
Phase 1 of Chinese Energy-saving Promotion Project of WB/GEF was imple-

mented in December 1998, supporting and establishing three demonstrative ES-
COs, building a national energy-saving information dissemination center.
1. Demonstrative ESCO. It is a major content to establish three demonstrative
ESCOs in phase 1. They are Beijing Yuanshen Energy-saving Technology Co.,
Ltd. (abbreviated as Beijing Energy-saving Service Company), Liaoning
Energy-saving Technology Development Co., Ltd. (abbreviated as Liaoning
Energy-saving Service Company), Shandong Energy-saving Engineering Co.,
Ltd. (abbreviated as Shandong Energy-saving Service Company). EMC energy-
saving projects operated by three companies are all benefit-shared projects.
2. Energy-saving information dissemination center. The other major content is to
support and establish a national energy-saving information dissemination center
5.3 Current Situation and Prospect of Development of ESCOs in China 297
in phase 1, whose task is to collect, develop and freely issue energy-saving

technology information with authority and practical applicability to relevant
energy-consumption units on behalf of national energy-saving competent
departments and push forward energy saving and environment conservation of
the whole society.
5.3.1.3 Progress of the Second Phase of the Project
New demonstrative energy-saving mechanism in phase 1 achieves good effect,

namely it is welcomed by power-consumption enterprises for three demonstrative
ESCOs to operate energy-saving technical reform projects by EMC; energy-saving
technical reform projects implemented by them all gain great energy-saving effect,
emission-reduction effect of CO2 and other environmental effects. By virtue of
this, National Development and Reform Commission and the WB jointly decided
to initiate phase 2 of the project on November 13, 2003.
1. Target in phase 2. The main target is to promote transition of energy-saving
mechanism in China, enlarge energy-saving investment, raise utilization ratio
of energy, reduce discharging of greenhouse gas, and protect regional and
global environment through demonstrating and popularizing new energy-saving
mechanism of EMC. By popularizing new energy-saving mechanism in the
whole country, promoting industrialization development of ESCO, forming
energy-saving industry in China as soon as possible, Chinese Government
strives for winning accumulated energy capacity amounting to 35.33 million
tce during 7 years (life time of the project) of implementing phase 2 and
100 million tons of accumulated emission reduction of CO2.
2. Task of phase 2. The main tasks comprise the two aspects. (1) service subpro-
jects of ESCO offer forceful technical supports to new/potential ESCOs in
pertinence, help them establish and raise operation ability in all aspects, promote
more establishment and development, and form energy-saving industry finally in
China; (2) establish guarantee mechanism of commercial loan of ESCO.
3. The executive organization of service subproject of ESCO in phase 2. Energy
Management Company Association (EMCA) is a non-profit social association
officially approved and established by Ministry of Civil Affairs, which was set
up on April 3, 2004 and whose predecessor is the development service group of
ESCO of the project office in April 2001.
By the end of 2011, EMCA had nearly 800 associator companies in China, who
invest more than RMB 29 billion Yuan by EMC. Professional Service Company
took the upper hand in earlier days operating EMC projects; at present, there are
three types: professional EMC Service Company, professional sales company and
manufacturer of energy-saving products, among which manufacturer of energy-
saving products has advantageous cost in operating EMC projects but has no
experience and capacity of financing and operating projects usually.
5.3.2 Development Status of Energy-Saving Service Industry

in China
From 2003 to 2010, total investment amount of ESCOs had risen greatly and the
investment in EMC project had risen stably. In 2003, the total investment was
RMB 1.1 billion Yuan; in 2005, it rose to RMB 3.1 billion Yuan; in 2011, it rose
to RMB 41.2 billion Yuan [1, 4].
Target markets of ESCO refers to many fields; in the view of project quantity,
architectural field covers the most, industrial field takes up the second place with
obvious increase in project quantity but the transportation field has fewer projects.
In the view of total investment amount, investment in industrial region field is
larger, while that in transportation field is lower.
After developing for many years, ESCOs in China have been gradually growing
up and spreading all around the country. All capabilities of ESCOs to carry out
energy-saving projects including market development, risk control, project
financing, and project management have been raised fully; energy-saving service
projects are distributed in fields such as industry, architecture and transportation,
cover industries such as steel, petrifaction, building material, transportation,
electricity, and architecture; there are mainly illumination, heat and cold supply,
boiler reform central air conditioning, technological energy saving, frequency
control of motor speed, thermal storage (cold), and comprehensive electricity
saving etc.; development of energy-saving service industry has been increasingly
mature and grown.
Tremendous market potential and commercial value in energy-saving industry
enables it to be a field full of gold ore essentially; however, market potential is also
market demand, while potential users become realistic users; it is another thing to
changing demand into sales volume. This argument is quite suitable for energy-
saving market. The contract period of the project may be one year or several years,
because investment income of ESCOs is derived from energy-saving benefits of
energy-saving projects in future; thus, we must fully focus on potential risks in the
operation and control them at germination stage.
5.3.2.1 External Condition
Support Strength of the Country has been Unceasingly Strengthened
Although it is proposed in Energy Conservation Law revised and issued in October

2007 that the country encourages developing energy-saving service originations,
supports them to carry out consultancy, design, assessment, detection, audit and
authentication about saving energy and the country supports and popularizes
DSM, EMC, energy-saving voluntary agreement by financial tax and price etc.;
however, accessory material encouragement policies have not been formulated and
energy-saving progress of governmental organizations is slow; Meanwhile,
unreasonable fiscal and taxation policies obstacle full execution of energy-saving

market. Under such circumstance, it is very important to formulate suitable and
loose policies for energy-saving works with nature of public affairs.
Social Integrity has been Unceasingly Raised
Successful implementation of EMC project is a mutual target of both ESCO and

customer; benefit of customers is to gain excellent energy-saving equipment and
long-term energy-saving and environmental effect from no or few capital invest-
ment; ESCO gain profits from successful projects. It is proved from many cases
that sincere cooperation of both parties is the most important.
However, customer will regard ESCO as the promoter of electricity-saving
products in primary contact of the project and worries about that they cannot or are
unwilling to offer real and accurate materials for damaging or reducing properties
of equipments, resulting in that energy audit report of ESCO is not scientific and
practical and posing shadow to following EMC projects. If EMC project finds that
energy-saving efficiency is not as good as what it expects after investing heavy
capital to reform equipments, a big reason is insincere cooperation of customer or
backward management service of ESCO; limited electricity-saving rate cannot
make up for flaws in management, so ESCO has difficulty in preventing technical
and economic risks. Some energy-saving companies also lack rigid management,
they just focus on marketing instead of services and cannot guarantee energy-
saving capacity; or they have good energy-saving efficiency in experiments but
cannot reach proper effect and damage image of energy-saving industry.
Energy-Saving Economic Benefit has Authoritative Assessment
After the energy-saving reform, it needs a set of authoritative evaluation index

system about how to evaluate whether energy-saving capacity or effect reaches
requirements regulated by the country and whether it indeed brings economic
benefits to customers. At present, most energy management departments have no
classified measurement to energy utilization and market lacks evaluation mecha-
nism for energy-saving effect. After the energy-saving reform, it needs a detailed
and effective method to examine which energy sources are saved due to energy-
saving measures and which are saved due to other factors. In order to avoid zero
return to investors and zero reward to technicians, energy-saving projects need an
authoritative evaluation.
Energy-Saving Awareness of Enterprises has been Unceasingly Strengthened
Many enterprises only focus on enlarging production scale and fortifying market
share of products and pay attention to the production cost, transportation cost and
labor cost, but neglect the energy management and establishment of account book
of energy consumption or sorting unit consumption of product energy, pay less
attention to and lack enthusiasm in saving energy for want of compulsory mea-
sures from the government.
Dissemination and Publicity Strength About Energy-Saving Information has been

Unceasingly Enlarged
On the one hand, ESCO finds tremendous market potential of energy-saving

industry; governmental department finds tremendous contribution to energy saving
and environment conservation; on the other hand, decision makers of enterprises
lack understanding about knowledge and information about saving energy, cannot
see authoritative and practical comprehensive energy-saving information, espe-
cially lack information about cost of energy-saving project, analysis about eco-
nomic benefit and finance; what is more, enterprises are confronted with short
capital and positivity about saving energy now. There is serious information gap in
energy-saving industry market and energy capital market; private investors and
commercial investment organizations do not understand profitability or energy-
saving projects and potential of energy-saving markets and worry about potential
risks of energy-saving investments, resulting in difficulties in financing of energy-
saving projects.
5.3.2.2 Internal Factors
ESCO Should have Sufficient Capital
Market mechanism of EMC requests ESCO to possess strong capital strength.

Since EMC projects have a long capital payback time, ESCO will develop hardly
once follow-up capital cannot be supplied continuously. Commercial banks will be
willing to help but unable to operate energy-saving projects, since these projects
are risk-investment projects. The WB or the government investigates social ben-
efits of environment conservation, while ESCO cares about economic benefits of
energy saving, so both hold different starting points. In order to make financing
convenient and raise credit guaranty, ESCO must have historical bank records.
ESCO Should have Core Competitiveness
At the present stage, energy-saving industry has a low doorsill; good and bad
ESCOs are intermingled and many companies do not have core competitiveness
for remaining invincible unceasingly. Some have small scale, staffs lack strong
overall quality, internal management is not standardized, technical content of
products is low, deeply and continuous research and development ability is not
strong, some companies do not have independent products, lack core competitive
technique and depend successively on relationship and personal customer
resources to explore markets; some companies have backward technique gradually
in fierce market competition after short-term resplendence; follow-up research and
development cannot catch up, then companies can continue to operate hardly.
ESCO Should have Reasonable Talent Structure
Energy-saving service has a wide coverage, referring to architecture, equipment,

economy, financing, law, marketing and management, and needs a professional
talent team based on research, technique, management, and service.
How to reasonably settle the above questions is the key for successfully
implementing EMC business in China. In that case, ESCO can gain sufficient
capital from capital markets and acquire needed commercial loans from domestic
financial organizations smoothly and continuously and enlarge its business scale so
as to establish a market framework making EMC develop sustainably.
5.3.3 Development Prospect of ESCO in China
China is the second giant of energy consumption only next to America and one of
the countries with low energy utilization ratio in the world. Meanwhile, price of
energy products in domestic and international markets has been souring, greatly
adding cost of economic growth and corporate development; while backwardness
of domestic technique, product and operation mode also greatly raises GDP energy
consumption level in China. However, there is still certain different when mea-
sured with international advanced level, which indicates tremendous development
potential and space of domestic energy-saving industry. At present, plenty of
energy-saving projects with feasible technique and reasonable economy can be
completely implemented through commercial ESCO. It can be seen from devel-
opment of energy-saving industry in mature market economy countries that new
mechanismEMC is suitable for situation in China; current energy-saving
organizations and potential investors can completely invest in energy-saving
projects and gain benefits and development from it combined with practical sit-
uation in China.
At present, energy saving and emission reduction has become a consensus of
the country and the society; the country has formulated lots of policies and reg-
ulations for further deepening and perfecting policy environment of energy-saving
works and supporting energy-saving production technology and development of
technique and product which plays a positive and macroscopic role in pushing
forward development of such new energy-saving industryEMC.
On the other hand, various enterprises are positively seeking new development
space and profit growth point along with Chinas participation in WTO, increasing
enhancement of global economic integration and aggravation of market compe-

tition. EMC, as a grand new operation mode, will become a new means for product
marketing of manufacturer or distributor of energy-saving equipments and a kind
of way for suppliers of energy-saving services to conduct marketization of tech-
nical capacity. Meanwhile, implementing business mode of energy-saving projects
by EMC mechanism offers a loan channel and investment option with stable
income to financial organizations and potential investors.
International EMC industry has a development course for over three decades
with relatively mature operation mode, which can offers good reference to us. It
also has a development course about a decade at home; or rather, more and more
enterprises have known about, cognized, understood, and acknowledged such
energy-saving mode. Current ESCOs have also carried out lots of successful
projects with rich rewards. EMC mechanism will win good development and broad
publicity and application prospect in China along with gradual maturity of
domestic environmental conditions such as policy, financing, credit, management,
technique, and energy market. At the same time, promotion of EMC will forcefully
push forward energy saving and environment conservation in China and promote
sustainable development of economy.
5.4 Development Situation of ESCOs in the Market

Economy Countries
In market economy countries, ESCO developed gradually after the middle of

1970s, which has become a kind of industry with great influence especially in
North America and Europe. General situation of ESCO industry in the world can
be seen in Table 5.1.
The industry distribution of ESCO has its own merits due to different national
conditions; most are distributed in several industries, mainly in commerce,
industry, and municipal administration. The industry distribution of ESCO can be
seen in Table 5.2.
During more than 10 years in the past, America and Canada have developed
earlier than developing countries due to the value of the government, sufficient
capital source and perfect credit system of ESCO, and energy-saving region is
quite broad.
Development situation of ESCOs in some countries are briefly introduced in the
following.
5.4.1 The United States
ESCO industry in the USA was derived from the end of 1970s and the beginning
of 1980s. The two oil crises broken in 1970s offer opportunities to reduce business
Table 5.1 General situation of ESCO industry in the World [1]
Country Establishment Quantity of Total amount of projects of Country Establishment Quantity of Total amount of
time of the first ESCO in ESCO in 2001 (thousand time of the first ESCO in projects of ESCO
ESCO 2001 USD) ESCO 2001 in 2001 (thousand
USD)
Argentina 1990s 5 \1,000 Slovakia 1995 10 1,700
Austria 1995 25 7,000 Sweden 1978 612 30,000
Brazil 1992 60 100,000 Thailand 2000 6 5,0006,000
Canada 1982 25 50,000100,000 England 1980 20
Australia 1990 8 25,000 Colombia 1997 13 \200
Belgium 1990 4 Egypt 1996 6
Bulgaria 1995 12 Finland 2000 4 5001,000
Chile 1998 3 200 Ghana 1996 13 \100
China 1995 23 49,700 India 1994 48 5001,000
Czechic 1993 3 1,0002,000 Kenya 1997 2 \10
Estonia 1985 20 1,0003,000 Lithuania 1998 3
Germany 19901995 5001,000 7,000 Nepal 2002 2 250
Hungary 1980s1990s 1020 Poland 1995 8 30,000
Japan 1997 21 61,700 South Africa 1998 35 10,000
Korea 1992 150 20,000 Switzerland 1995 50 13,500
5.4 Development Situation of ESCOs in the Market Economy Countries
Mexico 1998 7 Ukraine 1996 5 2,500

The Philippines 1990s 7 America 1970s1980s 60 190,000210,000
303
Table 5.2 Industry distribution of ESCOs [1]

Industry Industry distribution of ESCOs in different countries
Resident Business of ESCOs in 7 countries reaches over 10 %, including Nepal
(30 %) and South Africa (15 %)
Commerce Business of many ESCOs reaches 1040 % in this industry, among which
business in India, Japan and Mexico exceeds 50 %
Industry ESCOs in more than 50 % countries are mainly distributed in this industry,
among which business in Bulgaria, Egypt, Kenya, the Philippines,
Thailand, and Ukraine exceeds 70 %
Municipal ESCOs in some countries have this business, among which business in
administration Austria, Canada, Chech, and Poland exceeds 50 %
Agriculture Only ESCOs in Estonia and South Africa cover this industry
with energy consumption and promote a batch of ESCOs emerge as the times
require. America is the origin place of ESCO and the most developed country for
ESCO industry.
In the USA, ESCOs operating businesses by EMC mechanism have been
developing rapidly under the support of the federal government. Since 1985,
American federal government has supported governmental organizations to carry
out the energy-saving projects with USD 2.5 billion. Afterwards, the federal
government started to consider bringing function of ESCO into play so as to raise
funds for energy-saving projects of governmental buildings for short of finances. In
1992, U. S. Congress passed a bill (EPACT), allowing governmental organizations
to carry out energy-saving projects together with ESCO according to EMC
mechanism, which not only needs no extra governmental budgets but also can win
energy-saving effect. Furthermore, it opens a convenient door for the development
of ESCO. New ESCO has emerged continuously in America and has developed to
a new energy-saving industry. Hundreds of ESCOs compete with each other in the
market, among which 13 companies take up most market shares. It can be shown
in research of American Energy Company Association that the appreciation rate of
income of ESCOs reached 24 % in the past decade. Although the appreciation rate
of income fell after rose since 1996, remaining 9 %, market scope of ESCOs
remained about USD 2 billion in recent years [3, 4].
5.4.1.1 Internal Mechanism of ESCOs
From origination and development of ESCO in America, it has many types of

origination; however, it is a project developer fundamentally, which develops
projects by systematic steps. Internal mechanism commonly applied by ESCOs in
America is introduced in the following.
1. Seek potential customer. All ESCOs will employ people directly or indirectly to
seek or confirm potential customers, contact customers, and introduce basic
principles of EMC mechanism. Once customers hold the intention to conduct
5.4 Development Situation of ESCOs in the Market Economy Countries 305
energy-saving reform, ESCOs will be noticed to contact with customers.

Meanwhile, ESCOs share information of customers and establish relation with
customers through public utilities department. Once customers find there is
need for energy-saving reform, they will ask for cooperating with ESCOs.
2. Equipment audit. If customers show interest after the first exchange, some
ESCOs will make rough audit and diagnosis to their equipments. Then, they
can propose primary suggestions about technique and economy to customers
after the primary audit. Primary audit is always the audit at investment level;
ESCO will evaluate construction, test, maintenance cost and energy-saving
capacity of the project.
3. Project agreement. After the audit at investment level, ESCOs will draft basic
project agreement with customers. The agreement would include a third party
(such as bank and the renting company). There are energy service agreement,
energy-saving benefit guarantee contract, and project agreement etc.
4. Project design. After the project agreement is signed, ESCOs makes prepara-
tion to detailed technical specification of energy-saving projects. Some make
project design by their own designers, some employ engineering consultants to
make project design. They invite tenders by the technical specification.
5. Project construction. Most ESCOs employ a project manager to supervise
installation of energy-saving equipments. The project manager supervises the
contractor by standard construction contract. Quality of construction deter-
mines energy-saving capacity of the project; thus, ESCOs pay special attention
to this stage.
6. Project acceptance. All projects should be accepted by customers, which start
to pay according to acceptance results.
7. Maintenance and survey. ESCOs should maintain and survey the project during
the contract period. Saving expenses of energy should also be surveyed in all
projects so as to determine shared benefits of ESCOs.
5.4.1.2 Type of ESCOs
There are the following types of ESCO in America:

1. Independent ESCO. The earliest ESCO appearing in America is independent,
whose service scope is quite wide, school, hospital, commercial building,
public service facility, governmental institution, resident, and factory. Business
of these companies has been adjusted along with market demands and has
unique professional advantages.
2. ESCO affiliated to the manufacturer of energy-saving equipment. In America,
some manufacturers of energy-saving equipments have noticed that they can
promote their own equipment through services of ESCO; thus, they build
affiliated ESCO, which open energy-saving service market by their own
equipments and various mature technologies.
3. ESCO affiliated to public utility company (electricity, natural gas, and tap
water company etc.). Because electricity benefits of ESCO and its customers
are actually decrease of income of power utilities, many power utilities open
affiliated ESCO, which can not only make up for sale losses caused by elec-
tricity saving of power utilities but also raise quality of power supply through
services of ESCO and promote competitive place of power utilities in power
supply market, because competition of power supply market has been
increasingly fierce since America pushed forward reform (power recombina-
tion) to power production and supply system.
5.4.1.3 Types of Contract Applied by ESCOs
ESCOs often apply two types of contract based on energy-saving performance,

including performance contract which just refers to energy service and perfor-
mance contract combined with energy service and capital preparation. Some apply
common performance contract: energy-saving guarantee type, energy surplus
contract sharing type, energy-saving payment type, DSM contract of public
institution, output income agreement and performance lease, among which energy-
saving guarantee contract is applied most extensively.
In contract sharing energy-saving income, ESCOs will examine and check
energy-saving income regularly; and the payment changes with the energy-saving
income. In contract with energy-saving income payment type, capital and cost of
the project have definite definition. Users use certain proportion of energy-saving
income (80100 % in common) to pay operation d capital costs of the project and
calculate interests according to certain rate. When cost and interest of the project
are paid off, the contact can be terminated or the rest payable contract cost can be
paid by a low proportion (such as 25 %) of the energy-saving income. Generally
speaking, the longest period of the contract should be longer than the time to pay
off all investment costs by the energy-saving income.
In DSM, public utility units sign contract with some ESCO and install equip-
ments for users. Saved loads or electricity paid by public utility units to ESCO
often last 710 years.
In energy or product sales contract, the ESCO installs energy supply system
(boiler, electrothermal generator, and cooling tower etc.), electric and thermal
gages in equipments for energy users. Generally speaking, the contract period is
710 years. A simple skill to perform the lease is to take guarantee of equipments
in the lease contract. During the lease, we should expand guarantee contents of
equipments, so that the rent is connected with normal operation of equipments. If
equipments in the project operate normally, the former type of payment should be
implemented; otherwise, the payment should be stopped.
5.4.2 Canada
Canada is also one of the countries that introduced EMC early. Its first ESCO is
established jointly by governmental organizations and power utilities, which sticks
to commercialized operation, fully shows its profitability opportunity and vitality

through several years of efforts and wins great development. Its major business
market covers governmental building, commercial building, school, hospital,
industrial enterprise, and civil residence etc. The government attaches high
importance to development of ESCOs, not only issuing relevant policies and codes
and taking the lead to accept services of ESCOs, but also encouraging enterprises
and residents to accept services of ESCOs. Six big banks also support the devel-
opment of ESCOs, evaluate users and projects and offer capital privilege [3, 4].
Development of EMC in Canada, different from that in America, has its unique
features:
1. The government and public utilities participate in support. The development
mode of industries in Canada is different from that in America; the government
directly participates in and supports development of ESCOs, for example, the
public utilities department and Quebec Engineering Company build a joint
venture company named by Econoler, whose performance in Quebec sours
under support of governmental projects; the federal government establishes
ESCOs and wins support from major chartered banks and several provincial
governments in Ontario and eastern Canada so that energy-saving businesses
grow up rapidly.
2. Raise core engineering ability. The successful basis of Canadian ESCOs is the
core of realizing reliable and innovative projects all along. In the beginning,
existing machinery and electronic engineering companies offer services to pro-
jects. These companies must rely on their engineering technology to realize
financial targets when price of energy is low and the interest rate is high. Core
engineering continues to lead new methods and development of current Canadian
ESCOs including monitoring and authentication agreement in North America.
3. Establish reliable guild. Just as the situation in all service industries, a lost
project would pose serious bad influence to growth of the industry in many
successful projects. By virtue of it, Canada Association of Energy-saving
Service Company (CAESCO) was established under great support of Ontario
hydropower station, the federal government and Ontario provincial government
in 1987, which promotes orderly development of the industry through identi-
fying, supporting and proposing suggestions to contractors and customers of
energy-saving projects; Its member unit includes ESCO, equipment supplier,
public utilities, government, lawyer and consultant.
4. Reliable tool and technique. The basis of growth of energy-saving service
industry and confidence of consumer mean that expected risks can be minimized
and intangible expenses can be disposed effectively and fairly. Effective standard
contract, bid-inviting preliminary review, qualification identification, optional
program, monitoring and authentication tool and technical cultivation bring
growth of energy-saving service industry in Canada. Canada government
requests energy-saving service is purchased based on both cost and competitive
value-added service. The close cooperation between ESCOs association and the
government has greatly shrunk procedures of official documents and project cost.
5. Participation of financial organization. From the long term, the success of

energy-saving service industry will be closely connected with feasibility of
financing of the third party from different potential organizations. Energy-
saving service projects in Canada are financed by ESCOs in the beginning.
Many large financial organizations with high credit have integrated plenty of
capital into energy-saving service projects till now.
Although industry is the largest user consuming energy in Canada, energy
conservation of building and equipment of public utilities are the main body of
energy-saving services and sales in Canada for two reasons: the first is low risk of
building energy conservation; the second is that origin and development of energy-
saving service are closely connected with participation of governmental organi-
zations. The government and public utilities have assisted in cultivating energy-
saving service market so that facilities of organizations become the main direction
for implementing projects. In 1994, 85 % EMC projects mainly aimed at public
institutions such schools and hospitals; governmental organizations took up a
small part. Till now, it has been indicated from development experience of energy-
saving service in Canada that there is still significant potential target market in a
medium and long term, including industrial equipments, private office buildings,
retail facilities and governmental organizations etc.
5.4.3 European Countries
ESCOs in European countries developed gradually in the end of 1980s. The core
of operate projects operation is to share energy-saving benefits with customers.
However, projects operated by ESCOs in Europe are different from those in
America and Canada. They mainly help users in technical and cogeneration pro-
jects with large investment scale and long time to share energy-saving benefit;
contract of financing and implementing the project is rather complex. ESCOs in
some countries such as France are industrial, for example, they are relatively
developed in coal gas, electricity and water supply etc.; these ESCOs not only offer
energy-saving services but also undertake corresponding works similar to property
management; their benefit comes form not only energy saving but also a series of
services related to energy saving and supply. ESCO in Europe does not have many
types like that in America and Canada; apart from market factors, policies for
energy development and environment protection play more important functions in
building a development environment for its generation and development. Till
2000, there were 70,000 energy-saving service contracts in Europe with a total
investment of nearly 5 billion Euros, among which contract about EMC mecha-
nism covered about 10 %, which mainly concentrated on users of residence, office
building, governmental building and industrial facilities etc. [1]. Spain is taken as
an example to introduce some experience in Europe as follows:
In European countries, Spain is one of the countries short of electricity, which

brings opportunity and driving power to generation and development of ESCOs.
For the past few years, Spanish government has formulated and issued a series of
rigid policies to encourage development of cogeneration and renewable energy
sources starting from the target of energy conservation and environment
protection.
Such policies greatly encourage private investors to develop towards cogene-
ration wind power generation projects. Because these private companies offer a
series of services to users to develop thermoelectricity project and fully apply new
mechanism of EMC, it avoids capital risks and technical risks of projects from
direct investment for users and welcomed by users; furthermore, users can benefit
from projects. Thus, business of ESCOs developed rapidly; at present, their
businesses are rising at a speed by 510 % yearly. Moreover, the government not
only builds a good environment for supporting development of ESCOs through
policies but also make a model for private companies in market exploration,
technology development, risk management and operation mechanism, which is
specifically shown as follows: gradually remanufacture energy research institutes
affiliated to Ministry of Industry and Trade in 1980s to energy institutions (named
IDAE) with two functions of policy research and project demonstration, which not
only offers consulting services and technical supports to Spanish government to
formulate energy-saving policies but also is a localized ESCO. However, IDEA, as
a project developed by ESCO, has exploratory and demonstrative nature, espe-
cially in project financing, form of EMC and risk control of projects, taking the
lead in the whole country. Once the project is operated successfully, it introduces
various medias related to operation mechanism and market potential of the project
to private ESCOs; IDEA will withdraw from the market after private ESCOs
initiate these projects, leaving good markets and opportunities to private ESCOs
and then exploring new projects and markets. Private ESCOs in Spain develop
rapidly due to not only potential energy-saving markets and accessory policies but
also the guiding and demonstrative function of IDEA.
Project operation mechanism of ESCOs in Spain is basically the same as that in
the North America, but it also has its unique features:
1. ESCOs in Spain mainly carry out cogeneration and wind power generation
projects with few industrial energy-saving reform projects and illumination
projects in mansions, because industrial departments have smaller potential in
energy conservation relatively but larger risks in implementing projects. But
there is guarantee from governmental policies to choose cogeneration and wind
power generation projects. Moreover, most customers choosing cogeneration
are public utilities in commerce, hospital, and school with relatively stable
benefit return so as to avoid market risks from users, which is the same to the
fact that ESCOs in America and Canada choose governmental building, hos-
pital, and school to reform illumination and building control systems.
2. ESCOs have the ability to finance and invest, loaning from banks or directly
investing in projects, which called third-party financing. It means to establish a
special joint venture in light of invested projects, which carries out investment,
operation, management, and maintenance of the project.
3. Since most projects operated by ESCOs in Spain are power development
projects, contracts of users are diverse; there are BOT (building, operation, and
transfer), BOO (building, operation and owning), and BLT (building, lease and
transfer) apart from benefit-sharing contract similar to that of ESCOs in
America and Canada. As for ESCOs, the former types of investment have low
risks; after the project is built, it is completely operated by ESCOs without
interference of customers. ESCOs benefit from investment and project opera-
tion. The third operation mode refers to equipment (project) lease actually. At
present, most wind power projects developed by private companies apply BOO;
while cogeneration projects apply BOT and BLT more. ESCOs choose different
contract management ways and sign different types of contract with customers
so as to guarantee reducing risks of projects according to technique of projects
and information about customers.
In Spain, attraction of cogeneration projects to customers is shown not only in
reducing cost of energy sources, needing no extra investment and acquiring high-
efficiency equipments, but also in the following aspects: (1) Cogeneration and
wind power generation projects establish a set of independent energy supply
system for customers, which can guarantee their energy supply, so that they can be
free from power and heat cut. (2) ESCOs update energy supply system for cus-
tomers and offer excellent services without costing their energy and time, so that
they can concentrate on considering operation and development of enterprises,
which just cater to ideas of Spanish operators.
5.4.4 Asian Countries
In the recent years, ESCOs have been developing in Asia, especially in Korea and
Japan with a relatively developed market economy.
1. Korea. The government supports further development of ESCOs through
granting concessional loans (the interest is one-third of the bank rate) and
corporate association: ESCOs and corporate users propose feasibility report and
loan application of reform projects of energy-saving technique to enterprise
institute; then the enterprise institute examines the report and application,
approves the project and entrusts ESCOs to implement energy-saving projects
for corporate customers through auditing energy and confirming feasibility of
the project; and then, the bank offers loans to ESCOs according to approval of
the enterprise institute and finance for their energy-saving projects. After the
project is implemented, ESCOs and the enterprise institute pay off loans to the
bank through sharing energy-saving benefits and recovering capitals. There
were 156 ESCOs in 2001.
2. Japan. In 1997, undertaking introduction research society of ESCOs was

established in energy-saving center in Japan; in October 1999, agreement
promotion association of ESCOs was also established, whose major tasks take
on as follows: (1) popularization, development, and market exploration of
undertaking of ESCOs; (2) information exchange of domestic and overseas
ESCOs; (3) research, development, and support of energy-saving technologies
of ESCOs; (4) recommend good ESCOs; (5) settle policy problems and coor-
dination works related to undertaking development of ESCOs; and (6) carry out
necessary activities. By July 2001, there had been 49 official members of
agreement promotion association, 13 sponsor members and four special
members of ESCO.
5.5 Major Contents of EMC Business
5.5.1 Working Content and Benefit Source of ESCO
1. Energy audit (energy-saving diagnosis). This stage is the starting point for
ESCO to offer services to corporate customers; its professionals audit, monitor,
diagnose and evaluate energy supply, and management and efficiency of cor-
porate customers [1]. This stage needs closely coordination of enterprises so as
to dig out potential to reform energy conservation and acquire the best reform
effect. Energy source audit mainly includes inspection and approval of product
output, calculation of energy consumption data, inspection and approval of
energy price and cost, and analysis of result of energy audit etc. Enterprises can
grasp their own management condition of energy and consumption level, clear
off energy-saving obstacles and waste links and seek energy-saving opportu-
nities and potential through energy audit so as to reduce production cost and
raise economic benefit.
2. Design of energy-saving project. According to the result of energy audit, ESCO
proposes proposals and suggestions about how to take advantage of mature
energy-saving technology and product to raise energy utilization ratio and
reduce energy consumption cost. If customers have the intention to accept
proposals and suggestions proposed by ESCO, it will conduct detailed energy-
saving project design for customers.
3. Negotiation and signing of energy-saving service contract. After reaching
consensus with enterprises about integral energy-saving solution, ESCO sings
energy-saving service contract with enterprises based on fairness and justice;
the contract will regulate key points jointly focused by both parties such as
responsibilities and obligations of both parties, acceptance way of reformed
engineering, way of sharing benefits and way of monitoring energy-saving
capacity. Under certain circumstance, if customers are unwilling to sign
energy-saving contract with ESCO, it will charge fees about energy audit and
design of energy-saving projects from customers.
4. Financing of energy-saving project. ESCO often takes responsibility for all

matters related to acquire project financing while implementing energy-saving
projects for corporate customers. Possible financing channels are: funds at
disposal of customers, funds at disposal of ESCO, commercial loans from
banks, finance lease of leasing company, installment, and other policy subsidies
from equipment suppliers. ESCO can acquire commercial loans by its credit or
policy guarantee funds from relevant governmental departments so as to
acquire funds to implement energy-saving project while financing for energy-
saving projects in the form of bank loan.
5. Purchase, construction, installation, and debugging of raw material and
equipment. It is the actual implementation stage of energy-saving reform pro-
jects after signing the contract and offering design drawings. Enterprises need
no funds while implementing reform projects due to new mechanism of energy-
saving service of EMC; while all investments should be burdened by ESCO,
including coordinated-process service such as scheme design, equipment pur-
chase, engineering construction, and installation of monitoring system and
property debugging, called turnkey project. ESCO should take responsibility
for purchasing raw materials and equipments according to project design and
raising relevant fees. According to the contract, it should also take responsi-
bility for organizing construction or entrust other construction units with
qualification to do it. Furthermore, it must not interfere in operation of cus-
tomers as much as possible, because the construction is always conducted on
equipments of customers under normal operation, and customers should offer
essential condition and convenience to construction of ESCO.
6. Operation, require, and maintenance. Operation effect of equipments will
influence the anticipated energy-saving capacity; thus, ESCO should train
operators and managerial personnel of the reform system. Or rather, it takes
responsibility for training relevant personnel of enterprises so as to strengthen
their energy-saving awareness, guide enterprises to transfer their energy-saving
awareness form I am forced to save energy to I want to save energy and ensure
reaching anticipated energy-saving effect. ESCO should also take responsibility
in organizing and arranging management, maintenance and repair of the reform
system, dispatch field maintainers and tour personnel so as to ensure normal
operation of energy-consumption equipments and systems, formulate detailed
maintenance and repair manual of equipments and reduce maintenance cost of
enterprises.
7. Energy conservation and benefit monitoring. After the reform project, enter-
prises and ESCO should jointly conduct actual monitoring to energy-saving
capacity and benefit as the ground to share benefits in the form regulated in
EMC. ESCO and customers can jointly monitor ad confirm effect of energy-
saving projects during the contract period so as to confirm whether energy-
saving effect confirmed in the contract has been reached. Furthermore, both
parties can also confirm energy-saving effect in the form of negotiating to
confirm energy-saving capacity according to practical situation, which can
greatly simplify monitoring and confirmation.
5.5 Major Contents of EMC Business 313
8. Both ESCO and customer share the energy-saving benefits. As for energy-
saving projects whose benefits are shared, ESCO has the ownership to relevant
investments (including civil work, raw material, equipment and technology
etc.) during the contract period and should share benefits with customers. After
its project capital, operation cost, risks and reasonable profits have been
compensated (the contract period ends), and ownership of equipments should
often be transferred to customers, which acquire equipments with high energy
consumption and enjoy all benefits left by ESCO finally.
As for energy-saving projects with promised benefit, customers will pay
expenses according to the agreed progress. Generally speaking, it is disposable
payment.
5.5.2 Business Process of ESCO
Basic processes of businesses and activities of ESCO take on as follows: develop

an energy-saving project with feasible technique and reasonable economy for
customers; sign an energy-saving service contract with customers for imple-
menting the project; perform obligations regulated in the contract and ensure
generating energy-saving capacity regulated during the contract period; enjoy
rights regulated in the contract and recover funds used in the project and rea-
sonable profits during the contract period. Major processes take on as follows:
1. Preliminary contact with customers. Preliminarily contact with customers,
communicate about basic information such as their businesses, type of their
energy-consumption equipments, their production technology etc., so as to
confirm energy questions focused by them; introduce basic information,
operation mode of ESCO and potential benefits for customers; emphasize
fields with energy-saving potential to customers; explain relevant questions
about contract energy-saving services and confirm projects that ESCO can
interfere in.
2. Primary audit. ESCO should check energy-consumption equipments and their
operation situations through arrangement by customers, record rated param-
eters, quantity, and running state and operation of equipments. It should pay
special attention to links which have not been noticed by customers but
possibly have great energy-saving potential.
3. Examine cost data of energy sources/estimate energy-saving capacity. Cal-
culate potential energy-saving capacity by historical record about energy
consumption and other historical records kept by customers. Experienced
project manager from ESCOs can do it referring to similar energy-saving
projects.
4. Preliminary suggestions of the project. Based on the above work, ESCO
should draft and submit an energy-saving project proposal to customers,
describing suggested general situation of energy-saving project and estimated
energy-saving capacity, review the project proposal together with customers

and answer various questions about energy-saving project which are possibly
asked by customers.
5. Customer commitment/sign letter of intent. Confirm whether customers are
willing to continue developing the energy-saving project. Till this stage,
customers need not to spend money and take any responsibility. ESCO will
calculate all expenses occurring in the above work into its cost. Now, cus-
tomers must decide whether to continue developing the energy-saving project,
otherwise, its work cannot be continued. ESCO must explain clauses in
energy-saving service contract to customers so as to ensure customers are
clear about their rights and obligations. Under normal circumstance, if
detailed energy-consumption investigation indeed indicates energy-saving
capacity estimated in the project proposal, customers are requested of signing
an energy-saving project proposal, so that they can acknowledge the project.
6. Detailed investigation about energy consumption. This step includes detailed
examination of ESCO to energy-consumption equipments or production
technology of customers, more accurate analysis and calculation of anticipated
energy-saving capacity in the project. Furthermore, ESCO should contact with
energy-saving equipment supplier and know about price of energy-saving
equipments which will be used in the project; it also must confirm a criteria
line for measuring energy-saving capacity in the project.
7. Contract preparation. Prepare an energy-saving contract for implementing the
energy-saving project via negotiation with customers. The contract should
include regulated energy-saving capacity, responsibilities of ESCO and cus-
tomers, calculation and measurement method of energy-saving capacity etc.
Meanwhile, ESCO should also make preparation for a project working scheme
including the work schedule.
8. The project is accepted or refused. If customers have no objections about
clauses in the energy-saving service contract and agree to implement the
project by ESCO, both parties can officially sign the energy-saving service
contract and development of contract ends. Under such circumstance, ESCO
will count detailed expenses in investigating energy consumption into total
cost of the project. If customers cannot reach consensus with ESCO about
clauses in the contract or give up the project due to other reasons, and detailed
energy-consumption investigation indeed proves anticipated energy-saving
capacity in the project proposal, customers should pay for expenses of the
investigation spend by ESCO.
9. Contract signing. Energy-saving service contract should be signed by legal
representatives of ESCO and customers. Legal consultant or lawyer of both
parties should participate in negotiating clauses and preparing the contract.
10. Monitoring. Under certain circumstance, we need to make essential moni-
toring to energy-consumption equipments needing reforming so as to establish
a criteria line of energy consumption in the energy-saving project, which must
be conducted before changing current equipments.
5.5 Major Contents of EMC Business 315
11. Engineering design. ESCO should organize design needed in the energy-
saving project, but not all energy-saving projects need this step, for example
illumination reform project.
12. Construction/installation. ESCO should construct the project, install energy-
saving equipments regulated in the contract, ensure quality control and make
detailed records of installed equipments according to the work schedule
negotiated consistently with customers.
13. Project acceptance. ESCO should ensure all equipments operate on schedule,
train operators to operate new equipments, submit records of altered referential
materials to customers, and offer detailed materials about new equipments.
14. Monitor energy-saving capacity. ESCO should finish monitoring energy-
saving capacity according to monitoring type regulated in the contract, which
may be distant, or disposable, or continuous. Monitoring of energy-saving
capacity is an extremely important link for confirming whether it reaches what
is regulated in the contract.
15. Project maintenance/training. ESCO should offer maintenance service to
installed equipments to customers during the contract period according to
relevant clauses. Meanwhile, what is most important for ESCO is to share
energy-saving benefit. Furthermore, it should also keep close contact with
customers so as to rapidly diagnose and solve potential questions occurring in
installing equipments, continue to optimize and improve operation properties
of equipments so as to raise output of energy-saving capacity of the project.
Moreover, it should also train technicians of customers properly, so that
equipments can still operate normally and after the contract period and it can
acquire benefits from energy-saving projects continuously without discount.
ESCO may not have ability to finish all the above services, but it can reach
energy-saving capacity regulated in the contract through integrating various
external resources as a professional company, which may refer to various
organizations.
Operation processes of various organizations and projects related to ESCO can
be seen in Figs. 5.1 and 5.2.
5.6 Market Development of ESCOs
5.6.1 Potential of Electricity Conservation in China
Although the level of power consumption of some industrial products in China has
approached international advanced level at present; that of most products with high
power consumption is still far from international advanced level in a whole. In
particular, China is a production giant of industrial products, output of industrial
products sours yearly; thus, electricity conservation has tremendous potential and
sizable prospect in China.
Bank
Guarantee
Design unit
Finance company
Contract design
guarantee
Sales and purchases Energy-saving

contract Energy service contract
Equipment
supplier
Service Customer
Company
Else
sustentation
Construction
Engineering contract Insurance
Contract
Else
company Organizations
Insurance
company
Fig. 5.1 Various organizations related to ESCO
Fig. 5.2 Operation process

of ESCO Customer negotiation
Energy audit
Design of energy-saving
scheme
Contract negotiation and

signing
Construction design
monitoring and benefit
Project construction
Personnel training
Project financing
Energy-saving
guarantee
5.6 Market Development of ESCOs 317
For the past few years, the electricity in ferrous metal, non-ferrous metal,
chemical industry, building material, textile, chemical fiber, and petroleum pro-
cessing covers over 35 % of the total electricity in the whole society with great
influences. Calculated on the basis of Ref. [5], there is big gap in electricity-saving
potential in these major industries; that in ferrous metal and chemical fiber is over
20 % with tremendous potential; while that in petroleum processing and nonmetal
is below 10 % with little potential; that in other industries is almost between 10
and 20 % with relatively huge potential, which can be seen in Table 5.3.
It can be seen from terminal power-consumption equipments with huge elec-
tricity-saving potential that most terminal power-consumption equipment in China
have low energy efficiency; pumps, draught fans, air compressors, industrial
electric furnaces, rolling mills and mining hoisters, electrolytic cells for manu-
facturing aluminum and alkali, tumbling mills, trolley buses and electric loco-
motives, electric welders, illumination equipments, and electric traction and
transformers all have great energy-saving potential. Energy-saving potential [6] of
major feasible power-consumption equipments of ESCO is briefly illustrated as
follows.
1. Electromotor. In China, the electricity of electromotor covers 60 % of
industrial power consumption. Middle and small-sized electromotor covers
about 75 % of all electromotor. It is a major aspect for energy conservation to
raise efficiency of middle and small-sized electromotor. China has used plenty
of J electromotor before 1980s; while the detent torque of Y series developed
later has raised by 30 % than that of J series, the volume and quality have been
reduced by 10 %, the installation size has approached international level;
while the efficiency has been raised only 0.412 %. In the latter period of
1980s, YX series was developed, whose efficiency has been raised by 3 %
than that of R series reaching 92 %. However, efficiency of electromotor in
America and France has reached 94.5 %. At present, lots of Y and J series of
Table 5.3 The potential of electricity conservation in major power consumption industries
Industry name Potential of Industry name Potential of
electricity electricity
conservation (%) conservation (%)
Textile industry 12.9 Melting and rolling 11.7
industry of nonferrous
metals
Oil processing industry 8.2 Manufacturing of 19.3
chemical fiber
Chemical industry 14.3 Resident(illumination) 9.5
Building material and other 9.0 Resident(appliance) 19.0
nonmetallic mineral
products industry
Melting and rolling industry 20.8 Others 11.1
of ferrous metals
electromotor are still operating. It is estimated by international energy-saving

research institute that the energy-saving potential will reach 33 TWh if effi-
ciency of electromotor in China could reach American level.
2. Distribution transformer. In the electrical power system, transmission and
distribution of electricity consumption of various equipments must be realized
through transformers changing voltage. Electricity must experience several
times of transformation from the power station to users; all transformers
consume lots of power; loss of the distribution transformer covers one-third of
the power transmission and distribution system and over one-half of the power
distribution system. According to statistics, transformers with high energy
consumption no more than S7 still had 190 GVA in the end of 2005, covering
about 28 % of distribution transformers. From 2006, State Grid Corporation of
China (SGCC) began to carry out the CDM project named advance replace-
ment of distribution transformers, which was the first CDM project of plan-
ning class, and the first CDM project jointly organized by SGCC with the WB.
The project would contribute to energy conservation work in the community.
It is estimated by international energy-saving research institute that energy-
saving potential of transformers in China reaches 25 TWh.
3. Draught fan, pump and air compressor. The power consumption of pumps,
draught fans and air compressors in China covers 40 % of total power con-
sumption of electromotor in the whole country. These equipments have low
designing, manufacturing and operating level and few specifications, covering
just one-third of advanced countries. In manufacturing technology, processing
and manufacturing industry in China has low accuracy; major factors influ-
encing their operation efficiency take on as follows: (1) the system is not
matched properly; the phenomenon that big horse pulls small wagon exists
universally; (2) monitoring, regulating, and speed-governing equipments are
short or incomplete on the scene; (3) unreasonable layout of pipe network; and
(4) improper management and maintenance. If we carefully carry out national
standard of systematic economic operation of draught fans, pumps and air
compressors, so that the unit is matched with loads and pipe networks, we can
save 2040 % of electricity.
4. Electric furnace. Electric furnace can be divided into smelting and thermal
treatment by usage, whose power consumption covers 57 % of the total
power consumption in the whole country. Most melting arc furnaces in China
are old products with backward technique and high energy consumption.
Mostly, 1020 % of electricity can be saved by applying energy-saving
technologies and measures such as short grid, adjuster, and reformed directed
electric furnace; 30 % of electricity can be saved for furnaces in thermal
treatment by replacing power frequency induction furnaces with intermediate
frequency furnaces; and 25 % of electricity can be saved of far infrared
heating technique is applied in low-temperature thermal treatment and the
drying furnace.
5. Rolling mill, mining hoister, and tumbling mill. There are over 500 steel
companies in China and nearly thousands of rolling mills with plenty of
mining hoisters and tumbling mills. Almost 2025 % of efficiency can be
raised if replacing conversion units with thyristor converters and about 30 %
of electricity can be saved by frequency control of motor speed technique.
6. Electric power and diesel locomotive. About 2040 % of load factor can be
raised, 67 % of efficiency of the system can be raised and 25 % of electricity
can be saved by replacing direct traction system of electricity and diesel
locomotive with frequency control of motor speed system.
7. Trolley bus and mining locomotive. 30 % of efficiency of trolley buses and
mining locomotives can be raised by replacing resistor speed governing with
direct current chopping speed governing.
8. Electrolyzation and electroplating direct supply. Nonferrous metals such as
aluminum, copper, zinc, nickel, and chemical industry such as chlor-alkali all
apply electrolysation technology, among which most power sources apply
heavy-duty rectifiers; there will be larger electricity-saving potential by
heavy-duty rectifiers in power electronic technology. Direct current is applied
in electrolyzation in China, which has bad quality, takes long time, consumes
more materials and electricity; time, material and electricity can be saved and
electrolyzation quality can be raised by pulse power source.
9. Electric welder. There are about 3 million electric welders in China, whose
power consumption covers about 1 % of total power consumption in the
whole country. AC welders are mostly used now. Over 30 % of electricity can
be saved by replacing ignition rectifiers with silicon rectifier tubes and thy-
ristor tines in power electronic technology, replacing AC welders with direct
current resistance welders in secondary rectification, developing DC and AC
dual-purpose arc welders and contravariant welders.
10. Luminaire. Power consumption in illumination covers about 1215 % of total
power consumption in China; 90 % of residential illumination applies filament
lamp; 75 % of electricity can be saved by replacing filament lamps with high-
efficiency and energy-saving fluorescent lamps; 39 % of electricity can be
saved by replacing magnetic ballasts with electronic ballasts.
5.6.2 Potential Market Field of Energy-Saving Service

in China
At present, the electricity in China has been equivalent to that in the USA, while
most of the terminal electric equipments have low energy efficiency with tre-
mendous energy-saving potential. There is energy-saving potential in the follow-
ing fields:
1. Industrial department. It is industrial department that has the biggest potential

in energy-saving investment; industrial energy-saving projects which have been
proved to have tremendous energy-saving potential include recovery of
resources such as waste heat and waste gas, cogeneration, reform of the motor
drive system, furnace reform, boiler reform, reform of the distribution trans-
former, electrolyzation, reform of electroplating direct-current power supply,
and reform of saved electricity in illumination. As for industrial industries
(especially old state-owned enterprises), they have strong technical strength and
are familiar with detailed technological processes and utilization conditions of
energy sources. Compared with them, ESCOs have weaker technical strength in
reforming energy-saving projects. Thus, common enterprises do not trust
technical strength and managerial ability of ESCOs in projects with high
technical content; while they think help from ESCOs is not necessary in project
with low technical content. At present, some industrial enterprises seeking
cooperation with ESCOs mainly lack capital source. Otherwise, they do not
hope that ESCOs could interfere in their energy-saving projects, which can
raise professional ability and explore energy-saving market of industrial
department.
2. Commercial building. Along with the reform and open up and the economic
growth, the area of business buildings in China has been increasingly larger. At
present, there have been about 2,000 senior hotels and office buildings, over
800 large shopping malls with about 150 million m2 of central air conditioning
system. Power consumption of business building in China is higher than that in
the developed countries. For example, the heating and air conditioning energy
consumption per unit of building area is about 12 times higher than that of the
developed countries with similar latitude climate 7. 160 million tce of energy
can be correspondingly saved, while 450 million tons of CO2 emission, 3
million tons of SO2, and 1 million tons of NOx can be reduced if only one
energy efficiency of buildings. Energy consumed in business buildings is
mainly used in air conditioning, illumination, hot water supply, and other power
equipments; electricity has become major energy consumption in business
buildings. It is investigated that business buildings with air conditioning system
consume nearly 150 Yuan/m2 of energy source yearly and current business
buildings consume 22.5 billion Yuan of energy source yearly. In recent years,
Chinese Government has paid more attention to energy saving building and
issued many polices on it. There has been 4.9 billion m2 energy saving building
built from 2005 to 2010, thus saving energy effect of 46 million tce has been
achieved. In 2010, the proportion of energy saving building in the existing
building reaches 23.1 % in Chinese town.
3. Governmental organization. Energy consumption in governmental organiza-
tions covers about 5 % of total energy consumption in China; while energy-
saving potential of governmental organizations is 1520 %. Over 80 billion
Yuan is spent in energy yearly; energy consumption per covered area and per
capita is far higher than those in developed countries. It is pointed out by
experts that 30 % of energy-saving effect can be saved if governmental
organizations make improvement with low invest or zero investment through

technical, managerial, and conscious level; it can be seen that governmental
organizations have tremendous energy-saving potential; however, they lack
capital, professional technologies and the ability in maintenance management,
monitoring energy efficiency, and have difficulties in implementing energy-
saving measures. It is a major service market for ESCOs North America and a
business market for ESCOs in China.
4. Civil building. It is difficult to operate building energy efficiency for ESCO in
civil buildings due to multiple mainstays of customers and high coordination
cost, which can implement packaging projects in form of subdistrict.
5.6.3 Target Market of ESCOs
Fundamental source of profit of ESCOs is energy-saving benefit; thus, is choose

and confirms that orientation of target market is a project with big energy-saving
potential and high energy-saving benefit which is easily operated and implemented
[8].
Based on the above principles, ESCOs should comprehensively balance and
consider the following points while choosing and confirming target market:
1. Industry with high energy consumption. Generally speaking, industries with
high energy consumption such as chemical industry, steel, and building
materials have many energy-saving opportunities with remarkable effect due to
high energy consumption and large proportion of energy cost in production cost
(at present, steel industry covers more than 5 %, building material industry is
4050 %, chemical fertilizer is 7075 %, and petrifaction is about 40 % in
China).
2. Industries and enterprises attaching importance to energy conservation.
Decision makers of industries and enterprises focusing on energy utilization
ratio and expense usually hold sufficient cognition about the importance and
necessity of energy conservation; thus, energy-saving measures can be easily
carried out due to the high positivity. It is certain that enterprises listed in
Action of Thousands of Enterprises attach great importance to their energy-
saving works.
3. Industries with low energy utilization ratio. Some domestic industries have low
utilization ratio in energy source and high power consumption in equipment,
which influences quality, output of products, and economic benefit of enter-
prise. Till now, the obsoleting category of 19 batches of mechanical and
electrical products has been issued in China, where market development of
relevant industries can be selected.
4. Industries with good and table operation condition and huge development
potential. We should fully acknowledge and understand condition and devel-
opment of potential target markets, pay special attention to stability of
industries and adaptability of market change so as to choose industries and

departments which have the ability to accept energy-saving service and pay
for it.
5. Enterprises with good replicability of projects. Replicability of a project is very
important for an ESCO. Boiler, illumination, and frequency control of motor
speed of draught fan and water pump cover many industries, which can bring
many business opportunities to ESCO correspondingly and reduce fees used in
market development and cost for implementing the project.
6. Institutions with stable budget. Institutions with stable budge such as school
and hospital have small risks relatively. It should be emphasized that energy-
saving market is changeable just as any other market. ESCO should corre-
spondingly adjust its own target market according to changes in energy-saving
markets.
5.6.4 Customer Selection of ESCO
Customers are the carrier of markets and projects, the investment object of ESCO,
the cooperative partner to develop, implement, operate, and maintain projects of
ESCO and the debtor with the obligation to pay back detailed investments and
profits of detailed projects to ESCO. Customers choice is one of key points for
successful business of ESCO, which should balance and consider the following
basic principles while choosing customers.
1. Customers have opportunities of projects with fast effect and short period for
recovery of investment. Potential customers in target markets of ESCO have
different potential energy-saving projects, which need different investments,
construction periods, and energy-saving effects. ESCO should make proper
choice to potential customers in its target markets, choosing customers pref-
erentially with projects with fast effect and short period for recovery of
investment.
2. The same customer has the opportunity to carry out businesses of ESCO. There
may be some special potential customers in target markets of ESCO, which are
giant consumers of energy with low level in technical energy equipments and
several or tens of development opportunities of energy-saving service projects,
which are big potential customers for ESCO and customer targets selected
under other equivalent situations. ESCO can acquire opportunities to extend
and carry out businesses from such big potential customers and reduce market
development cost.
3. Customers have good reputation. Whether customers can pay to ESCO on time
is the key for ESCO to timely recover investment and acquire profit, which can
know about credit of customers through bank and other units with business
intercourse with customers and should give priority to choose customers with
credit which strictly abide by contracts.
4. Customers have great influence upon the industry. Status and influence of
potential customers in different ESCOs are different in their industries. ESCO
should choose enterprises with great influence as its own customers preferen-
tially under other equivalent circumstances, which is good for expanding its
influence, raising its awareness and taking in more customers.
5. There are still doubts about technical reliability of enterprises. There enter-
prises still hold doubts about technical doubts and energy-saving benefits; or
managerial personnel of enterprises think that there are certain risks in
implementing these projects. If ESCO burdens these risks, they will be willing
to entrust it to implement these projects. After projects are successful, they can
benefit from them. ESCO should hold strong technical ability and risk man-
agement ability for such projects.
6. Enterprises with low technical capacity. As for pure renewal and updating
projects of equipments, enterprises usually think that it is more feasible to
directly cooperate with suppliers. Many equipment suppliers are willing to offer
services to customers in the form of quality commitment promises and excel-
lent after-sales service and allow enterprises to pay loans by installments,
because they attach importance to seizing and expanding the market, which is
similar to EMC, saves expenses and harbors advantages. As for enterprises
focusing on professional technologies of energy conservation, if ESCO has
special mature energy-saving technologies which belong to patent technology
actually, they will be willing to accept technologies and services of ESCO. The
question is that it takes certain capital to purchase such technologies and per-
sonnel of ESCO should have the corresponding technical capacity.
7. Enterprises lacking energy-saving technologies and energy managerial per-
sonnel. Generally speaking, new enterprises (such as the new business trade
companies or industrial companies) have simple organizations, shoulder heavy
tasks, lack technical personnel, have no ability to seek and develop energy-
saving technologies and the vigor to implement and manage energy-saving
projects. They think that it is feasible to implement energy-saving project by
ESCO, saving vigor and project cost and acquiring long-term economic
benefits.
8. Enterprises with difficulties in project financing. Banks examine loan applica-
tion of these enterprises strictly with sophisticated procedures due to their bad
financial conditions or credit record in the past; thus, they can acquire loans
hardly or need to wait for a long time for the approval. If ESCO can establish
good reputation relation and bring their advantages in financing into play, it is
possible to implement projects in such enterprises. However, if ESCO carries
out projects in enterprises with financing as the major aim just as what is stated
in the above, rate of return of capital can be impossibly raised with large
recovery risks, which requests ESCO of having stronger ability to operate and
manage projects than banks to reduce risks from customers.
5.6.5 Project Line of ESCO
The project line of ESCO refers to bringing its good investment income; mean-
while, it can push forward duplication potential greatly in potential customer group
in target energy-saving markets, which is good for energy-saving projects growing
in businesses of ESCO. Several projects whose energy-saving efficiency is
remarkably raised and which is good for improving local environment with large
implementation potential are briefly introduced through practices in energy-saving
projects in China [9].
1. Energy-saving reform of the electric traction system. Adjust speed of draught
fans, pumps, and other mechanical equipments of electric traction so as to meet
load change by speed regulation device in proper form. Converter technique
and frequency converter belong the best in various electromotor speed regu-
lation technologies; thyristor pressure regulation technique also has good effect
on adjusting speed of electromotor; although it has high equipment cost, it has
still broad use scope. The project line saves electricity; the energy-saving scope
is different along with scope and frequency of load change between 20 and
40 %. The investment can be recovered in 23 years.
2. Energy-saving reform of illumination equipment. Apply pragmatic new light
sources with high efficiency and energy conservation (such as compact fluo-
rescent lamp, tubule fluorescent lamp, high pressure sodium lamp, and high
pressure sodium lamp etc.), accessories (such as electronic ballast, ring mag-
netic ballast, reflecting lampshade in high efficiency, and excellent quality etc.),
energy-saving controllers (such as dimming device, sound control, light con-
trol, time control, sense control, and TPZM etc.), and scientific maintenance
management (such as regularly cleaning illumination lamps, regularly change
old lamps, and forming the habit of turning of lights when leaving etc.). The
project line can be copied so easily that many enterprises can carry out it.
3. Energy-saving reform of the distribution system. Energy-saving reform of the
distribution system can be implemented in both power supply departments and
power utilization units, which mainly has the following contents: upgrading
distribution voltage, shorting power supply distance, compensating power
factor, renewing distribution transformer, choosing energy-saving transformer
with reasonable capacity, which can reduce losses of the transformer and
realize its economic operation.
4. Energy-saving reform of steam hammer. Energy efficiency of steam (air) driven
forging hammers is very low, which is less than 10 %; If the steam (air)
cylinder is replaced by electro-hydraulic drive to reform the steam (air) hammer
to electro hydraulic hammer, about 80 % energy will be saved; the energies
saved mainly include coal and electricity for the steam boiler.
5. New heat sources. There are some new heat sources, such as the air-condi-
tioning system of heat pump, heat accumulating type electric boiler, heat
accumulating type electrical heater, and so on.
The air-conditioning system of heat pump mainly includes the air source heat
pump technology, water source heat pump technology, and ground source
heat pump technology. The heating and refrigeration carriers for the air
conditioning unit of heat pump unit are air, natural water source, and earth. In
winter, the heat pump system can acquire low quality heat energy from air,
water source, and ground source through consuming part electricity to supply
heat to houses; in summer, it can release the indoor heat to the air, water
source and ground source to make the room cool. This technology is char-
acterized by high efficiency, energy conservation, and multifunction of one
unit. Such heating system takes advantage of the ground temperature and the
most commonly used water is well water in shallow layer, or river water, lake
water, sea water, and municipal water. Its heat extractor is water source heat
pump; the energy efficiency coefficient of such heat pump is relatively high
and except electricity, it does not need to consume other energies, so such
energy-saving reform project has fine environmental benefit; besides, this
system can also use the above-stated water sources for refrigeration and
preparation of domestic hot water in summer.
Heat accumulating type electric boiler: When such boiler is used to replace
coal-fired boiler in heating, on the one hand, the thermal efficiency of electric
boiler is about 20 % higher than coal-fired boiler, and the proper selection of
regenerative device can enable the boiler to run with high efficiency; on the
one hand, the use of cheap valley power can realize its fine economical
efficiency.
Heat accumulating type electrical heater: When such boiler is used to replace
coal-fired boiler, because the electrothermal energy conversion efficiency is
further higher than that of coal-fired boiler, it can obtain better energy saving
and environmental benefits and improve the comfort level, degree of cleaning,
and security of living conditions.
6. Energy-saving reform of cold supply system. The central cold supply system is
mainly used in commercial buildings, hotels, office buildings, shopping malls
and recreational places, stadiums etc.; such places mainly supply cold air
through cold engine, so it consumes much energy. Measures for energy-saving
reform include:
Add cold accumulation air-conditioning system: Add cold accumulation
equipment which has proper ability for cold accumulation to regular air-
conditioning system. The load refrigeration capacity is produced by
the refrigerating unit and cold accumulation unit together, so capacity of the
refrigerating unit can be reduced adequately; such system can enable
the refrigerating unit to run with full load and high efficiency from time to
time, so it has preferable energy-saving benefits and environmental benefits.
Use energy-saving and high efficiency refrigerating unit to replace the high-
consumption direct-fired water chilling unit.
Waste heat recovery of central air conditioning: This project uses the heat
generated during the refrigeration process of air-conditioning and recovers the
waste heat through heat interchanger to produce 5060 C hot water, and then
stores the hot water for guestrooms and other sectors. During refrigeration, the
heat discharged by the air-conditioning is about 120 % of its refrigerating
capacity. Through waste heat recovery, the air-conditioning can greatly
reduce the heat load of condenser so as to reduce the condensing temperature
and pressure. While increasing the unit refrigerating capacity, it can also
reduce the compressor power so as to reduce the power of refrigeration engine
and the amount of cooling water. This system not only can replace the boiler
which is used to produce hot water and directly save fuel, but also can reduce
the power consumption of the whole refrigeration system to a certain extent
(about 520 %), so that the energy can be fully used.
7. Refrigeration, heat, and power cogeneration. This system can integrate the
power generation system with the air-conditioning system, integrate and opti-
mize several devices, and solve the structures needs for power, refrigeration,
and heat. The system can realize the cascading use and high efficiency con-
version of terminal energy so as to avoid loss from long-distance transmission
and distribution and raise the overall efficiency of energy utilization from
2535 % to 7090 % and greatly reduce the structures energy consumption
and environmental pollution.
8. Escalator phase control energy saving device (infrared sensing and phase
control energy-saving controller). The phase control energy-saving controller
can automatically judge the service load and efficiency of motor and regulate
the voltage and current imposed on the motor at any time through optimization
operation so as to regulate the input of motor power and make the demand
equivalent to the supply and allow the motor to be under high efficiency and
energy-saving status.
The infrared sensing device can enable the escalator to sense the opening and
start automatically, so that the escalator can automatically open when there are
people and stop when people leave.
5.7 Energy-Saving Analysis
Energy-saving analysis is the most critical part for energy service companies
(ESCOs) to implement energy-saving projects. When a project is implemented in
contractual energy management model, first of all, the companies need to analyze
the project feasibility, namely the comparative analysis on energy consumption,
energy cost and feasibility of energy conservation monitoring, and confirmation
with and without the project. Second, the monitoring and evaluating of actual
energy conservation effects and benefits after energy-saving reform is not only an
important indicator to check the success of energy-saving reform, but also a key
link directly affecting the recovery of funds and acquisition of benefits of ESCOs,
and it is especially important to the energy-saving projects in energy-saving
5.7 Energy-Saving Analysis 327
amount guarantee pay model and energy-saving benefit share model. The
energy-saving effect referred to in this part mainly means the difference between
energy consumption amount with project (before reform) and energy consumption
amount without project (after reform) and the cost in the energy-saving reform
project; it has a decisive impact on the project, because the energy-saving benefit
of contractual energy management is mainly reflected on the saving of energy cost.
After the reform, if there is no obvious reduction of energy cost caused by the
reduction of energy consumption, the project will not have obvious benefits, which
will certainly affect the fund recovery and benefits of ESCOs [10, 11].
Energy-saving analysis of ESCOs mainly include energy audit, calculation of
energy-saving amount and energy-saving benefits, and energy-saving monitoring;
the first thing for energy-saving analysis is to decide the evaluating indicator for
energy utilization level. Here, we will mainly introduce the energy-saving analysis
of relevant processes of industrial enterprises.
5.7.1 Evaluating Indicators of Energy Utilization Level
Generally, two kinds of technical criteria are used to evaluate the energy utiliza-
tion level. The first one is the energy consumption index which evaluates the
energy consumed by an enterprise to produce specific yield products or finish
10,000 Yuan output value. The second one is the equipment efficiency and energy
efficiency which can be used to evaluate the degree of effective utilization of
energies by the energy-consuming equipment, workshops, or enterprises.
5.7.1.1 Energy Consumption
1. Unit consumption. The amount of energy consumed by unit of the specific yield
or output of a certain product; its formula is:
Cji
Epji 5:1
Pi
where,
Epji Energy consumption No. j kind per unit of output yield of No. i kind of
production, kgce/specific yield;
Cji Total consumption of No. j kind of energy for production i, kgce;
Pi Output yield of No. i kind of production, specific yield
Or
Cji
Evji 5:2
Vi
where,
Evji Energy consumption No. j kind per unit of output value of No. i kind of
production, kgce/Yuan;
Vi Output value of No. i kind of production, Yuan
2. Comprehensive energy consumption. The amount of energy consumed by unit

output yield or output value of an enterprise or workshop (converted to coal
equivalent); its formula is:
Call
Epall 5:3
Vall
where,
Epall Energy consumption per output yield of all production, kgce/specific yield;
Call Total energy consumption of all production, kgce;
Pall Total output yield of all production, specific yield
Or
Call
Evall 5:4
Vall
where,
Evall Energy consumption per output value of all production, kgce/Yuan;
Vall Total output value of all production, Yuan
3. Comparable energy consumption. The amount of energy consumption level for

comparison of the same industry; at present, there are two formulae
Cs
Es 5:5
Vs
where,
Es Energy consumption per unit output yield of standard production, kgce/
specific yield;
Cs Total consumption of standard production, kgce;
Vs Total output yield of standard production, specific yield
Or
0
0 C
Es s0 5:6
Vs
where,
0
Es Energy consumption per output yield of standard procedure, kgce/specific
yield;
0
Cs Total consumption of standard procedure, kgce;
0
Ps Total output yield of standard procedure, specific yield.
The so-called standard product means the baseline product specified in an

industry; the conversion factor of energy consumption of other products can be
worked out based on the energy consumption of such baseline product to convert
the product yield.
The so-called standard procedure means the basic procedure specified in an
industry based on which the energy consumption can be worked out; when the real
procedures are different from standard procedures, the absent procedures shall be
made up and energy consumption of redundant procedures shall be deducted. For
deduction, it shall be calculated according to the real energy consumption; for
complement, it shall be calculated according to the specified average energy
consumption, or the real energy consumption of the supply plant.
5.7.1.2 Energy Efficiency
1. Equipment efficiency. Its formula is:

E2
g 100 % 5:7
E1

EL
g 1 100 % 5:8
E1
where,
g Equipment efficiency, %;
E1 Supplied energy, kgce;
E2 Effective energy, kgce;
EL Lost energy, kgce
2. Corporate energy efficiency. Its formula is:
E3
u 100 % 5:9
E1
where,
u Corporate energy efficiency, %;
E3 Corporate effectively used energy, kgce
Corporate energy efficiency can also be connected with product comprehensive
energy consumption through the following formula:
Etall
u 100 % 5:10
Epall
where,
Etall Energy consumption in the techniques process per output yield of all
production, kgce/specific yield;
Epall Energy consumption per output yield of all production, kgce/specific yield.
5.7.1.3 Recovery Ratio
Recovery ratio means the energy-saving effects generated when enterprises take
measures such as waste heat recovery and reutilization. Its formula is:
Ere
qe 100 % 5:11
Es
where,
qe Energy recovery ratio;
Ere Total energy recovery, kgce;
Es Amount of waste heat resources, kgce
Erh
qh 100 % 5:12
E5
where,
qh Waste heat recovery ratio;
Erh Total waste heat recovery, kgce.
0 Erh
qe 100 % 5:13
E1
where,
0
qe Waste heat resource utilization ratio;
Erh Total waste heat recovery, kgce;
E1 Supplied energy, kgce.
In conclusion, these technical indicators are not only connected with each other
but also different from each other. They complement with each other and at the
same time have their respective characteristics. Energy consumption is a very
intuitive technical indicator and is applicable to evaluate product energy con-
sumption level; equipment efficiency and corporate energy efficiency can dem-
onstrate and reflect the equipment and enterprise power utilization level. Through
the testing and analysis of thermal efficiency and corporate energy efficiency, the
enterprise can know about where wastes lie; recovery ratio and waste heat utili-
zation ratio can reflect the enterprises waste heat utilization level.
5.7.2 Economic Analysis of Energy-Saving Technology
The energy-saving technology scheme of an enterprise is generally effective

technically, but economic analysis of energy-saving technology is required in
order to decide whether it is reasonable economically or how to choose the scheme
with the best economic benefits from many technically feasible schemes. Tech-
nical and economic analysis within the energy saving scope can generally be
classified into two types. One is the efficiency computation analysis, that is to say,
when the funds for energy conservation are set, how many energy-saving benefits
are reasonable, or when the expected goal of energy conservation of a certain
project is fixed, how many funds shall be invested in. The other one is the scheme
selection analysis, that is to say, how to choose the scheme with the optimal
economical efficiency from many schemes.
5.7.2.1 Main Contents of Economic Analysis of Energy-Saving

Technology
There are a series of technical and economical indexes used to evaluate an

enterprises production activities. Technical and economic analysis of industrial
manufacturing enterprises is mainly aimed at the energy consumption during the
enterprise production; for example, whether energy utilization technology, energy
utilization process, and energy utilization equipment are advanced, scientific and
reasonable. In particular, for enterprises with large consumption of energy and
enterprises producing energy-consuming equipment, how to reduce the con-
sumption of raw materials and fuels and energy and improve efficiency is an
important issue for manufacturing enterprises economic analysis of energy-saving
technology.
At present, ESCOs are mostly involved in the technical and economic analysis
of energy-saving technology reform and application of the new energy conser-
vation technology of industrial enterprises. Reform on the application of new
technologies, new industries, new equipment and new processes to get rid of the
laggard ones is an important task in energy conservation during modern con-
struction as well as ESCOs main tasks in energy-saving reform. With different
conditions, how can the companies of different industries realize the reform of
energy-saving technology and what kind of technologies shall they adopt? They
need to consider whether it is economically reasonable. It requires the economical
analysis and study of energy-saving technology as well as the reasonable schemes
and means for the reform of energy-saving technology and the application of new
energy-saving technologies. This is also a guarantee for ESCOs to gain funds and
reasonable benefits. The main contents are as follows:
1. Technical feasibility is the prerequisite for the project feasibility. Different
industries need different energy-saving technologies. Even in the same industry,
there are different energy-saving technologies and different technologies shall
be taken under different conditions. One general principle is to consider the
advancement as well as the adaptability, reliability, and expansibility.
2. Different technologies need different equipment, so there will be different
investments, which causes different economic effects correspondingly. There-
fore, for one project, first of all, it is necessary to choose advanced technology;
then it is necessary to consider how to make quick gains with few investments;
and finally, there will be ideal economic effects.
5.7.2.2 Comparable Conditions for Economic Analysis of Energy-

Saving Technology
During energy conservation, situations are very complicated and are also affected
and restricted by many factors. Therefore, before economic calculation of energy-
saving technology, it is necessary to bring all aspects under comparable conditions
for the comparison of schemes. These comparable conditions mainly include the
following four aspects.
1. Comparability of product yield, mass, and quality. That is the useful effect or
the satisfying comparability; the following several points shall be defined:
The comparability of product quantity can be considered as the comparability
of usable product quantity. In other words, quantity of users available
products shall be the same in different aspects. Only the products in con-
sumption link can be considered as the part really satisfying consumption
needs.
Some products have strict requirements about quality and variety and they
cannot replace each other. One premise for the existence and mutual com-
parison of production technology schemes is to satisfy their needs. For those
products having no strict requirements about quality and variety, calculation
can be based on the uniform product unit or quantity of value using the inner
link between quality and quantity.
Calculation of useful effects shall include both products and byproducts.
2. Comparability of total social labor consumption. Details include:
Direct expenses and indirect expenses
Manufacturing costs and service costs
Capital expenditures and investigation and design costs
Project investment and circulating funds
Project loans and interest during construction
3. The comparability between product production and expenditure time which

contains the following contents:
The schemes compared shall be consistent in the time to generate benefits.
Consider the impact of the difference of occupied funds in time. The differ-
ence of fund occupancy in time is also different in economic effect; actually, it
is the demonstration of different benefits.
4. Comparability in price target mainly includes the following contents:
Considering that price may deviate from the value, there shall be necessary
adjustments to the price before using it.
Consider the unity of price. If there are different prices, they need to be unified
with certain appropriate compensation factors.
5.7.2.3 Evaluation and Analysis of the Economic Benefits

of Energy-Saving Technology
Economic Evaluation System of Energy-Saving Technology Scheme
1. Benefit indicators:
Production indicator, physical quantity, and value quantity (including gross
output value, commodity output value, and net production value)
Indicator of product variety
Quality indicator
Profit indicator
Energy-saving effect indicator, including savings in energy and the energy-
saving rate
2. Consumption indicators:
Product cost: the sum of expenses for production, distribution, storage,
logistics, management, etc.
Investment indicators, including fixed assets and circulating funds
Indicator of materials consumption, including undersupplied products or
scarce physical resources
Time indicator
3. Benefit indicators:
Output of specific investment, the ratio of annual product quantity and the
total investment in energy-saving technology scheme, namely
Q
F 5:14
K
where,
F Output of specific investment;
Q Annual product quantity;
K Total investment in the scheme.
Investment benefit coefficient, the ratio of product annual profit and the total
investment in the scheme, namely
L
E 5:15
K
where,
E Investment benefit coefficient;
L Annual profit
Investment recovery period, the time limit essential for capital recovery in the
scheme; if investment is recovered based on the total profits, the investment
recovery period is the reciprocal of investment benefit coefficient, namely
K 1
T 5:16
L E
where,
T Investment recovery period
Benefit coefficient and payoff period of additional investment: It can reflect the
benefit level of additional investment of the new scheme based on the old
scheme and is the ratio of benefit increment (or savings of expenses) and
additional investment of the old scheme.
Cold Cnew DC
Ea 5:17
Knew Kold DK
where,
Ea Additional investment benefit coefficient;
Cnew ; Cold Annual operating cost of the new scheme and old scheme (annual
cost);
Knew ; Kold Amount of investment of the new scheme and old scheme;
DC, DK Savings of running cost and additional invested expenses of the new
scheme compared with the old scheme
Similarly, if the additional investment DK is recovered based on the savings of
yearly operating cost DC, the payoff period of additional investment Ta will be the
reciprocal of additional investment benefit coefficient Ea , namely
DK 1
Ta 5:18
DC Eb
4. Decision-making indicators:
It includes standard investment benefit coefficient Eb and standard investment
recovery period Tb . Usually, they are reciprocal to each other, namely Eb T1b .
They are criteria for evaluating the rationality of investment benefit coefficient and
investment recovery period of the technical scheme as well as the standard for
choosing the technical scheme.
The minimum condition for the rationality of technical scheme is
E Eb or Ea Eb
T Tb or Ta Tb
Standard investment recovery period for energy investment projects T b shall
generally be less than 5 years.
Calculation of Energy-Saving Investment Standard
The rationality standard for energy-saving investment is formulated according to

the value of energy saved directly according to the energy-saving technology
reform measures. It is also the criteria for financial feasibility when enterprises
make investment in energy-saving projects as well as the precondition for ESCOs
to conduct energy-saving services and the guarantee to make benefits. If the real
it is feasible financially; vice verse. Its formula
investment standard is less than K,
is
h i
DL 1 itn 1

K 5:19
i 1 i5
where,

K Rationality standard for energy-saving investment, Yuan/tce;
DL Newly added profit margin of an enterprise when 1 tce fuel is saved.
Actually, it equals to the price of 1 tce fuel deducted by some maintenance
costs, Yuan/tce. For power-saving projects, the above indicators can directly
use the unit of electricity power, Yuan/kWh;
i Bank lending interest rates, %;
t Economic benefit calculation period, year;
n Construction period of energy-saving technology reform projects, year.
Take an energy-saving reform and power-saving project as an example. The

construction period is one year n 1and economic benefit calculation period is
five yearst 5; loan interest rate of 35 years is 6.52 %; power tariff is RMB
0.61 Yuan/kWh; taking out the maintenance cost, DL is equal to RMB 0.6 Yuan/
kWh; then the rational standard value of energy-saving investment is:
h i
0:6 1 6:52 %51 1

K 1:93 Yuan=kWh
6:52 % 1 6:52 %5
According to the above calculation result, if RMB 1.93 Yuan is reduced when
1 kWh is saved in the enterprises energy-saving technology reform project, the
project is economically reasonable.
If the relevant state management departments subsidize half of the loan interest
for the energy-saving technology reform project, then the rational investment
standard value of energy-saving investment for the enterprise is 2.15 Yuan/kWh,
which comes from the following formula.
h 51 i
0:6 1 6:522 % 1

K 2:15 Yuan=kWh
6:52 % 5
2 1 6:522 %
5.7.3 Energy Audit
Energy audit is the most preliminary work of contractual energy management

project. Through a survey to the energy consumption of energy-consuming
equipment at the reform site, it can analyze the energy-saving effect after reform,
thereby to provide criteria for judging the project feasibility from the respect of
energy conservation potential.
Enterprise energy audit is a set of scientific method incorporating enterprise
energy reckoning system, rational power utilization assessment system, and
enterprise energy utilization review mechanism. It makes quantitative analysis of
the energy utilization status of power utilization unit scientifically and normatively
and conduct auditing, monitoring, diagnosis and appraisal to enterprise energy
utilization efficiency, consumption level, economy of energy and environmental
effect thereby to seek energy conservation potentials, and opportunities. Its fun-
damental principles are enterprise energy balance and material balance principle,
energy cost analysis principle, engineering economy and environmental analysis
principle, and energy utilization system optimization and configuration principle.
The basic method for the enterprise energy audit is to conduct auditing, diag-
nosis, and appraisal to the input and output of energy consumption and material
consumption of the enterprise. Major methods include assessment and determi-
nation of product yield, reckoning of energy consumption data, assessment and
determination of energy price and cost, analysis of enterprise energy audit result
etc. Specifically speaking, enterprise energy audit means the systematic auditing,
analysis and appraisal of enterprise energy use status based on the revenues and
expenditures related to energy in the enterprise operation activities as well as the
standing book, statement, voucher, and operation record which can reflect the
internal conditions of consumption of the enterprise and relevant internal man-
agement rules according to the state energy policies, laws and regulations of
energy, statutes, energy standards, technology evaluation indicators, and domestic
and overseas advanced levels as well as the testing data.
In reality, energy audit can be conducted for part or full contents according to
the needs of job. There are different methods for classifying energy audit.
According to the different scopes of work, it can be divided into special energy
audit and full energy audit. Usually, special energy audit is used in ESCOs. The
most frequently used one is energy-saving reform project auditing, including total
project investment, savings in energy and energy-saving benefits, and project
auxiliary benefits and project financial and economic studies, which can provide
basic criteria for energy service projects.
Diagnosis of energy saving in ESCOs projects can be divided into preliminary
energy audit and detailed energy diagnosis. The former one is aimed to judge
whether the ESCOs project is feasible and it is a simple diagnosis; the latter one is
detailed diagnosis aimed to put forward the energy-saving technology scheme.
ESCOs can advise users to adopt their scheme with forcible energy-saving
schemes and energy-saving graphics according to the base line and possible
amount of savings determined based on the tentative diagnosis and detailed energy
diagnosis before construction.
5.7.3.1 Preliminary Energy Audit
Object of preliminary energy audit is very simple and it wont take much time. It
mainly contains two aspects: the first one is the survey of energy management and
the second one is energy data statistics and analysis. Through the investigation of
enterprise energy management status, energy audit staffs can know about the
enterprises energy management status. Then they can conduct techno-industrial
data survey and analysis, of which the key point is the major energy-consuming
equipment and systems, such as boiler, commercial furnace, transformation sub-
station, or thermodynamic system. If data are found to be unreasonable, it is
necessary to use portable tester to conduct energy test and obtain the basic data for
further observation and analysis. Such cases shall be handled at any time according
to the practical situations (such as time, funds, and human resources) so as to judge
the enterprise energy utilization state. Preliminary energy audit can help to fix the
direction of energy conservation and find out expedient measures to improve
energy efficiency within a very short time. This is very effective. Some enterprises
only take 12 days to finish the preliminary energy audit while in some countries it
may take only 1 day usually on Sunday. At present, when enterprises cooperate
with ESCOs for energy-saving reform projects, most of them have decided the
direction of energy-saving reform. Under such circumstances, preliminary energy
audit is only aimed to collect energy data and energy management state according
to the projects to be renovated and make preliminary analysis to judge whether the
project is feasible.
5.7.3.2 Detailed Energy Audit
After the project is confirmed to be feasible through preliminary energy audit, it is

necessary to make further analysis and evaluation to the enterprise energy utili-
zation system, namely detailed energy audit. In order to collect the enterprise
energy utilization data, it is also necessary to conduction energy monitoring to
make up some important data and put forward the energy-saving technology
reform scheme, and then make economy and technology assessment and envi-
ronmental benefit assessment for the scheme. It is also necessary to make detailed
energy audit including feasibility study and environmental assessment for the
investment project and discuss investment risks and rising of funds. Judgers
experience and knowledge may make a big difference on the feasibility of ESCOs
projects.
Based on energy audit, the ESCOs will give customers professional evaluation
of energy-saving projects, compile energy quality analysis report, energy-saving
rate forecast report, energy-saving investment analysis report etc., and give
advanced, applicable, economical, and feasible total solutions for energy conser-
vation for customers reference and approval.
5.7.3.3 Implementation Steps of Energy Audit
The implementation of energy audit is divided into three stages, including tech-
nological preparation, field audit test, and system analysis and evaluation.
1. Technological preparation stage. It is a preliminary stage for the implemen-
tation of audit and it will be conducted in three steps.
Investigation of users basic situation: Including the type of energy utilization
system, service object, energy utilization characteristics, size, layout of
equipment, main working parameters, management level, mode of operation,
original record of energy consumption, energy source composition, energy
consumption level, and main problems and development situations; investi-
gation to the basic situation is convenient for the comprehensive diagnostic
analysis of the degree of rational energy utilization as well as the comparison
to the energy utilization system of similar enterprises.
On-site preliminary examination: Investigate an enterprise and preliminarily
understand its production technology, main energy utilization equipment,
energy metering, and main performance.
Compilation of audit technique scheme: Compile audit technique scheme

according to the investigation and the scheme, including division of system,
determination of the type of investigation data and compilation of equipment,
and device test scheme.
2. Field audit test stage. It is an important stage for the implementation of energy
audit and shall be conducted with the assistance of the enterprises relevant
staffs.
Collection of relevant data and materials: mainly including the collection of
energy management data, enterprise energy utilization data, data of energy-
saving reform system or equipment, and production data and materials.
Field investigation analysis: Audit and analyze all the data collected through
inspection and investigation and check the data together with the enterprise
when necessary.
On-site testing: conduct on-site testing with necessary equipment and device.
3. System analysis and assessment stage. It is the critical stage for the imple-
mentation of enterprise energy audit. It is directly related to whether the
ESCOs project is feasible. Systematically collect all records and statistical data
based on the basic information investigation and field investigation. Work out
energy consumption indexes according to the existing testing data and the data
verified through investigation using relevant knowledge, energy consumption
standards and energy-saving experience, and then analyze and calculate the
energy conservation potential according to the reform technology and equip-
ment to be adopted for project investment and energy-saving benefit estimation.
Energy audit shall be conducted carefully and seriously so as to get the most
precise energy consumption amount and energy conservation potential; otherwise
wrong conclusions may bring losses to the whole project. Take the application of
frequency control as an example. Many factors may affect the audit result, including
the model and specification of the motor to be reformed, characteristic curve and load
change of drag-over unit, etc. Any one inaccurate investigation and audit will affect
the result of analytical calculation, especially the factors relating to load change. If
the duration of load application and conditions about load change obtained through
auditing are inaccurate, the calculated energy-saving effect may be too large or too
small, which brings risks to decision making. If the result is too large, the real effect
of project reform may not reach the ESCOs promise to customers, which will
certainly affect the ESCOs reputation and benefits; if the result is too small, the
ESCO may lose a good opportunity to get good projects and benefits.
5.7.4 Calculation of Energy-Saving Amount
Energy saving amount is defined as the difference between the real energy saving
amount within a certain statistical period and the base energy consumption amount
within a chosen period; energy-saving rate is the ratio of the energy saving amount
and the base energy consumption amount [12].
Energy saving amount is a standard used by an enterprise to weigh the energy-
saving ability of ESCOs as well as a criterion for ESCOs to evaluate the profit-
ability of energy-saving projects, so the calculation of energy saving amount is
very important to both ESCOs and the enterprise. Before implementing energy-
saving reform, energy saving amount is a predicted value; after implementing the
energy-saving reform, the energy saving amount is the comprehensive statistical
value of all data. Energy saving amount is not constant in all periods. It changes
along with the change of climate, working conditions (such as area, number of
people, equipment, and output and time), energy price, etc. Energy-saving rate is
also a dynamic concept which changes along with the change of operating con-
ditions and equipment load factor.
5.7.4.1 Principles Used to Determine the Energy-Saving Amount
1. Project energy saving amount is defined as the reduced part of the energy
utilization systems practical energy consumption amount after the energy-
saving reform project is put into operation compared with the energy con-
sumption amount in the same comparable period before reform. If there are no
special regulations, the comparable period is one year.
2. The project energy saving amount only means the energy saved through
improving the processing operation and efficiency of energy utilization and
reducing energy consumption through energy saving reform and exclude the
energy saving effects generated through expanding production capability and
adjusting project structure.
3. The project energy saving amount equals to the sum of energy saving amount
of each product (procedure) within the scope of the project. Energy saving
amount of a single product (procedure) that can be obtained through metering
and monitoring directly; if it cannot be obtained directly, it can be calculated
according to the energy consumption change in product specific yield.
4. Besides technology, it is also necessary to make analytical calculation of the
factors affecting energy consumption and update the energy saving amount.
These factors include raw material composition, product variety and its com-
position, product yield, quality, climatic change, environmental control, etc.
5. Data of energy consumption shall use coal equivalent uniformly. Energy used
in the project shall be converted into coal equivalent based on the test data of
the energy bought by the enterprise and those cannot be measured can be
converted through the back mark coefficient.
5.7.4.2 Method Used to Calculate the Energy-Saving Amount
Calculation method of energy saving amount can be decided by the ESCO and
enterprise in the energy saving agreement or be detected and tested by a third-party
authoritative institution. Because the energy saving amount is a relative number,

different comparable bases shall be adopted for different aims and requirements.
Four methods will be presented here:
1. Equipment performance comparison method. The energy saving effect can be
evaluated simply through comparing the performance of new and old equip-
ment put into operation before and after energy-saving reform according to the
equipment work time. This method is applicable to the site with constant load
output and single variety, such as the change of light fittings, but it is also of
referential value to the equipment with large load change.
2. Energy consumption comparison before and after the energy-saving reform
method. The energy saving effect can be worked out through comparing the
energy consumption of the same period before and after energy-saving reform.
This method is applicable to the sites with relatively constant load output and
complicated varieties, such as star hotels and chain markets. Such enterprises
are managed in a standard way, and the energy consumption in the whole year
is not largely changed compared with that in previous years.
We should confirm the benchmark period and energy consumption per unit of
output firstly for applying comparison method of energy consumption before and
after the energy-saving reform. Earlier stage usually refers to the corresponding
period in last year, last reason, last month, etc. Several years ago could also be the
criteria (such as the beginning year of the Five-year Plan). Calculation results of
energy-saving capacity could be different due to choosing different criteria period;
especially, there are two methods for calculating accumulated energy-saving
capacity:
Fixed comparison method. compare the calculation year (the final year) and the
criteria year (the beginning year) directly and make disposable calculation of
energy-saving capacity.
Ring comparison method. compare energy consumptions in the past years during
the statistic period, calculate energy-saving capacities respectively and calculate
accumulated energy-saving capacity.
These two methods have different results, which can be seen in Table 5.4.
We usually use the Root comparison method to evaluate the energy-saving
ability or level in certain year compared with several years before; accumulated
energy-saving capacity during a period is calculated by ring comparison method.
3. Unit consumption comparison method of the product. The turnover and output
of enterprises are directly connected with energy consumption; the larger the
turnover in markets is, the more tourist hotels accept, the more the output of
factories is and the higher the lease rate of office buildings is; the larger the
natural energy consumption is. Energy-saving ratio can be calculated through
comparing unit consumption data before and after the reform in light of
different enterprises and various unit consumptions of products; and energy-
saving benefit can be calculated combined with actual energy charges.
342
Table 5.4 Comparison of energy-saving capacity calculated by root comparison method and ring comparison method
Project 2007 2008 2009 2010 Accumulated energy-
saving
Steel output (thousand tons) Ai 2,000 2,100 2,200 2,300
Annual comprehensive power consumption capacity (coal equivalent) (thousand tce) Bi 5,600 5,250 5,280 5,060
Comprehensive energy consumption per ton of steel (tce/t) Ci BAii i 0; 1; 2; . . .; n 2.8 2.5 2.4 2.2
Energy-saving (coal equivalent) (thousand Root comparison method E C0 Cn An 1,380
tce) Ring comparison method 630 220 460 1,310
Ei Ci1 Ci Ai
i 1; 2; . . .; n
X n
E Ei
i1
5 The Backbone of DSM Implementation
This method is suitable for energy-consumption sites with large load change
and single production type.
Based on the unit consumption of products before the energy-saving reform,
actual energy-saving capacity is the comparison between unit consumption of
products and enterprises in earlier stage after the energy-saving reform, which
reflects promotion and progress of enterprises in energy utilization.
4. Model analysis method. Establish two sets of computer simulation system
before and after the reform, calculate energy consumptions by analysis software
before and after implementing the project and correct the calculation result
combined with actual measured data. This method can calculate energy-saving
benefit independently and can be also a supplementary scheme to the above
three methods. Investment in the system will not increase overmuch costs.
5.7.4.3 Calculation Method of Energy-Saving Capacity of Single

Product (Working Procedure)
1. Confirm scope of single product (working procedure). All energy-consumption

links directly related to the product are the boundary to calculate energy-saving
capacity of single product (working procedure).
2. Confirm the criteria energy consumption Ei0 for calculating energy-saving
capacity of product i (working procedure) in regulated period. Before imple-
menting energy-saving technologies; all energy consumptions in all links
within the boundary scope of product i (working procedure) should be dis-
counted to the sum of coal equivalent according to regulated method, which
should be shown by Ei0.
3. Confirm output Pi0 of product i before reform the energy-saving unique.
Regulate products and services of relevant production systems within the
boundary scope of product i (working procedure) before implementing the
energy-saving technique reform. Outputs are collected by warehouse logistics
record investigation and production record investigation. All finished goods,
semi-finished products and articles being processed should be classified and
summed up according to computing method of product output statistics regu-
lated by National Bureau of Statistics (industry).
4. Energy consumption of unit output Ni0 of product i (working procedure) before
the reform. It can be calculated as follows
Ei0
Ni0 5:20
Pi0
5. Confirm comprehensive energy consumption Ei1 of product i (working proce-
dure) after reforming. Energy-saving technique within regulated period; all
energy consumptions in all links within the boundary scope of product
i (working procedure) should be discounted to the sum of coal equivalent

according to regulated method, which should be shown by Ea .
6. Confirm output pi1 of product i (working procedure) after reforming energy-
saving technique. Regulate products and services of relevant production sys-
tems within the boundary scope of product i (working procedure) after
implementing the energy-saving technique reform. The output can be con-
firmed as the third one.
7. Energy consumption of unit output Ni1 of product i (working procedure) after
the reform. It can be calculated as follows:
Ei1
Ni1 5:21
Pi1
8. Given that energy-saving capacity of product i (working procedure) is 4Ei . In
order to cancel energy-saving capacity generated from production capacity
expansion, define the product of the difference of energy consumption of unit
output of product i (working procedure) before and after the reform and the
output before the reform as the energy-saving capacity 4Ei of product
i (working procedure), the calculation formula is:
DEi Ni0 Ni1 Pi0 5:22
5.7.4.4 Calculation of Energy-Saving of the Project
1. Calculate energy-saving of every product (working procedure) (DEi ). accord-

ing to computing method of energy-saving of single product (working
procedure).
2. Calculate leakage of energy consumption (EL ). Leakage of energy consumption
refers to influences of energy-saving projects within the project upon the out-
side. Influence of leakage of energy consumption should be included in energy-
saving calculation (deducted or added).
3. Calculate energy-saving of project (DE). Calculate energy-saving capacity after
reforming the project according to the following formula:
X
n
DE DEi EL 5:23
i1
where,
n Sum of the products (working procedure).
5.7.5 Calculation of Energy-Saving Benefit
Various data collected through energy audit will be the basis of calculating the
energy-saving capacity of energy-saving reform projects. Calculation of energy-
saving benefit is both an important ground for ESCO to decide feasibility of
projects and an essential component in EMC; thus, it should not only be correct but
also win acknowledgments from customers so as to avoid divergence in actual
operation of projects in future.
There would be several methods for calculating the benefit of energy-saving
reform projects; there must be data about actual audit, no matter in what way, the
calculation should be based on the actual data; otherwise, the calculation result
will be inaccurate or cannot win acknowledgment of customers, which is not good
for implementing projects. Certainly, data offered by customers may be inaccurate
such as heat value of fuels etc.; if these data have great influences upon calculation,
it can be confirmed by actual test.
Another principle of calculating energy-saving effect is conservation, which
aims at acquiring a relatively reasonable calculation effect of energy conservation
without overthrowing the project. In that case, it can avoid the situation when
actual effects cannot reach the energy-saving effect promised by customers to
ESCO.
Given that the theoretical formula is P 1 n3 for the reform of frequency control
of motor speed, while the electromotor does not always meet the formula in actual
operation; thus, we cannot fully settle and calculate energy-saving effect by the
relation of P 1 n3 while calculating energy conservation; we need to calculate in
conservation according to actual situations so as to acquire reasonable predicted
energy-saving capacity and avoid corresponding risks, which is good for making
correct decisions.
5.7.6 The Monitoring of Energy Consumption
There is monitoring process in both the earlier energy-saving audit of energy-

saving service projects and monitoring process of energy-saving effect after
implementing the energy-saving reform.
Energy auditors must be clear about the major technological process, major
power consumption system and equipment or energy consumption data of
important procedure. In the process of inspecting analysis and diagnosis, we can
comprehensively apply various monitoring means, further collect and check
materials in pointed references or conduct essential test and energy balance,
acquire necessary data through monitoring means and gain reasonable audit
conclusions by integral analysis when we encounter sophisticated situations and
acquired materials cannot meet requirements of further diagnosis. In order to
acquire these data, auditors must focus on the working position and condition of
metering devices and instruments on the scene and communicate with engineers
and operators. Besides, they should draw sketches, know about detailed working
conditions of acquired data and label its position on the scene, which is convenient
for comprehensive analysis and evaluation.
Audit and calculation of energy consumption mentioned above aim at analyzing
feasibility of energy-saving projects, making ESCO know fairly well in invest-
ment, attracting and persuading customers to make energy-saving reform through
calculation results. However, the true basis for share energy-saving benefit is the
date generated from actual monitoring. After the energy-saving reform, it is very
important to fully check whether the energy-saving reform reaches the energy-
saving effect predicted at the planning stage. Or rather, actual monitoring of
energy consumption is a key to decide success of EMC projects. Data calculated
by any method should be verified and rectified by data which is monitored actu-
ally, which has the strongest persuasion and is also the data finally acknowledged
by ESCO and customers. Actual monitoring is an inevitable link no matter what
way ESCO and customers may take. The result of actual monitoring influences the
income of ESCO most directly. Inappropriate way taken in actual monitoring,
error and flaw in the monitoring will influence the result and income of ESCO;
some benefits will be lost even though earlier works are delicate.
Energy-saving monitoring should meet the following technical conditions:
1. Monitoring should be conducted under normal production and stable working
condition of equipments, which should also be suitable for the production
process and should be conducted after the reform project of energy-saving
technique is implemented normally and stably. Energy-saving monitoring is
just limited to the reform project of energy-saving technique and working
condition of the monitored system should be consistent.
2. Monitoring must be conducted according to related national standard; projects
without national standard should be monitored according to industrial or local
standards.
3. Time for the monitoring process should be confirmed according to technical
requirements of the monitoring project or negotiation with customers.
4. Precision and measuring range of instruments and measuring implements in the
monitoring should ensure reliability of the result; the monitoring error should
be within the allowable scope regulated in relevant standards of the monitored
project.
Detailed energy-saving monitoring method varies with different energy-saving
reform projects such as the architectural energy-saving monitoring, monitoring of
industrial electric heating equipment, monitoring of industrial boiler, energy-
saving monitoring of electric system, monitoring of compression system of air
compressor, and monitoring of thermal transportation system etc.; ESCO can make
detailed monitoring according to monitoring requirements of different energy-
saving projects.
It should be noticed that monitoring method of energy consumption should be
acknowledged by customers and reached consensus in the contract; while its
implementation needs participation of both parties, which aims at avoiding

divergence and preventing unnecessary obstacles to energy-saving projects.
5.8 Financing Analysis
5.8.1 Basic Financing Way of ESCO
1. Loans from domestic commercial bank. It means that ESCO applies for loans
from domestic commercial banks. Bank loan is a major channel for the
financing of ESCO according to real situations in China [1]. Furthermore,
enterprises can also apply for loans from commercial banks so as to settle
project capital. ESCO enables financial organizations to lend loans according
to their awareness, credit record and repayment ability in markets. Domestic
commercial banks have robust capital, while financing amount of energy-
saving projects is small, which has little attraction to them and can finance
possibly after bundling energy-saving projects with the same technique. Urban
commercial banks have strict territory limit, small capital scale, weak risk
resistance ability, and few financing opportunities of energy-saving projects.
Commercial banks with stock system have moderate capital, low asset-lia-
bility ratio, new concept, strong competition awareness and certain websites
all around the country, which is a major source for energy-saving projects
during a certain period.
2. Credit guaranty loans of medium sized and small enterprises. At present, there
have been credit guarantee organizations for medium sized and small enter-
prises in over 100 cities in China, which are nonprofit organizations with
public service and industry discipline and apply member management mostly.
Their guarantee funds are usually consisted of financial grant from the local
government, member funds voluntarily paid by members, funds raised by the
society and funds from commercial banks. Medium sized and small enter-
prises can offer guarantee to enterprises applying for loans from banks. Fur-
thermore, guarantee companies have flexible requirements about mortgages
compared with banks, which will request enterprises of offering counter
guarantee measures and dispatch people to monitor capital flow sometimes so
as to guarantee persona benefits.
3. Credit guarantee loans of EMC projects. Common ESCOs especially new and
potential ESCOs with small scale, weak economic strength but without credit
standing records in banks can hardly acquire necessary loans in business
development. In order to support development of ESCO, domestic loan
guarantee special funds of EMC projects are established under the support of
GEF and the WB, which specially support energy-saving projects of ESCO.
Relevant enterprises implementing energy-saving projects can take full
advantage of this credit guarantee channel.
4. Loans from the foreign banks. It refers to applying for loans from foreign
banks so as to raise funds of projects. It can be seen from actual situations that
the interest rate of foreign bank loans is higher than governmental loans or
loans from international financial organizations. At present, ESCO mainly
takes advantage of buyers credit for foreign bank loans. Buyers credit means
that the exporter bank directly offers credit loans to the importer or import
bank. Since ESCO often make international bidding and purchase of some
equipment, it can apply for buyers credit to the exporter bank while
encountering difficulties in capital turnover. Credit amount of such loan is
often lower than 85 % of the price of import commodity; the rest should be
paid by the importer firstly. The importer should amortize or repay the prin-
cipal and interests at once during a period of time after all import commodities
are delivered.
5. Loans from international financial organizations. International financial
organization refers to the organization jointly established by several countries
undertaking financial activities so as to reach mutual aim, which can be
divided into global international financial origination and regional interna-
tional financial organization according to business scope and number of par-
ticipating countries. The former mainly refers to International Monetary Fund
and the WB; the latter mainly refers to the International Bank for Economic
Co-operation, International Investment Bank, Bank for International Settle-
ment and Asian Development Bank. China mainly uses loans from the WB,
International Monetary Fund and Asian Development Bank; works undertaken
by ESCO are good for global environment protection, comply with conditions
and requirements of loans from international financial organizations and have
conditions for striving for capital support from these international financial
organizations. At present, three demonstrative ESCOs in China have won
capital support from the WB.
6. Finance lease. It refers to financial lease or capital lease and equipment lease
business without maintenance condition. It is similar to purchase equipment
by payment by installments, which means that the lease raises funds and invest
in equipment lease companies. This is a kind of new credit loan with separated
ownership and right use of leased equipments. In the world, finance lease has
become a kind of credit loan next to loan only, which has financing and tax
saving functions. When ESCO develops to a certain scale, it can completely
acquire various equipments needed in energy-saving projects by finance lease
and realize financing effect. The handling charge paid by the lease and interest
paid after equipments are delivered and used can be deducted from the income
tax payable directly in the current period; thus, the financing cost is lower than
the equity cost. Meanwhile, improvement expenditure of finance lease
equipments can be amortized within 5 years as deferred assets; in that case,
finance lease can be rapidly amortized with tax saving effect.
7. Business credit. It refers to the direct credit behavior generated from deferred
payment and advance payment, including the account receivable, trade bill,
notes discounted, deposit received etc., such as purchase equipments through
5.8 Financing Analysis 349
the payment by installments. As for ESCO, reasonable section of such way

does not influence its current capital structure and can appropriately settle
financial constraint in short period of time with realistic meaning.
8. Terminate the contract in advance. Under consistent negotiation with cus-
tomers, ESCO can recover all benefits receivable from customers in advance
so as to terminate the contract beforehand; in that case, it can use all the
capital in other projects.
9. Accounts receivable discounted. It means that enterprises transfer accounts
receivable to banks in certain discount so as to acquire corresponding
financing funds, which will be repaid by recovered funds in certain period of
time. It is a kind of new comprehensive financing way with trade financing,
commercial credit investigation, accounts receivable management, and credit
risk guarantee as a whole. As for ESCO, such financing way can discount
energy-saving benefits shared during the contract period to banks so as to
recover capital and invest in other projects in advance. There is no limit and
loan amount to the number of bank discounts. After discounting accounts
receivable, ESCO is still the bearer of risks of the project, namely the first
searcher, which still burdens the responsibility for ensuring energy-saving
capacity. This financing way can also raise reputation of ESCO, establish good
cooperation relation with banks and offer convenience to ESCO to apply for
project loans from banks directly.
10. Debt-for-equity swap. It is a kind of debt restructuring in fact, which means
that the creditor makes concessional matters according to the agreement
reached with the debtor or judgments by the court when the debtor is con-
fronted by financial difficulties according to accounting norms in China. So-
called concession means that the creditor agrees that the debtor with financial
difficulties repay debts by a book value of the restructured debt. Thus, this
method can not only defer the repaying time and relieve the repaying pressure,
but also can improve financial index and capital structure of the company.
However, there is certain legal limitation to repay debts through transferring
capitals into debts if ESCO is a company with joint-stock system. For
example, the company must have certain conditions for issuing new stocks
according to regulations in Corporation Law in China.
It can be seen from current situations that commercial banks especially com-
mercial banks with stock system are major financing sources of energy-saving
projects and exchange between enterprises and bank abut technical information
and financing skills should be strengthened. The report of technical feasibility and
economic analysis emphasizes interesting and useful information to banks. It is
essential to strengthen financing skills of enterprises to train experience in market
orientation and financial knowledge and management; otherwise, they will hardly
persuade managerial personnel of banks to invest. Furthermore, professional
guarantee companies play important role in energy-saving financing; thus, they
should take full advantage of advantages in strengthening energy-saving financing
strength of banks.
5.8.2 Loan Guarantee Plans of ESCOs
5.8.2.1 Origin of Loan Guarantee Plan of ESCOs
Although China has carried out energy-saving works for many years and made
remarkable achievements, some energy-saving projects with good economic
benefit have not been pushed forward and implemented. Major reasons take on as
follows: lack of information about suitable energy-saving technologies and
equipments, small-and medium sized energy-saving projects are not stressed,
power consumption units lack experience in energy-saving works, there are risks
in new energy-saving technologies and it is hard for energy-saving projects and
ESCO etc.
WB/GEF Chinese Energy-saving Promotion Project aims at overcoming these
energy-saving obstacles and is implemented jointly by GEF and Chinese Gov-
ernment. Major task of phase 2 is to establish technical support and technical
service system for ESCO, carry out its loan guarantee plan, further push forward
operation mode and of EMC and cultivating energy-saving service market, and
finally establishing energy-saving service industry with sustainable development.
Phase 2 of the project will use most grants to establish special guarantee funds of
ESCO, which will be used to implement its special loan guarantee plan, offer
financing guarantee to implement energy-saving projects, lower the doorsill of
ESCO to acquire financial loans, make it acquire more opportunities in com-
mercial bank loans and promote marketization of its financing channels. At
present, the special guarantee fund is USD 22 million, which is the grant offered
by GEF used to compensate necessary guarantee risks especially.
The schematic diagram for implementation processes of loan guarantee plans of
ESCO can be seen in Fig. 5.3.
5.8.2.2 China National Investment and Guaranty Co., Ltd
China National Investment and Guaranty Co., Ltd. (I&G) was established by the
Ministry of Finance and the former State Economic and Trade Commission in
1993 with the approval of the State Council. As a member of State Development &
Investment Corporation, I&G is a nationwide guarantee institution specializing in
credit guarantee.
The Companys business philosophy is to enhance corporate credit, optimize
allocation of social credit resources, improve market transaction efficiency, pro-
mote the building of social credit system and credit culture, and serve the national
economic and social development by means of credit enhancement services. The
Company is committed to becoming the most competitive integrator of nonstan-
dard financial and credit enhancement services in China.
As at the end of 2011, the Companys registered capital and total assets were
RMB 3.52 billion Yuan and RMB 7.22 billion Yuan, respectively. Its external
Global The
Environment World
Facility Bank
(GEF) (WB)
Global Environment
Use funds Facility Grant
according to Special
Implementation agreement Special fund account fund Ministry of Finance;
organization of guaranteed by Global National Development
warrant plan Environment Facility and Reform Commission
Loan Grant for paying increment operation cost and
Guarantee
consultant service Special
Cooperation account
Loan
bank Increment cost
Consultant service
Technical support
ESCO 1 ESCO 2 ESCO ... Service group
association of
Energy Service
Technical support
Implement energy-saving project Company
Fig. 5.3 The schematic diagram for implementation processes of loan guarantee plans of ESCO
credit line granted by banks was RMB 151.3 billion Yuan. China Chengxin
International Credit Rating Co., Ltd., China Lianhe Credit Rating Co., Ltd. and
Dagong Global Credit Rating Co., Ltd. consecutively confirmed long-term cor-
porate credit rating (for a financial guarantee institution) of AA+ for I&G (with an
outlook of Positive). The Company has established five branches/offices in East
China, Shanghai, Dalian, Tianjin and Shenyang, to serve the regional economic
development.
In 2010, with the support of State Development and Investment Corporation,
the Company completed equity financing and restructuring. It introduced six
shareholders, i.e., CCB International, CITIC Capital, CDH Investment, Govern-
ment of Singapore Investment Corp, Gold Stone Investment Limited and SDIC
Innovative Investment Management (Beijing) Co., Ltd., transforming from a
wholly state-owned enterprise into a Sino-foreign equity joint venture, and
entering a brand-new development stage. By the end of 2011, the Company had
underwritten 22,000 deals of guarantee, with an aggregate guarantee amount of
RMB 163.1 billion Yuan. Among them, 2,125 deals of guarantee were under-
written in 2011, with a total guarantee amount of RMB 57.4 billion Yuan. The
Company generated income of RMB 778 million Yuan in the year, with a gross
profit of RMB 394 million Yuan, keeping atop in the industry.
I&G is mainly engaged in the following credit and guarantee services:
Financial product guarantee, mainly including such financial guarantee services
as principal-guaranteed investment guarantee, public offering and private equity
guarantee, real estate financial guarantee, guarantee for the targeted additional
issuance of corporate bonds, and SMEs collective bill guarantee;
Logistics finance guarantee and credit solutions, with products covering auto-
mobile, steel products, chemical fertilizer, imported medical equipment, etc.;
Property preservation guarantee, with 72 agencies and partners in 22 provinces
(autonomous regions and municipalities) of China;
Guarantee for government procurement, mainly including bid guarantee, per-
formance guarantee, quality guarantee, prepayment guarantee, and performance
finance guarantee in course of government procurement;
Construction project guarantee, mainly including bid guarantee, performance
guarantee, prepayment guarantee, payment guarantee, repair guarantee and
supply guarantee in course of project construction;
Real estate structural financing, bridge financing and acquisition, transaction
performance guarantee, etc.;
Guarantee for low-carbon areas;
Micro and small business financing guarantee.
5.8.2.3 Guarantee Object
We can say that all enterprises implementing energy-saving projects by EMC

mechanism are objects supported by the guarantee plan. While the key guarantee
object of the guarantee plan is ESCO, especially members of China Energy
Conservation Association, because the guarantee plan aims at supporting imple-
mentation of energy-saving projects as more as possible so as to acquire more
effects of energy conservation and reduction of greenhouse gas emission; fur-
thermore, it aims at promoting development of energy-saving industry and forming
unit force of implementing energy-saving projects with sustainable development.
While ESCO especially members of China Energy Conservation Association can
realize the two aspects at the same time. The guarantee plan often supports cus-
tomer units of ESCO and enterprises implementing energy-saving projects by
EMC mechanism.
5.8.2.4 Standard of Energy-Saving Project
Energy-saving projects supported by the guarantee plan should comply with the
following two conditions:
1. Energy-saving benefit of ESCO acquired from energy-saving projects should
exceed 50 % of total income. General speaking, projects implemented by ESCO
have various income sources such as raising product quality, saving energy
source, raw material and labor force, reducing pollutant discharge penalty and
raising electric load factor, etc. If energy-saving benefit covers over 50 % of
total income, the guarantee plan will regard the project as supported energy-
saving project; otherwise, it does not belong to energy-saving project and is not
within the support scope of the guarantee plan.
2. The project is implemented by EMC mechanism. The basic feature of EMC

project is that return on investment and reasonable profit come from energy-
saving benefit and customers keep positive cash flow in the service life.
5.8.2.5 Application of Special Guarantee Funds of ESCOs
In order to bring function of limited special funds into playing and making
commercial banks interfere in financing of ESCO to the greatest extent, applica-
tion principles of proportional guarantee and fast turnover of special guarantee
funds of ESCO are set.
The guarantee plan can offer proportional guarantee to ESCO, its customers or
corporate loans for implementing energy-saving projects by EMC mechanism.
Enterprises and relevant banks implementing energy-saving projects can apply for
proportional guarantee to the plan. At the preliminary stage, the plan can offer a
proportional guarantee no more than 90 %, reducing the guarantee proportion
gradually along with deepening of the project. The guarantee period offered by the
guarantee plan is 13 years, no more than 3 years usually, so that special guar-
antee funds support more energy-saving projects through fast turnover. Loan
guarantee with a year should be considered preferentially.
5.8.2.6 Loan Guarantee Procedures of ESCOs
The flow chart of guarantee procedure of ESCO of phase 2 of WB/GEF Energy-

saving Promotion Project can be seen in Fig. 5.4; the flow chart of ESCO to apply
for guarantee can be seen in Fig. 5.5.
5.9 Risks and Countermeasures of EMC Project
5.9.1 Source and Type of the Risks
First, ESCO must know about various possible risks of EMC projects. Generally
speaking, an EMC project can be divided into customer risk and risk of the project
according to different risk sources.
5.9.1.1 Risk of Customers
According to the experience of domestic demonstrative ESCO, the customer risk is

larger than the risk of the project sometimes. Feasibility of some projects is
assessed to be excellent with remarkable energy-saving benefits in actual
Guarantee Acceptance organization to

application accept guarantee plan
Pass
preliminary review and No
environment review
or not
Yes
Pass
the review No
and approval
or not
Yes
Credit bank
Sign guarantee
contract
Monitoring and supervision

of guarantee object
Guarantee
object
No
If
Compensation Recovery
Loan repayment
Yes
Finish recovery Termination
Fig. 5.4 The flow chart of guarantee procedure
operation; while ESCO has difficulty in realizing predicted income finally because
of customers to a great extent. Thus, such risks should be focused sufficiently.
Generally, customer risk can be divided into the following three types:
1. Credit risks of customers. Customers keep the ability to pay attention and pay
for energy services. Loans or leases according to responsibility, which is a kind
of risk for ESCO and the leaser such as credit condition of customers and
whether to pay on schedule according to the contract etc. Credit mechanism has
not been complete in China till now and the phenomenon of bad credit is
popular. Bad credit of customers can be shown in the following aspects:
Customers conceal viciously in the beginning, aiming at prevailing on
investment from ESCO.
5.9 Risks and Countermeasures of EMC Project 355
Propose Chinese insurance or local

application cooperation organization
Consultancy acceptance
Material
preparation Preliminary examination
Review
Cooperation organization
Consultancy
Examination and approval Bank
Energy
Pass the
Service Sign a contract application
Company
Fig. 5.5 The flow chart of ESCO to apply for guarantee
Customers transfer energy-saving benefits of the project by various means

while performing the contract.
Customers try every means to refuse to pay for energy-saving benefits which
are not shared by ESCO.
When competition in the investment market is intensified, other ESCOs offer
more superior conditions; customers violate the contact and cooperate with
other ESCOs.
When the customer unit is restructured or alters leaders, new leaders are
unwilling to perform the contract etc.
Thus, pay attention to investigating credit condition before cooperating with
customers.
2. Operational risks of customers. Customers will compress the production scale
if there is not better measure against bad operation and decreasing profitability
ability; in that case, equipments cannot reach predicted load after the energy-
saving reform; energy consumption will decrease and anticipated energy-saving
capacity and benefit will fall so that profit of ESCO falls. Furthermore, cus-
tomers are possibly involved in legal disputes with risks; for example, ESCO
suffers from losses due to suspension of business or shutdown caused by cus-

tomers undertaking illegal businesses or other significant problems.
3. Contract risks. According to experience of domestic ESCO, contract signed
between ESCO and customers is often not so complete and does not regulate
specific details. Incompleteness of the contract leads to plenty of risks in
implementing the contract and settling disputes in the contract.
5.9.1.2 Risks of Project
Generally speaking, risks of the project mainly have the following types:
1. Development risk. It means that the capital has been used in developing the
project but the project cannot be completed, which is mainly burdened by the
investor of fixed assets.
2. Banking and financial risks. Banking risk includes operation circle of macro-
scopic economy, whether to acquire bank loan on schedule, change of rate of
inflation during the contract period, change of interest rate and change of
exchange rate. Financial risk leads to error of energy-saving benefit of the
estimated project due to inconsiderate consideration. In order to avoid such
risk, ESCO should count all possible expenses of the project considerately.
3. Risks in design and technique. It includes technical option, technical purchase,
and technical advancement and maturity. Risks of the project and system
should be designed reasonably so as to acquire energy conservation, reasonable
design and take advantage of current equipments.
4. Risks in purchasing equipments and raw materials. ESCO should request
suppliers of offering guarantee to properties of equipments, so that they can
operate normally without troubles.
5. Construction risk: It includes whether the subcontractor can finish all works
regulated in the contract according to preset schedule and budget with guar-
antee both quality and quantity, credit degree, technical training, and mainte-
nance ability in later stage.
6. Risk in energy-saving capacity. Risk in energy-saving capacity mainly refers to
whether to realize anticipated energy-saving capacity after implementing the
project, which is a major risk for whether ESCO can benefit from the project.
ESCO may not have calculated energy-saving capacity in detail; and actual
energy-saving capacity is far lower than the anticipated capacity after imple-
menting the project, resulting that it cannot recover investment and profit.
Besides, there are risks in whether authority and acknowledgment of the
assessment organization are sufficient and consistence of assessment standard
and content acknowledgment among ESCO, the assessment organization, and
the customer.
7. Risks in operation time and user load. There will be no thrift if users do not use
energy-consumption equipments in the project. There will be risk if ESCO
recovers investment. Generally speaking, users should burden the risk.
8. Risk in the price change of energy source. Change of energy price will lead to
change in evaluation result of energy-saving benefit and profit separation; or
policy factors such as adjustment in energy policies and industrial structure will
lead to great change in energy-consumption structure of customers so as to
greatly influence income the project.
9. Risk in the return of investment. Major factor influencing risk in return of
investment includes detailed proportion and time limit for confirming benefit
distribution or fixed return, payment ability of customers, policy change,
structural reform and leadership alternation, etc.
5.9.2 Method to Reduce Risks
If ESCO thinks that the project has high risks, it should seek methods to reduce
them [1]. If risks of the project cannot be accepted either after taking such method,
ESCO should give up it and seek other projects with low risk and high return.
Detailed method to reduce relevant risks takes on as follows:
5.9.2.1 Make Specific and Objective Evaluation to Customers
Customer evaluation mainly includes the following three items.
Know About and Evaluate Basic Information of Customers
1. Establishment time, registered capital, capital in place, name, and capacity of

shareholders of the customer company. Generally speaking, if the establishment
time is too short, pay special attention in cooperation; if the registered capital is
too large, its capacity must be strong; if shareholders are large companies with
strong capacity, risks of the customer could be small.
2. Economic mode of the customer. The customer belongs to state owned, private,
joint venture, or foreign-invested enterprise; different forms of ownership
indicate different risk degrees, which are different due to deferent regions and
social development though.
3. Relation between the customer and government. Some enterprises have deep
relation with the government, which often has no risks in operant but in credit.
4. Organization structure of enterprises, including how many wholly owned
subsidiaries are there, how many holding companies are there and how many
joint stock companies are there and how is their condition. Fully know about
integrated operation situation and capacity of customers through knowing about
these contents.
5. Comprehensive quality of enterprises, including quality of leaders, social

evaluation, features of the plant, spiritual state of staffs. Better know about
operation condition and development trend in future of enterprises through
know about these contents.
Know About, Analyze, and Evaluate Financial Situations of Customers
1. Know about the main business and concurrent engaged business of customers.
Know about whether the invested project is related to main business or con-
current engaged business. Generally speaking, enterprises focus more on their
main businesses; the investment is smaller than risk.
2. Know about operation situation. Know about various operation indexes of
customers, which mainly includes production capacity, sales income, total
profit, total assets, net assets data, etc. Meanwhile, know about market infor-
mation, market competition state and market prospect of products of customers.
Generally speaking, customers with large scale, lasting production, and oper-
ation and good market prospect are excellent.
3. Pay attention to the audit situation of financial statement. Know about whether
balance sheet, income statement and cash flow statement of customers have
passed the audit, what the conclusion of the audit report is, whether there is
qualified opinion and which matters need explaining or adjusting.
4. Analysis of financial position, including source analysis of asset fluctuation,
analysis of profit increase or decrease, analysis of profit composition, analysis
of structure of assets and liabilities, profitability analysis and financial ratio
analysis, etc.
5. Analysis of bank liabilities and debt paying ability. Analyze bank liabilities of
the bank and focus on analyzing debt paying ability of customers.
6. Analysis of accounts receivable.
7. Analysis of cash flow. Mainly analyze profit quality and future condition so as
to fully know about financial conditions of customer in the past and future and
comprehensively evaluate possible risks.
Know About Significant Matters
ESCO should also focus on possible significant matters of customers, because

these matters often have tremendous influences upon investing in projects, whose
analysis mainly includes the following contents:
1. Analyze significant construction projects or investment projects possibly
implemented by customers in the near future.
2. Investigate and analyze possible significant systematic reform of customers,
including change in capital structure and change of managerial personnel etc.
3. Know about whether customers are confronted with significant legal lawsuits at
present.
4. Know about whether customers have encountered great errors in operation or
investment in the past 3 years, if there was, what the reason is.
5. Know about whether customers have participated in the trade of the stock and
the futures market. Know about whether they have violated regulations and
disciplines in using capitals. If there was, they will be confronted with great
legal risks, which may lead to failure to invested projects.
6. Know about and analyze information of other significant projects, aim at
projects with abnormal situations in assets and liabilities of customers etc.
5.9.2.2 Collect Information of Customers Through Multiple Channels
ESCO must ensure good business conditions and complete financial system of
customers, pay proportion which should be shared according to energy-saving
capacity. Thus, it should fully know about customers by various channels such as
bank, other customers, superior competent departments of customers, customers
customers etc., mainly including capital credit of customers, technical anticipated
value, decision-making layer, development prospect and possibility of follow-up
projects, etc. Furthermore, it should keep contact with leaders and relevant
departments of customers and acquire their feedbacks about the project so as to
improve works in future; meanwhile, it can avoid risks brought by structural
reform and personnel fluctuation of the customer organization.
Method to reduce credit risks of customers takes on as follows:
1. Use the scientific evaluation method. Borrow credit evaluation system of the
bank and eliminate customers with bad credit. Liaoning Energy Service
Company of demonstrative ESCO has successfully established strategic
cooperative relation with commercial banks and insurance companies, scien-
tifically and systematically evaluating target customers by their customer credit
evaluation system and correctly evaluating and segmenting customer group.
They divide customers into three types according to the evaluation result and
combined with technical features of the company and industrial feature in the
whole province: gold customer, opportunity customer, and high-risk customer
and take different management modes so as to reduce risks of customers from
high to low. When customers evaluate credit, person in charge of relevant
projects in ESCO should evade, because their evaluation opinions may not be
so objective.
2. Check the credit information of customers with other units with business
intercourse such as suppliers of original equipments and cooperation units of
customers etc.
5.9.2.3 Select Excellent Customers
Try to choose excellent customers with energy-saving potential which are sin-
cerely willing to cooperate with ESCO as much as possible based on detailed
evaluation to customers.
5.9.2.4 Sign a Contract as Perfect as Possible
Guarantee normal implementation of the project through restraints in the contact,

then ESCO can recover the due income normally.
5.9.2.5 Spread Risks
In order to reduce risks born by ESCO, try almost to disperse risks conditionally.
For example, customers invest in the project so as to reduce investment of ESCO;
invite equipment manufacturers to participate in implementing energy-saving
projects and amortize equipment fee by energy-saving benefit etc.
5.9.2.6 Reduce Risks by Other Measures
Ensure normal performance of the contract by other measures and reduce risks.
For example, request customers of offering effective guarantees such as guarantee
from the third party or capital mortgage.
5.9.2.7 Reduce Construction Risks
ESCO must finish the project according to time limit regulated in the contract, so
that customers pay on schedule. If the construction period is far longer than the
plan period, the loan interest and other expenses of ESCO would be increased,
which also influence its position in mind of customers. Method to reduce such risks
takes on as follows:
1. Confirm the turnover date of all equipments before formulating the construction
schedule.
2. Carefully plan the construction schedule, so that relevant managerial and
operational personnel of customers interfere in the process and they can point
out potential questions in construction.
3. Establish project manager responsibility system, so that the project manager
takes full responsibility for the construction.
4. Leave certain time in the construction schedule so as to prevent delaying the
construction period.
5.9.2.8 Reduce Risks of Equipment and Technique
Although equipment manufacturers guarantee their properties and quality, ESCO

will burden extra expenses for settling relevant questions if installed equipments
do not operate well. Method to reduce such risks takes on as follows:
1. Try to use experienced technologies and avoid application tests on new
technologies.
2. Use equipments with reliability records. For example, many electronic ballasts
have good properties; choose electronic ballasts with good operation records in
actual projects.
3. Choose equipment excellent suppliers willing to offer guarantee to equipments;
offered guarantee should include labor fee for altering equipments. We should
try to avoid accepting equipments from suppliers with bad financial condition
even though they offer robust guarantee, because we cannot perform the
guarantee responsibility once equipments break down and the equipment
manufacturer stops business, then, ESCO will suffer from losses.
5.9.2.9 Reduce Financial Risks
ESCO should establish expert team for analyzing the project cost, which is an
important promise for acquiring profit. Method to reduce financial risks takes on as
follows:
1. Do not neglect various expenses in the project; the accumulated amount would
be sizable. For example, although guide wires and connecting pieces for
altering the ballast of the fluorescent lamp have low cost, they should be
counted into the project cost.
2. Count indirect costs such as transportation fee and fee to clear away garbage on
the scene into the project cost.
3. Confirm possible extra cost; make customers understand well that these are
extra costs. For example, count expenses of the pulley, the sealing element and
the belt while altering the electromotor of the pump or draught fan; there will
be extra expenses while altering glass of damaged windows and doors or
window shades.
5.9.2.10 Reduce Risks of Energy-Saving Capacity
Methods to reduce big errors of ESCO take on as follows:

1. Actually monitor current conditions of the project instead of supposing. For
example, confirm load distribution of the pump so as to calculate energy-saving
capacity accurately before renewing and reforming speed-governing and
transmission equipments.
2. Leave room for calculating errors of energy-saving capacity and confirm rea-
sonable margin of error. For example, confirm actual energy-saving capacity
according to 80 % of energy-saving capacity.
3. Make continuous monitoring to energy-saving capacity of the project and pay
close attention to earlier sign for not reaching predicted energy-saving capacity
after implementing the project so as to take remedial measures timely.
5.9.2.11 Reduce Risks of Return on Investment
This is a unique risk for EMC businesses, which needs attention and research of
ESCO. Before initiating the project, ESCO should formulated detailed feasible risk
management scheme combined with information of the customer so as to ensure
recovering investment on schedule and benefit which should be shared. Method to
avoid such risks takes on as follows according to experience and lessons of
domestic demonstrative ESCO:
1. Know you as well as the enemy and active security. We cannot nip in the bud
and resolve risks by corresponding countermeasures unless fully knowing about
information of customers.
2. It must make sharing benefit and time limit with customers clear while nego-
tiating the contract and explain to customers about why and how. It can ensure
investment return of ESCO well and make customers accept easily.
3. Formulate reasonable time limit for sharing and remain certain variable margin
so as to ensure there will be no bad changes from customers; ESCO can still
recover all investments.
4. Choose authoritative energy audit department to monitor energy-saving
capacity of the project so as to ensure assessing energy consumption and
analyzing energy-saving benefits fairly and reasonably. The audit department
would better be relevant national departments, large local organizations with
influences in the field.
ESCO should focus on communicating with customers and reducing different
opinions while assessing project benefit so as to avoid possible risks to share
benefits. Since EMC projects bring benefits to customers not only through energy-
saving way but also various channels such as reducing the maintenance fee of
equipments, extending their service life, raising their output and quality, reducing
the consumption of raw materials and reducing environmental cost so as to reduce
cost and raise benefit.
5.10 Case Analysis
5.10.1 Energy-Saving Reform Project of the Electromotor

System of a Coal Company
Customer unit: A coal company.

Energy Service Company: An Energy Service Company.
Implemented project: Energy-saving reform engineering of the electromotor
system.
Information about the customer: The coal company is a modernized enterprise
with coal as the mainstay and other industries, which has robust capacity, stable
and good performances, and meeting customer standard of EMC project.
In 2010, the company had 5,373 major production equipments with the capacity
of 127.6 MW; its degree of mechanization reached 93 and 59.5 % in coal mining
and well digger, respectively; its annual power consumption reached about
175.5 GW and annual electric charge reached about RMB 130 million Yuan. The
company urgently hopes to reduce production cost of raw coal through reforming
energy-saving technique.
The project is implemented as follows:
5.10.1.1 Audit of Energy Efficiency
Most mechanical equipments allocated by the coal company are old and backward
due to ages, which have low efficiency, high power consumption, and low oper-
ation reliability; thus, comprehensive power consumption of raw coal reaches up
to 26.42 kWh/ton at present and the company burdens high cost and bad efficiency
in raw coal. It is investigated that there are mainly the following restraining
factors:
1. Large power consumption of the main fan blower the mine shaft. Coal mine
operates continuously through the main fan blower under the shaft, sending
fresh air into the shaft, discharging poisonous gas, and ensuring security pro-
duction under the shaft. Current main fan blowers are allocated and designed
according to the production capacity of 6.66 million tons/year in the mine lot;
but actual output has reached 8 million tons/year. Total capacity of fan blower
is 6.77 MW, daily power consumption reaches 132 MWh, covering 25.38 % of
total power consumption. It can be seen that it will be an effective way for
greatly reducing comprehensive power consumption of coal to adjust the main
fan blower.
2. Equipments of power distribution and transmission are old with high power
consumption, which all belong to obsolete equipments in high energy con-
sumption. Power distribution and transmission grid of the coal company was
built in 1970s; at present, most power distribution equipments and transformers
belong to obsoleting products, among which there are 201 transformers and
724 MW of installed capacity; 90 % are SJ transformers in earlier stage.
Equipments have backward technique, large zero-load loss, small load-bearing
capacity, and low efficiency.
3. The phenomenon of high power consumption and wasting water of water supply
equipments in the mine lot is serious. The main line of water supply in the mine
lot is nearly hundreds of kilometres. There are over 10 pressure pumps with a
total volume of 8.16 MW. It is estimated that the daily power consumption is
over 40 MWh at present, covering 9.1 % of the comprehensive power con-
sumption of raw coal.
4. There are obsoleting electromotor mostly in excavation equipments. Installed
capacity of excavation equipments under the shaft reaches 26 MW; working
load of equipments is large due to imbalance of production of the mine shaft,
resulting that working load factor, of equipment are low, reactive loss is large,
comprehensive power consumption is high. Furthermore, there are still plenty
of obsoleting electromotors in all links of the mine shaft such as JO and JR
series of electromotor; there are 1,377 tunings in total with a capacity of about
75 MW. We must gradually apply new energy-saving electromotor in energy-
saving reform.
5.10.1.2 Energy-Saving Evaluation and Feasibility Analysis

of the Project
Energy-Saving Evaluation
1. Make energy-saving reform to pressure pumps of the main ventilating fan,

some ventilating fans under the shaft and water supply system of equipments
operating continuously by energy-saving technique of frequency control of
motor speed. This technique is focally publicized nationally and the electricity
rate reaches 4050 %; it is predicted that all investments can be recovered from
saved electric charge during 35 years.
2. Make electronic-control reform and alternation to old equipments. Reasonably
plan and obsolete backward electromotor in low efficiency and apply high
efficiency electromotor; make energy-saving reform to transformer; formulate
reasonable operation mode, reduce idle running of equipments, raise operation
efficiency of the electromotor system, and ensure economic and reliable
operation of all systems.
3. Take advantage of field reactive compensation to raise load factor and reduce
reactive loss of equipments with small load in industrial equipments of the mine
lot whose electromotor cannot be altered so as to save electricity. This tech-
nique has remarkable energy-saving effect and it is preliminarily estimated that
energy conservation will reach over 10 %.
4. Make technical reform and planning design so as to raise the quality of power
supply and reliability of the system in light of weak wire frame, old equipment,
low capacity load, high wire loss, insufficient reactive compensation, and bad
adjustment ability of the power supply system of the mine lot.
Above all, ESCO positively lays solid foundation for realizing concentrated
management and modernized production, reducing exploration cost and realizing
high production and efficiency by new technique, technology and equipment and
the principle of reasonably applying energy source, reducing energy consumption
and abiding by economy and development with reforming energy-saving tech-
nique as the sally port.
Feasible Scheme
The energy-saving reform scheme will be implemented by two phases via nego-
tiation with the coal company; the first phase is to obsolete and renew frequency
control of motor speed of the electromotor system of production equipments in the
mine lot and old equipments, the operation mode applies the construction mode of
the reform engineering; the second phase is to control and optimize frequency
control of motor speed and operation of the electromotor system of water supply
equipments in the mine lot; the operation mode applies energy-saving capacity to
ensure type of payment, which specifically shown as follows:
1. Energy-saving reform of frequency control of motor speed of the electromotor
system. Apply technical reform of frequency control of motor speed of the
electromotor system of fixed equipments such as ventilators, pressure fans,
water pumps, and hoisters so as to save electricity. We should fully consider
technical parameters of equipments, number of electromotor needing driving,
working environment of electromotor, option of external equipments, and
application capacity of frequency converters while choosing frequency control
of motor speed device.
Frequency control of motor speed device is allocated for the air shaft of the
mine lot and some pump houses according to actual production situations of the
coal company, which can be seen in Table 5.5.
2. Obsoleting and updating of old equipments. Replace energy-saving trans-
formers and high efficiency electromotors with backward transformers in high
power consumption and electromotors in low efficiency and high power con-
sumption, reduce losses of transformers, and raise the operation efficiency of
the electromotor system.
Analysis and selection of energy-saving transformers. New energy-saving
transformers have the following advantages compared with old transformers:
(1) Efficiency of new energy-saving transformers rises by 1 % compared with
old transformer, load loss falls by 25 % and loss of zero load falls by 85 %;
Table 5.5 Allocation list of frequency control of motor speed device

Serial Specification Unit Quantity Serial Specification Unit Quantity
number number
1 30 kW, 380 V Set 1 9 155 kW, 380 V Set 6
2 37 kW, 380 V Set 3 10 160 kW, 380 V Set 21
3 55 kW, 380 V Set 9 11 260 kW, 6 kV Set 2
4 75 kW, 380 V Set 7 12 315 kW, 6 kV Set 2
5 90 kW, 380 V Set 5 13 400 kW, 6 kV Set 8
6 100 kW, 380 V Set 22 14 450 kW, 6 kV Set 1
7 125 kW, 380 V Set 5 15 630 kW, 6 kV Set 3
8 132 kW, 380 V Set 4 16 800 kW, 6 kV Set 4
(2) Zero-load factor of new energy-saving transformers is 0.35, over 8 times

of old transformers; and (3) Economy load factor of new energy-saving
transformer is 20 %.
It can be seen from use condition of electromotor that ESCO should consider
choosing one of S9 or S11series of transformers. Comparison of relevant
parameters and prices of S9 series and S11series power distribution transformers
with a capacity of 400 kV is shown in Table 5.6. Relevant economical efficiency is
analyzed as follows:
Formula of annual operation electricity and tariff experience of the transformer
is:
W T0 P0 0:05 I0 SN =100 Tk Pk 0:05 Uk SN =100
5:24
C W P 5:25
where,
W Annual operation power consumption of transformer, kWh;
C Annual operation electric charge of transformer, Yuan;
P0 Zero-load loss, kW;
Pk Load loss, kW;
SN Rated capacity, kVA;
Uk Percentage of impedance voltage, %;
I0 Percentage of zero-load current, %;
P Electric price, Yuan/kWh;
Table 5.6 Comparison of relevant parameters and prices of S9 series and S11 series power
distribution transformers with a capacity of 400 kVA [13]
Zero-load loss Load loss Zero-load Impedance voltage Purchase price
(W) (W) current (%) (%) (thousand Yuan)
S11 S9 S11 S9 S11 S9 S11 S9 S11 S9
565 800 4,300 4,300 0.7 1.0 4.0 4.0 40 36
T0 Annual zero-load hour of the transformer, hour;

Tk Annual equivalent full-load hour of the transformer, hour.
Full-year zero load and equivalent full load of the transformer should be con-
sidered by 8,600 h and 3,100 h, respectively; according to comparison of opera-
tion situations of S11 and S9 series of distribution transformers with a rated
capacity of 400 kV in formulas (5.24) and (5.25), the analysis takes on as follows:
Annual power consumption of S11 distribution transformer is S11
WS11 8; 600 0:565 0:05 0:7 400=100 3; 100

4:3 0:05 4:0 400=100
21; 873kWh
Annual power consumption of S9 distribution transformer is
WS9 8; 600 0:80 0:05 1:0 400=100 3; 100

4:3 0:05 4:0 400=100
24; 410kWh
In consideration of 0.5 Yuan/kWh, annual power consumption of S11 series of
distribution transformer is
CS11 21; 873 0:5 10; 937Yuan
Annual power consumption of S9 distribution transformer is
CS9 24; 410 0:5 12; 205Yuan
It can been seen that the difference in the purchase prices of two transformers is
4,000 Yuan, the difference in the tariff of annual loss is 1,269 Yuan. Thus, the
added investment can be recovered by choosing S11 series of transformer for
3.15 years. If the operation year is counted by 20 years, RMB 21,370 Yuan [which
is calculated by 1,269 9 (20 - 3.15)] of electric charge can be saved apart from
the period of cost recovery of added investment, which is not counted in operation
and maintenance fee and tariff adjustment change influence. In a whole, there is
obvious economic benefit by S11 series of transformer.
Thus, ESCO allocates reasonable transformer combination for designing the
mine lot, which can be seen in Table 5.7.
Alternation and selection of electromotor with high energy consumption. ESCO
replaces the old electromotor with new and efficient electromotor; the average
loss of new and efficient electromotor falls over 25 % and its efficiency rises by
about 46 % compared with old electromotor with high energy consumption.
Besides, efficient electromotor has higher efficiency within relatively broader
scope of load factor. It is estimated that the period for recovery of investment to
apply high efficiency electromotor is one year.
Table 5.7 Allocation list of power transformer

Serial number Specification Unit Quantity Serial number Specification Unit Quantity
1 S11-20/6 Set 38 9 S11-250/6 Set 25
2 S11-30/6 Set 14 10 S11-315/6 Set 25
3 S11-50/6 Set 11 11 S11-400/6 Set 21
4 S11-63/6 Set 6 12 S11-500/6 Set 14
5 S11-75/6 Set 8 13 S11-6300/6 Set 1
6 S11-100/6 Set 8 14 S11-6300/35 Set 1
7 S11-125/6 Set 15 15 S11-10000/6 Set 4
8 S11-160/6 Set 26 16 S11-12500/6 Set 4
The energy-saving electromotor allocated by ESCO for designing the mine lot
can be seen in Table 5.8.
3. Optimization of operation and control of the electromotor system. Apply new
technique and technology to optimize operation and control of the electromotor,
reduce breakdown rate, raise operation efficiency and energy consumption,
such as installing new soft start device, automatic reactive compensation cab-
inet and optimizing operation of the electromotor etc.
The installed capacity of the electromotor of the coal company is about
120 MW and the most single-machine capacities are relatively larger. Most
electromotors will be initiated synchronically due to need of the production plan.
At present, there are two initiation ways: (1) direct initiation; it will cause large
initiation current (68 times of rated current usually), which will cause great
impact upon the power grid in the mine lot; (2) motor resistance initiation of the
rotor; Under such way, energy generated from large current will be wasted in
parallel resistance; furthermore, initiation breakdowns will occur more possibly. It
can be seen that optimal electromotor initiation methodapplying soft start to
initiate the electromotor can simplify operation, reduce initiation current of the
electromotor, realize smooth initiation of the electromotor, save electricity (about
10 %), extend service life, and raise automation level of the electromotor. The
allocation list of solid soft start device of the electromotor can be seen in
Table 5.9.
Table 5.8 Allocation list of energy-saving electromotor

number number
1 1,050 kW, Set 6 8 220 kW, 6 kV Set 12
6 kV
2 710 kW, 6 kV Set 8 9 155 kW, 380 V Set 12
3 630 kW, 6 kV Set 13 10 100 kW, 380 V Set 22
4 400 kW, 6 kV Set 12 11 75 kW, 380 V Set 7
5 315 kW, 6 kV Set 20 12 55 kW, 380 V Set 5
6 300 kW, 6 kV Set 9 13 37 kW, 380 V Set 4
7 280 kW, 6 kV Set 4
Table 5.9 Allocation list of solid soft start device of the electromotor
number number
1 QB-H type 280 kW, Set 5 5 QB-H type Set 3
6 kV 185 kW, 6 kV
6 kV 160 kW, 6 kV
6 kV 132 kW, 6 kV
4 QB-H type 200 kW, Set 2
6 kV
Reactive compensation device can improve quality of power grid, save electric
energy, acquire sizable economic benefit, and have good application prospect. The
allocated reactive compensation device can be seen in Table 5.10 according to
actual situation of production in the mine lot.
Electricity can be saved, reliability of equipments in the electromotor system
can be raised, maintenance capacity of equipments can be reduced, service life of
equipments can be extended, stopping time of equipments can be reduced, oper-
ation efficiency of equipments can be raised and productivity can be promoted
through various technical reform measures above.
We know that the electric price is 0.5 Yuan/kWh and the electricity-saving per
ton of coal in the project can reach 7.42 kWh. It is predicted that 74.2 GWh of
electricity and RMB 37.1 millions Yuan of annual direct cost can be saved by a
coal company with annual output of 10 million tons.
5.10.1.3 Negotiation of Business Contract
The project operates by EMC; Party A (coal company) entrusts Party B (ESCO) to
implement energy design, energy-saving scheme design, construction of energy-
saving reform, and user training in phase 1 according to implementation scheme and
operation mode via negotiation by both parties. Both parties agree on that Party A
pays labor cost to Party B by steps during the contract period, Party B will not share
energy-saving benefits. During phase 2, Party A (coal company) entrusts Party B
(ESCO) with full rights to implement the project; both parties agree on that Party B
charges energy-saving benefits according to promised energy-saving capacity
Table 5.10 Allocation list of reactive compensation device

number (kVar) number (kVar)
1 3,000 Set 2 5 1,500 Set 2
2 2,000 Set 2 6 750 Set 2
3 1,000 Set 2 7 375 Set 2
4 2,250 Set 2
during the contract period, lower than the promised standard; Party B should offer
economic compensation for difference of the energy-saving capacity; both parties
should share the part exceeding the promised standard in certain proportion.
Major business clauses take on as follows:
1. Responsibilities of both parties
Party A (coal company): It is regulated in the contract that Party A (coal
company) should mainly perform the following responsibilities: (1) Take
responsibility for offering sites and coordinating with construction; (2) Take
responsibility for financing of phase 1, including loan; (3) Take responsibility for
organizing and managing the project; (4) Take responsibility for establishing
perfect and complete production management system and organization of the
project; and (5) Take responsibility for paying expenses and energy-saving ben-
efits to ESCO according to regulations in the contract.
Party B (ESCO): It is regulated in the contract that Party B (ESCO) should
mainly perform the following responsibilities: (1) Take responsibility for diag-
nosing energy efficiency on the scene; (2) Take responsibility for designing energy-
saving reform scheme; (3) Take responsibility for financing in phase 2, including
loan; (4) Take responsibility for selecting, purchasing, transporting, installing and
debugging energy-saving equipments, and training users; (5) Take responsibility
for operation guarantee (during the contract period) of equipments; (6) Take
responsibility for energy-saving monitoring and guaranteeing energy-saving
capacity; and (7) Perform business clauses according to regulations in the contract.
2. Schedule plan for implementing the project
The project is implemented by steps according to negotiation by both parties.
Phase 1: Validity period of the contract is 15 months, among which the con-
struction period is 12 months and the accumulated trail operation period is
3 months. The construction period was from May 2011 to April 2012. During this
period, the electromotor and transformer were reformed in 6 months, the fre-
quency control of motor speed device was reformed in 4 months and other elec-
tronic-control equipments were reformed in 2 months.
Phase 2: Validity period of the contract is 5.5 months, among which the con-
struction period is 5 months and the accumulated trail operation period is 1 month.
The construction period was from July 2012 to December 2012. During this
period, the electromotor was reformed in 2.5 months, the frequency control of
motor speed device and other electronic-control equipments were reformed in
1.5 months. The period of cost recovery is 5 years in total from the day officially
accepting and handing over the energy-saving reform.
3. Financial clause and distribution of energy-saving benefit
Both parties agree on that:
In phase 1, Party A (coal company) pay labor cost to Party B (ESCO) in form of
advance payment, progress payment and completion payment of the project in
different stages while implementing the project.
In phase 2, Party B (ESCO) charges (compensates or shares) energy-saving

economic benefits according to energy-saving monitoring results and also prom-
ises that the energy-saving rate after the project is implemented will not be lower
than 20 %. If compensation is needed, it will pay Party A according to the tariff
during the monitoring period; if sharing is needed, Party A will share 90 % of the
part exceeding the energy-saving benefit, while Party B shares the rest 10 %,
which is accounted according to the tariff during the monitoring period. When the
contract expires, all energy-saving benefits belong to Party A.
4. Affiliation of property right of equipment
During the contract period, ownership of equipment belongs to Party B, and
after the contract period, ownership of equipment and all energy-saving benefits
belong to Party A.
5.10.1.4 Technical Economy Analysis
Project Investment Analysis
Total investment of the project is RMB 157.20 Millions Yuan, including static
investment and dynamic investment, among which static investment is RMB
154.37 Millions Yuan, whose estimation scope includes equipment purchase fee,
installation work fee, basic reserve funds and other expenses in the energy-saving
reform project of the electromotor system of the coal company; dynamic invest-
ment is 2.82 Million Yuan, taking major account to loan interests during the
construction period; 71 Million Yuan of bank loan is applied in the project with an
annual loan interest of 5.85 %; the loan interest is 2.82 Million Yuan according to
financing scheme of the project and combined with loan condition. The investment
estimate table can be seen in Table 5.11.
According to the notice of the State Council about the capital system of trail test
of fixed assets investment projects (No. 35 [1996] of the National Development
and Reform Committee), the capital base takes up over 35 % of total investment in
the project. Financing of the project mainly considers self-raised funds of enter-
prises and domestic bank loans.
Economic Evaluation of the Project
According to energy-saving potential evaluation and investment of the project, its

economic evaluation indexes can be seen as Table 5.12 via calculation.
It can be seen from analysis and calculation results of financial profitability that
internal rate of return of all investments in the project is expected to reach 24.7 %, far
higher than the criteria rate of return 15 %; the period for recovery of all investments
is 4.9 years, far smaller than the period for recovery of investment in the field
8 years. We can see that the project has strong financial profitability ability.
Table 5.11 Investment estimate table RMB thousand Yuan

Serial Expense name Value of budget estimate
number
Equipment Installation Other Total up
purchase work expenses
1 Frequency control of motor 101,008.1 245.1 101,253.2
speed device
2 Electromotor 18,009.5 292.4 18,301.9
3 Transformer 14,268.0 4,548.0 18,816.0
4 Solid soft start device of 771.9 19.1 791.0
electromotor
5 Reactive compensation 1,068.1 6.2 1,074.3
complete equipment
6 Basic reserve funds 9,458.8 357.8 282.6 10,099.1
7 Other expenses 4,036.6 4,036.6
8 Subtotal 144,584.4 5,468.6 4,319.2 14,135.7
9 Loan interest 2,824.4 2,824.4
10 Total 144,584.4 5,468.6 7,143.6 157,196.5
Table 5.12 Economic evaluation indexes

Serial Index name Assessed Serial Index name Assessed
number value number value
1 Financial internal rate of 24.7 % 5 Return on investment 18.3 %
return (all investments)
2 Financial net present value 134 million 6 Profit and tax 18.1 %
of the project (all Yuan investment ratio
investments)
3 After-tax period for recovery 4.9 years 7 Loan repayment 5.14 years
of investment (including period (including
the construction period) the construction
period)
4 Capital profit margin 34.5 %
5.10.1.5 Energy Conservation and Benefit Monitoring
In May 2012, the energy-saving monitoring center made field monitoring to actual
energy-saving effect of the project; the conclusion took on as follows: the
equipment operated stably and reliably with intuitional operation system, high
automation degree and remarkable energy-saving effect. Comprehensive elec-
tricity-saving rate of the system reached 25.26 % and annual electricity-saving
capacity reached 44.3 GWh. Analysis of energy-saving benefit takes on as follows:
Before the energy-saving reform, the project consumed 175.5 GWh and RMB
87.75 million Yuan of electric charge in 2010.
After the energy-saving reform is implemented, annual power consumption is:
175:5 44:3 131:2GWh
Total annual energy-saving benefit is calculated according to the actual tariff

0.72 Yuan/kWh as follows:
44:32 0:72 31:91Million Yuan
After the energy-saving service project is implemented, both parties can acquire
great economic benefit and make contribution to social energy conservation and
emission reduction, equaling to saving 17,000 tce yearly, reducing 50,000 tons of
CO2 emission, 300 tons of SO2 emission, and 100 tons of NOx emission.
5.10.1.6 Project Conclusion
The energy-saving reform project relies on researches and implementation of

reasonable and effective technical scheme, equipment scheme, and technical
economy to promote efficiency of general mechanical and electrical products such
as draught fan and water pump through installing equipments in frequency control
of motor speed and optimizing control and gradually obsoleting backward
mechanical and electrical products with high energy consumption, which acquires
good economic and social benefits and good reputation from customers. The
project is successfully implemented mainly due to the following reasons:
1. Give priority to mature and advanced technologies while choosing energy-
saving technique, ensuring energy-saving benefit.
2. Analyze technical and economic parameters of different schemes and choose
energy-saving equipments reasonably.
3. Adopt flexible cooperation way in implementing projects according to practical
situations of the project and enterprise.
4. Positively coordinate customers with carrying out professional energy-saving
monitoring, ensuring benefits of both parties.
5. The project complies with national energy-saving policies, has demonstrative
effect, concludes experience and harbors realistic promotion value for energy
conservation of the electromotor system.
5.10.2 Energy Conservation of the Control System of Central

Air Conditionings in a Hotel
Customer unit:Some one hotel.

Energy Service Company (ESCO): Some energy service company.
Implemented project: Energy conservation of the control system of central air
conditioning.
Investigation of customer in the project: The hotel is a five-star hotel with stable
and good operation performance, which can meet customer standard of EMC
project.
The project is implemented as follows:
5.10.2.1 Audit of Energy Efficiency
1. Annual average temperature where the hotel is located at is 13.013.4 C,

average temperature in the coldest January is -0.4 to 0.9 C, the extremely
coldest temperature is -15.6 C; average temperature in the hottest July is
2626.6 C, the extremely highest temperature is 43.4 C, the difference in
temperature in four seasons is rather big. Such geographic environment and
weather condition cause large fluctuation in load of the central air conditioning
in the hotel.
2. The central air conditioning system in the hotel applies traditional control
technique and equipments, which is operated, controlled and managed by tra-
ditional manual operation, lacks advanced control means, cannot realize
adjusting supply of cold volume (or heat volume) of air conditionings along
with change of load demand and consumes lots of electricity. The central air
conditioning system consumed 1.115 GWh of electricity and costed 903
thousand Yuan of electric charge in 2009.
3. Floorage of air conditionings in the hotel is 15,000 m2; major equipments in the
central air conditioning system are allocated as follows:
Two centrifugal electric refrigerating units; power of single electromotor is
394 kW.
Three freezing water circulating pumps; power of single electromotor is
55 kW.
Three cooling water circulating pumps; power of single electromotor is
55 kW.
Three cooling tower draught fans; power of single electromotor is 22 kW.
4. Major questions:
The central air conditioning system applies traditional constant flow control
way, which operates under designed rated state; energy consumption of the
system is at the designed maximum value constantly. In fact, the air condi-
tioning system does not operate under reasonable load in most time due to
changes in external temperature, passenger flow volume in the hotel and
comfort level, wasting lots of energy sources.
Water pump and draught fan of the air conditioning system operate under
rated state with serious mechanical wear, increasing breakdown, shortening
service life, and high maintenance fee.
5.10.2.2 Evaluation of Energy-Saving Project and Feasibility Analysis
According to the above situations, major problem needing settling in energy-

saving reform of the central air conditioning system is to help the customers to
realize energy conservation and reduce loss, extend service life of equipments and
reduce maintenance cost etc.
In light of actual situation of air conditionings in the hotel, the energy-saving

reform scheme is to replace the original control system by advanced central air
conditioning management expert system. The product has intelligent obscure
control function and can automatically select optimal operation parameters of
central air conditioning system according to changes of environment and load so as
to ensure that the air conditioning system (the host engine of the air conditioning,
the freezing water system and the cooling water system) operates under the best
working condition so as to reduce energy consumption to the maximum extent.
Meanwhile, the system also offers a platform to users to operate and manage
central air conditionings by application computer so as to realize automation of
controlling and managing central air conditionings. Detailed contents of the reform
project take on as follows:
1. Install an obscure control cabinet to realize computer control and management
of air conditioning.
2. Install a field obscure control cabinet to process operation parameters of air
conditioning.
3. Replace the original control cabinet of cooling water pump by an intelligent
control cabinet of water pump.
4. Replace the original control cabinet of freezing water pump by an intelligent
control cabinet of water pump.
5. Replace the original control cabinet of cooling tower fan by an intelligent
control cabinet of draught fan.
6. Install a flowmeter, water temperature sensor, and water flow differential
pressure pickup to collect operation parameters of air conditioning.
5.10.2.3 Negotiation of Business Contract
The project operates in form of EMC; major clauses take on as follows:

1. Responsibilities of both parties.
Responsibilities of Party A (the hotel). (1) Offer installation condition and
field of equipments; (2) Take responsibility for using and managing equip-
ments; and (3) Take responsibility for recording power consumption, calcu-
lating energy-saving benefit and paying for energy-saving benefit to ESCO
according to regulations in the contract.
Responsibilities of Party B (ESCO). (1) Take responsibility for diagnosing
efficiency of field energy; (2) Take responsibility for designing energy-saving
reform schemes; (3) Take responsibility for manufacturing, transporting,
installing and debugging equipments and training users; (4) Take responsi-
bility for operation guarantee of equipments; and (5) Take responsibility for
energy-saving monitoring and ensuring energy-saving capacity.
2. Distribution of energy-saving benefit

The project applies the principle that the hotel and ESCO jointly share energy-
saving benefits from implementing the project. The contract period of the project is
3 years, during which ESCO can share 90 % of energy-saving benefit so as to
recover its investment within 3 years since the energy-saving reform project is
completed, officially accepted, handed over and used by users; the hotel shares
10 % of energy-saving benefit. After the contract period, all energy-saving benefits
belong to customers.
3. Affiliation of property right of equipments
During the contract period, property right of equipments belongs to ESCO; the
hotel just enjoys right of use. After the contract period, ESCO will transfer
property right of equipments to the hotel; then the hotel has all equipments and
energy-saving benefits.
5.10.2.4 Contract Execution
ESCO established the project team and started to enter and be stationed in the
construction in May 2011; according to schedule of the project, it finished
installing and debugging obscure control cabinet and intelligent control cabinet of
water pump, and install the flowmeter, water temperature sensor, water flow dif-
ferential pressure pickup so as to monitor and collect operation data of air con-
ditioning in the first phase in the beginning of June; finished installing obscure
control cabinet and intelligent control cabinet in the second phase in the end of
June; finished debugging and accepting the whole set of system, handing over to
the hotel and putting them into operation in the first 10-day period of July.
5.10.2.5 Monitoring of Energy Conservation and Benefit
1. Monitoring of energy conservation and benefit. During the trial run, the energy-
saving monitoring center has made field monitoring to actual energy-saving
effect of the project, resulting that: the equipment operates stably and reliably
with ocular operation system and high automation degree. The system can
automatically track load of the terminal air conditioning timely and accurately
with remarkable energy-saving effect and a comprehensive energy-saving rate
of 35 %.
2. Analysis of energy-saving benefit. Before the energy-saving reform, the project
consumed 1.115 GWh of electricity in 2010 and RMB 903,000 Yuan of electric
charge. After the reform, total annual energy-saving capacity takes on as fol-
lows according to calculation of electricity-saving rate tested by the energy-
saving monitoring center:
1:115 35 % 0:39GWh
According to current actual price 0.81 Yuan/kWh, total annual energy-saving
benefit is calculated as follows:
0:39 0:81 0:3161Million Yuan
In the project, ESCO invests about 50 million Yuan and benefit about
85 million Yuan during the contract period, the period for recovery of investment
is 1.8 years. Both parties win great benefit. Meanwhile, it makes contribution to
social environment conservation, equaling to 150 tce of energy-saving capability;
it also brings environmental benefit at the same time, reducing 430 tons of CO2
emission, 3 tons of SO2 emission, and 1 ton of NOx.
5.10.2.6 Project Conclusion
The project belongs to sharing mode of energy-saving benefit; ESCO should pay
for human resource cost in manufacturing, installing and debugging equipments,
reform energy-saving technique of the central air conditioning of customers, and
share energy-saving benefit together with users. Major benefits can be concluded
as follows:
1. General investigation and estimation prior to the project is delicate and effec-
tive, which ensures scientificalness of the project and reasonability of economy.
2. Planning and design of embodiments of the project are reasonable, which fully
dig out energy-saving potential.
5.10.3 The Decision Support System of DSM of an Oil Field
It is an important link in business processes of ESCO to make energy consumption

analysis, technical and economic evaluation, and benefit analysis; the analysis
method and means will directly influence conclusion of feasible analysis of
energy-saving projects. Technical expert software bank of benefit analysis and
decision support of DSM projects can offer forceful professional supports to ser-
vices of ESCO. Under support of DSM expert software bank, special ESCO will
normalize DSM work based on current achievements and lay foundation for
forceful publicity of DSM in various large enterprises with high energy con-
sumption in China. Some information of the decision support system of DSM IRP/
DSM Expert Decision Support System Software jointly developed by State Grid
Energy Research Institute (SGERI) is focally introduced here.
5.10.3.1 Project Background
This oil field is an oil output giant and a giant of power consumption and energy
consumption, which has a large self-provided power grid inside. The oil field
power grid is a comprehensive electric system including generating, supplying,
and distributing power. There is a fire coal power station of two units with the
capacity of 200 MW, a gas power station of three units with the capacity of
36 MW, 179 transformer substations, in which 3 are 220 kV, 32 are 110 kV and
144 are 35 kV. Total transmission wire over 6 kV is more than 11,000 km.
Electric charge takes up a big proportion in direct production cost; thus, it is an
important way for enterprises to dig out potential synergia to restrict electric load
and increase speed of power consumption and reduce power consumption.
5.10.3.2 Major Function
The top major function of IRP/DSM Expert Decision Support System Software is
to offer technical supports to the approval, implementation, and evaluation of a
DSM project and realize routinization of the whole process of a DSM project. The
core of the project is to conduct technical and economic evaluation to DSM project
based on energy consumption. Calculation parameters of energy consumption
come from parameters of energy consumption, equipments, and energy utilization
way. We can use the software in analysis, calculation, and comparative analysis
and list all technical measures according to preferential benefit so as to select
reasonable technical schemes to make detailed implementation. Besides, we can
finish capital planning so as to instruct detailed investment and implementation of
a DSM project based project evaluation.
The software can be used in energy-saving reform of various electric equip-
ments (such as electromotor traction equipment, refrigeration equipment, heating
equipment, illumination equipment, and transformer) and benefit evaluation of
energy replacement. Furthermore, it can be used to analysis the energy con-
sumption of various electric equipments, comprehensive evaluation of DSM
projects, calculation of system characteristic parameter after implementing DSM
technique, capital planning, load and electric prediction, and data management of
electric equipments.
1. The system mainly includes the following functions:
Can finish calculating energy consumption of major power-consumption
equipments, which can be divided into illumination equipment, electromotor,
transformer, heating equipment, refrigeration equipment and control equip-
ment according to type; mechanical oil extraction system, gathering system
and water injection system according to production links.
Can finish economic benefit evaluation of DSM projects, including energy
consumption of computer projects, electricity-saving cost of the project,
The decision support system of DSM
Economic evaluation
Energy consumption
Load characteristic
Line characteristic
Capital planning
management
analysis tool
analysis
analysis
analysis
Benefit
Data
Automatic report form

Printing management
Automatic document
Report from output
Graphic processing
management
System help
File
Fig. 5.6 The functional block diagram of the decision support system of DSM
annual fee of the project, internal benefit rate of the project, period for
recovery of investment of the project and benefit-cost ratio of the project.
Can finish annual fee of DSM projects and use it to investment in the project
and sensitivity analysis of tariff.
Can analyze and estimate social benefits from implementing DSM projects,
which mainly includes estimating avoidable resources and calculation of
pollutant discharging which can be reduced to the society of the scheme.
Can finish load change analysis of DSM projects and analyze load charac-
teristics of the system.
Can finish the optimal capital planning for total given funds when the reform
object of equipments is confirmed. The planning restraint conditions are total
amount of capital and the reform object of equipments; the planning object is
how to invest so as to ensure that benefit of the whole project reaches the
optimum.
Line characteristic analysis function, calculate line factor and change situation
of line loss after a line finishes reforming the electromotor.
Offer common benefit analysis tool and estimate capital coefficients under
different interest rates.
Output function of graph and report form; all analysis results are outputted by
graph, report form, and document in energy consumption calculation, benefit
analysis, capital planning, load analysis and line characteristic analysis.
Offer the function of date management. The database of software includes the
database of production equipments and new equipments. Inquire, calculate,
and call technical parameters of current and new equipments by the database.
Software has good expandability and openness.
The functional block diagram of the supporting system of decision making of
DSM is shown in Fig. 5.6.
2. Some modules are introduced as the following:
Energy-consumption analysis module: assistant for energy-consumption
analysis of major production equipments (illumination, electromotor, cooling,
heating, and transformer), major production operation process (mechanical
plucking system), and major DSM measures (moving the peak and filling in
the valley). The block diagram of energy-consumption analysis module is
shown in Fig. 5.7.
Economic evaluation module: assistant for economic evaluation of schemes
based on energy-consumption analysis, offering various economic comparison
indexes include the economic benefit, social benefit, emission-reduction effect,
etc. The block diagram of index evaluation module is shown in Fig. 5.8.
Capital planning module: the optimal capital planning of DSM projects is
defined as: how to allocate capital of different reform objects for DSM
Illumination power consumption Load characteristic analysis of the

analysis equipment
Electromotor power consumption

Load calculation of the equipment
analysis
Power consumption
Refrigeration power consumption

Load change in the scheme
analysis
analysis
Heating power Daily power consumption of the

consumption analysis equipment
Power consumption analysis of Annual power consumption of the

the mechanical system equipment
Power consumption analysis of Daily power consumption in the

the moving peak scheme
Power consumption analysis of Annual power consumption in the

the transformer scheme
Fig. 5.7 The block diagram of energy-consumption analysis module

Load change in scheme
Load characteristic in scheme

Load and power
consumption analysis Electricity calculation in
scheme
Annual power consumption in
scheme
Economic evaluation of the

transformer Operation cost in scheme
Economic evaluation of the Electricity-saving cost in scheme

electromotor
evaluation module
Annual electric charge in scheme

Economic evaluation of
Economic
refrigeration Annual electric charge in scheme
Benefit of user in the Electricity-saving benefit in

Economic evaluation of heating
scheme scheme
Economic evaluation of Operation benefit in scheme

mechanical system
Sensitivity analysis
Economic evaluation of moving
peaking Static payback time in scheme
Dynamic payback time in scheme
Internal rate of return in the

scheme
Benefit-cost ratio in the scheme
Avoidable capacity of the user

Social benefit of the scheme
side in the scheme
Avoidable electricity of the

user side in the scheme
Avoidable electricity in the
scheme system
Avoidable capacity of the scheme
system
Avoidable capacity benefit in
the scheme
Reduction of CO2 emission in

Environmental-conservation the scheme
benefit of the scheme Reduction of SO2 emission in
the scheme
Fig. 5.8 The block diagram of index evaluation module

Fig. 5.9 The block diagram

Investment in all parts of the
of capital planning module
project
Real investment in all parts of the
Capital planning
project
Investment quantity of all

equipments of the project
Maximum benefit
which can be realized
Obsoleted project
projects if capital and reform object of equipments are given so as to reach the
maximum investment profit of the project. Confirm the best implementation
mode of DSM projects through capital planning and confirm use object and
investment sequence of capital. The block diagram of capital planning module
is shown in Fig. 5.9.
5.10.3.3 Process Flow
The block diagram of the process flow can be seen in Fig. 5.10.The system is
suitable for numerous enterprises with high energy consumption such as oil
exploitation, selection and purchase of various metals and nonmetallic ores,
chemical industry, production of building materials, ferrous metallurgy, paper-
making and metalware, because the database of software has good openness. By
virtue of the software, ESCO can analyze feasibility of energy-saving reform of
many enterprises including the above industries; and enterprises can take advan-
tage of the above system to analyze and make decisions.
References 383
Data input
Equipment data
Data output
Data management Tariff data
Data backup
Load data
Data call Data query
Calculation of energy Energy consumption Character analysis of

consumption of calculation of scheme lines
equipment
Cost analysis of scheme

Generate scheme
Expense analysis of
Capital planning
scheme
Scheme bank
Sensitive analysis
of scheme
Call scheme Estimation of direct

benefit of project
For government or
society
Scheme comparison
For users
Receive the
commendatory scheme For ESCO
Benefit estimation of
For power utility
scheme
Fig. 5.10 The block diagram of procedure
References
1. Website of ESCO Committee of China Energy Conservation Association (2012) http://

www.emca.cn/. Cited 12 Sept 2012
2. Energy Management Company Association (EMCA) (2006) New mechanism of
marketization energy conservationEnergy Management Contract, 2006
3. Lin Z (2003) General situation of development of overseas energy service company.
Demand-side Management 2003, 5(1):1821
4. The Canadian Energy Performance Contracting Experience (1997) Presented to the
International Seminar on Energy Service Companies. International Energy Agency, 2728
Oct 1997
5. State Grid Energy Research Institute (SGERI) (2009) Research on the policies of energy-
saving mechanism
6. State Power Economic Research Center, Energy Institute of State Development and Planning
Commission, America Nature Resources Defiance Council (2003) Report of China to carry
out DSM
7. http://chidt.house.sina.com.cn/
8. Jiarong Z, Wenke H (2006) Green illumination engineering and new energy-saving
mechanism. China Environmental Science Press
9. China Economy Technology Investment Guarantee Co., Ltd. (2004) Financing guarantee
manual of energy service company (trial implementation), Beijing
10. Luyi W, Youjiang M (2006) Corporate Energy Management and Energy-saving Technique.
Energy conservation management office of Xian Peoples Government & Xian energy-
saving monitoring center
11. Jinxiu L (2006) Training textbook for energy control cadre of key energy-consumption
corporation. Energy conservation management office of Jilin Peoples Government
12. Website of Energy World, http://www.ny21.cn/. Cited 10 Oct 2012
13. Quanle Z (2006) 1000 Questions about grid loss management. China Electricity Press,
Beijing
Chapter 6
The Important Participants in Demand-
Side Management: Power Consumers
6.1 Power Consumers are the Most Important Participant

in DSM
6.1.1 Power Consumers are the Carrier of Electricity

Consumption
Since the power consumers (abbreviated as user) are the direct consumers of
electricity, demand-side management (DSM) must rely on them so as to renew and
reform its electric equipments and adjust power utilization way of the user with
power consumers as the implementation object no matter for the government,
power grid enterprises, power generation enterprises, Energy Service Company,
and the user itself, which can be seen in Fig. 6.1.
Terminal power utilization efficiency can be raised, power utilization way can
be improved, power generation capacity and power transmission equipments can
be slowly built, investments in power construction and costs in power generation
and supply can be reduced, energy resources can be saved, and discharging of
pollutants can be reduced so as to realize the minimum total expense of the whole
society as long as power consumers positively participate; otherwise, DSM will be
a mere skeleton and bare concept which accomplishes nothing. Thus, power
consumers are the social basis for achieving actual effect of DSM and the most
important participant for DSM.
6.1.2 Power Consumers are the Direct Beneficiary

for Carrying Out DSM
Implementation of DSM can save energy resources, reduce discharging pollutants,

postpone the construction of power plants, transmission and distribution equip-
ments for power utilities, raise reliability of operating power grid, and bring

386 6 The Important Participants in Demand-Side Management: Power Consumers
Fig. 6.1 Power consumers

are the most important Government
participant of DSM
Power
Consumers
Power grid are
Publicity,
enterprise
guidance the
or most
project
Power important
implementation
generation participant
enterprise of
DSM
Energy service
company
business opportunities to energy service company; while the biggest direct

beneficiary is power consumers participating in DSM, who can acquire benefits in
many aspects such as saving electricity expenditure, improving working and living
conditions, raising competitiveness of products, and acquiring benefits from
comprehensive social benefits.
6.1.2.1 Save Electricity Expenditures
The foremost and the most direct benefit for carrying out DSM is to save elec-
tricity expenditure, which can realize saving electricity fare whether in raising
level of energy efficiency, shifting peak load.
Power consumption of an oil field fell by 61 GWh from 1996 to 1997 through
carrying out DSM [1], saving a power fare of RMB 23.91 million Yuan; saved
194 GWh and a power fare of RMB 75.66 million Yuan in 1998. The saved
money was nearly RMB 100 million Yuan in 2 years. A cement plant positively
applied technical method to cut the peak load and fill in the valley period, by time-
of-use (TOU) tariff, a power fare of nearly RMB 0.8 million Yuan was saved in
current year, corresponding cost fell 23 Yuan/t on average and competitiveness
raised [2].
6.1.2.2 Improve the Quality and Competitiveness of Products
Participation of DSM is good for the raising level of production, management, and
technology of enterprises, reducing costs and increasing benefits. Meanwhile,
saving energy sources makes contribution to saving energy and reducing emission
for the country, undertaking corresponding social responsibilities and winning
good reputation for large enterprises. Enterprises requesting highly of technology
can improve production environment, raise the quality of products through DSM
so as to raise their competitiveness.
6.1 Power Consumers are the Most Important Participant in DSM 387
For example, brewing workshops of wine plants request extremely highly of

temperature. Temperature in the workshop of a wine manor has been effectively
controlled after carrying out DSM [mainly applying intelligent storage air con-
ditioning (AC)], quality and competitiveness of wine have been raised and market
share has slightly risen.
6.1.2.3 Improve Working and Living Conditions
As for health of people, high-efficiency and energy-saving green illumination lamp

is an incomparable high-quality light source to common lamps; first, it approaches to
the natural light closer; second, UV-light and infrared light in the light spectrum are
reduced; third, tone of the light is reasonable; fourth, the light is no-frequency strobe
light with distinct, moderate, and soft beam. It applies high-efficiency and energy-
saving lamps to replace common lamps, which cannot only save power but also raise
illumination quality, reduce harm to eyesight, raise comfort level to human body,
and is good for health of people due to improvement of stroboscopic effect [3].
In order to save energy consumption, reduce production cost, improve manual
operation environment, and raise labor productivity and product quality, a com-
pany reformed common illumination lamps in the plant to high efficiency lamps in
2010. It is seen from the service condition after the reform that the lighting effect
has been greatly raised even though quantity and total power of lamps were
reduced, which not only reduced cost but also improved working environment and
raised comfort level of workers [4].
6.1.2.4 Obtain Benefits from Comprehensive Social Effects
Power consumers will benefit from the following aspects in terms of the com-
prehensive social effect for carrying out DSM:
1. As for power supply, greatly and effectively carrying out DSM can reduce or
relieve construction of power source, correspondingly raise utilization ratio of
power generation facilities so as to improve operation condition of power
generation enterprises, and reduce cost of power generation; meanwhile, level
of grid load and utilization ratio of equipments of power transmission and
distribution have been raised, which not only shrinks the difference of peaks,
reduces line losses of distribution and transmission power grid, and raises
economical efficiency of power grid in a whole. Accordingly, it will bring
decrease to tariff in countries or areas with high tariff and restricts rising
fluctuation or speed of tariff in countries or areas with low tariff; then, users can
benefit low tariff from it.
2. Greatly and effectively carrying out DSM can reduce the load demand of the
electrical system at the peak time; further enriching the reserve capacity of the
electrical system improves the operational state of the power grid, strengthens
security of power supply, and greatly reduces probability of switching out and
limiting power so that users can gain safe and reliable power supply.
3. Effectively reduce serious threats of pollutants discharged from fossil fuels such
as coal and petroleum to the global ecosystem. CO2 is the major greenhouse gas
leading to greenhouse effect; while SO2 and oxynitride are major sources of
acid rain; moreover, SO2 is also the chief culprit resulting in pulmonary heart
disease, which all brings serious damages to existence and growth of animals
and plants including human. In December, 1952, high-density SO2, smoke, and
dust covered the sky of London for successive 4 days; over 4,000 people died of
the killing smoke leading to respiratory failure. It was investigated in 332 large
and small cities in China in 1998 that cities with air pollution exceeding normal
national standard covered 43.5 % and coverage area of acid rain covered over
30 % of land in the whole country [5]. In recent years, more than a half of the
main cities encounters acid rain, all rains are acid rains in some areas, that
seriously poses harm to quality of soil and security of food. Carrying out DSM
greatly and effectively can save consumption of fossil fuels such as coal and oil,
reduces discharging pollutants, improves atmospheric environment, and benefit
health of human.
6.1.3 Saving Electricity is a Legal Obligation for Each User
Electricity is a secondary energy processed by the power generation plants

and is transformed by primary energy sources such as water, coal, petroleum,
natural gas, nuclear power, wind energy source, solar energy, and biomass energy
etc., which can just reach the user after disseminated by power transmission and
transformation equipments, thus, there must be certain losses. At present, overall
efficiency of energy transformation in power plants with at least 6 MW in China is
about 41 % [6]; and the transformation efficiency reaches only over 30 % from
primary energy sources to electric power used by users plus about 7 % line losses.
It can be seen that users waste 3 times of primary energy sources for 1 kWh
electric power.
It is definitely pointed out in clause IV in Energy-saving Law issued in 2007
that it is a basic national policy to save energy sources in China and any unit and
person should legally perform obligations to save energy and have the right to
impeach behaviors to waste energy in clause IX, which regulates that it is an
obligatory responsibility for each user to save energy in form of law. Everyone is
responsible for saving electricity and each user of electricity has the obligation to
positively participate in DSM. In that case, grains of sand can be grouped together
to form a pagoda and many a little makes a mickle; then we can just promote
implementation of saving energy and reducing emission and push forward
establishment of the society with economical resources and friendly environment.
6.1 Power Consumers are the Most Important Participant in DSM 389
It is obvious for large users to realize energy-saving and emission reduction

through carrying out DSM. For example, it was mentioned in the above that an oil
field saved about 194 GWh of electricity in 1998, discounted to about 70,000 tons
coal, and reducing discharging 1,600 and 244,000 tons of SO2 and CO2, respectively;
saved about 400 GWh of electricity in 1999, discounted to about 150,000 tce, and
reducing discharging 3,400 and 504,000 tons of SO2 and CO2, respectively [1].
Medium and small users will also make certain contribution to saving energy
and reducing emission. Given that a family sues a 6 W energy-saving lamp to
replace a 40 W filament lamp, which can save about 34 kWh of electricity per year
calculated by using 1,000 h per year, the energy-saving effect is not obvious.
However, if 100,000 users alter the same 500,000 lamps, 170 GWh of electricity
can be saved per year, discounted to 6,700 tons of coal and reducing discharging
19,000 and 130 tons of SO2 and CO2, respectively. Besides, green illumination
lamps are injected with less than 3.6 mg of mercury, while common lamps are
injected several times; wasted or cracked illumination products can also discharge
poisonous gas to the environment; thus, it makes contribution to environment
conservation to apply green illumination products.
6.2 Experiences of Power Consumers to Participate in DSM
Since the concept of DSM occurred, users from many countries and areas have
been unceasingly participated in it under publicity and promotion of relevant
governmental and electrical departments. Users participating in DSM mainly refer
to raising energy efficiency or transferring load so as to save costs and acquire
benefits under laws and regulations formulated by the government and through
reformation of technical equipments and updating of management measures. For
the past few decades, domestic and overseas power consumers have been posi-
tively participating in DSM and have accumulated plenty of experience.
6.2.1 Relevant Policies for Power Consumers to Participate

in DSM
Laws and regulations related to DSM are introduced in Chap. 3 in the book from
the view of the government, which make definite regulations that power con-
sumers should positively participate in DSM and saving energy and electricity. In
detailed practices, some domestic and overseas modes leading users to participate
in DSM emerge and are introduced here.
6.2.1.1 Tariff Policies
In practice, governments and electricity departments in all countries issue a series

of policies to motivate tariff so as to push forward carrying out DSM and lead users
to use electricity reasonably, including peak valley TOU tariff, seasonal tariff (wet
and dry tariff), interruptible tariff (interruptible load compensation), tiered rate,
and two-fold tariff etc.
Peak valley Time-Of-Use Tariff
Different power consumers have different characteristics in using electricity; some

use electricity discontinuously and some continuously; some in day and some in
night; some at high temperature and some at low temperature; and some loads are
changeless and some are changing. Thus, the load curve of the power grid is often
uneven as the curve in Fig. 6.2 with round dots. Three sections (the peak, the plain,
and the valley) are divided according to load characteristics of the power grid
respectively; a peak would be added in some areas as Fig. 6.2.
Peak valley TOU tariff means to set tariff with differences in various sections;
certainly, the tariff at the peak is high while that in the valley is low, aiming at
guiding users to transfer some loads from peak to valley. However, division of
peak and valley intervals is quite different due to different load characteristics of
power grid in various areas. There is usually tariff list in the customer service
column in relevant websites of power grid enterprises, which shows division of
peak and valley intervals as well.
Tariff at ordinary interval (called ordinary tariff in the book) remains at the level
in the contents (the basic electricity price list in various industries formulated or
approved by the government is called the category tariff); tariff at the peak interval
(called peak tariff in the book) is usually over 1.5 times of ordinary tariff; tariff at
the valley interval (called valley tariff in the book) is about half of ordinary tariff.
Tip Peak Load

Value of Load
Peak Load
Common Load (Load at the

Plain Period)
Peak Load Period
Valley Load
Period
Peak Load
Load Period
Tip Peak
Valley Load Period Peak Load Plain

P i d P i d
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour
Fig. 6.2 The schematic diagram at the tip peak, peak, plain, and valley period
6.2 Experiences of Power Consumers to Participate in DSM 391
Value of Load
Dry season Wet season Dry season
1 2 3 4 5 6 7 8 9 10 11 12 Month
Fig. 6.3 The months of dry and wet season
The peak-to-valley tariff ratio in some countries or regions reaches over 10 times
such as French and England and so on. At present, most provinces in China have
started to carry out TOU tariff mainly in light of industrial users; the peak valley
electricity price is always 25 times, which would be gradually enlarged in
practices; commercial users can choose single tariff or peak valley TOU tariff in
account settlement; some provinces have started to popularize and implement it in
residential users such as Jiangsu, Shanghai, Beijing, and so on.
Seasonal Tariff (Wet and Dry Tariff)
The electric load curve is not a straight line everyday; loads in different months in
a year are also different greatly mainly due to different climates, living habits or
production habits, and raw materials or markets in different seasons. Seasonal tariff
(wet and dry tariff) is a kind of tariff policy mainly used in areas with large
proportion between water and electricity, aiming at guiding users to transfer some
loads from seasons (dry seasons) with little water to seasons with much water (wet
seasons). Tariff in wet seasons is cheaper than that in ordinary times; that in dry
seasons is more expensive, see Fig. 6.3. Moreover, some areas would adapt sea-
sonal tariff so as to restrain load of AC in summer and load of heating in winter;
tariff in summer and winter is higher than that in spring and autumn.
Interruptible Tariff or Interruptible Load Compensation
In order to attract those loads which can control temporary interruption to par-
ticipate in DSM, the supply scheduling department controls temporary interruption
of the power grid load at the peak time; meanwhile, power grid enterprises settle
accounts or pay certain subsidies according to the higher tariff. For example, Hebei
Province subsidizes 1 Yuan for interrupting 1 h of kW load.
Tiered Rate
Unit price for electricity
Benchmark price for

electricity
electricity consumption
Reasonable
Boundary of
different range
Electricity consumption
Fig. 6.4 The schematic diagram of tiered rate
According to voluntary participation and mutual benefit of both parties, power

grid enterprises and users sign agreement; the scheduling department notices users
about interrupting some power consumption equipments so as to reduce electrical
demands while the power grid is in tense supply. It often reminds users 12 h in
advance, thus, users can decide whether to participate in according to detailed
situations.
Tiered Rate
It mainly aims at residents and small industrial and commercial users. Divide
power consumption of residents and small industrial and commercial users into
different price levels; the price is ordinary within certain reasonable electricity;
while the price should be a level higher correspondingly while the electricity
exceeds the limit; the higher the electricity is, the higher the electric price is. It can
also be called incremental tiered rate, see Fig. 6.4. Since July 1, 2012, the tiered
rate has been carried out for residential users in each province in China. For
example, as for the part that the monthly power consumption is between 0 and
240 kWh, the electric price should be settled by 0.48 Yuan/kWh; as for the part
between 241 and 400 kWh, the electric price should be settled by 0.53 Yuan/kWh;
and as for the part exceeding 400 kWh, the electric price should be settled by
0.78 Yuan/kWh. Such tariff is issued for encouraging raising energy efficiency,
reducing wastes, and forming the habit of saving electricity.
Two-Fold Tariff
It is well-known that load demand of each power consumers cannot remain at a

value all along. Two-fold tariff aims at carrying out a kind of tariff policy to large
enterprises, which can be divided into two parts. The basic part is to settle the tariff
according to the installation capacity of the transformer or the maximum load

reached during the production; the second part is the ordinary tariff, which is
settled according to power consumption. At present, the country will gradually
raise the proportion of basic tariff while forcefully adjusting structure of two-fold
tariff; its implementation scope will be enlarged to non-industrial, ordinary
industrial, and commercial users whose power consumption capacity is no less
than 100 kV-amperes.
The tariff set according to the maximum load users have reached during the
production is often called the maximum demand tariff. Total equipment capacity
will be reduced by reasonably choosing electricity saving equipments; the maxi-
mum demand or capacity of the transformer can be reduced as well to save plenty
of tariff expenses.
6.2.1.2 Preferential Policies
It is mentioned in Chap. 3 in the book that the California government offers a tariff
discount of 20 % to users who reduce over 20 % power consumption at peak
periods in summer through power utilities so as to encourage saving electricity
after the electricity crisis in California. Japan carries out a series of preferential
policies including subsidy, loan privilege, interest subsidy, and tax privilege etc.
For example, the condition to offer low interest loan to investment in high energy
efficiency is to reduce 20 % energy or oil consumption of current equipments,
40 % of new projects; factories install 232 kinds of energy-saving equipments
appointed by the country; and deduct 7 % of the purchase expense of equipments
from payable income tax or draw special depreciation from 30 % of the purchase
expense of equipments in the first year.
China has also issued some preferential policies to offer load privilege, tax
exemption, and financial subsidy to users for purchasing electricity saving
equipments and attract users to purchase high-property electrical equipments. For
example, privileges are offered in some areas to users for purchasing energy-
saving lamps; soft loan and exemption in income tax is offered to some energy-
saving projects; and projects with cold storage AC electrical technique (including
ice storage cold AC and water-storage cold AC) are carried out in some areas,
which can win subsidy service after application.
6.2.1.3 Key Power Utilization Units are Focally Monitored
In recent years, Japan has listed 10,000 enterprises with an annual consumption for
1.5 Million liters of oil equivalent or electricity over 6 GWh as key electrical
enterprises; the government puts forward detailed requirements to heat consumption
and electricity in factories and heat loss of buildings of these enterprises and requests
them of allocating special personnel to manage energy. Furthermore, enterprises
should report to Ministry of Economy, Trade and Industry and relevant departments
about energy consumption every year. If they cannot finish energy-saving target on
time either propose reasonable improving plans, competent departments have the
right to open to the public, order them to rectify and reform with limited period, and
impose a penalty. The government can entrust energy-saving centers to make energy
audit to enterprises.
Energy saving Action of Thousands of Enterprises implemented in 2006 in China
is an energy-saving action initiated by five ministries and commissions including the
National Development and Reform Commission, and it is also a measure pushing
forward key enterprises to save energy. Thousands of enterprises refer to key
independent accounting enterprises in nine intensive energy-consumption indus-
tries: steel, non-ferrous metal, coal, electricity, petroleum and petro chemistry,
chemical industry, building material, textile, and papermaking. Whose energy-
consumption reached 180,000 tce and more. In 2004, energy consumption of those
thousands of enterprises reached 670 million tce, covering 33 % of total energy
consumption and 47 % of industrial energy consumption. In the action, thousands of
enterprises proposed systematic requirements about energy-saving, including
establishing energy-saving target, carrying out energy audit, and formulating
energy-saving planning etc., The government also established the systematic
monitoring assessment mechanism.
Energy saving Action of Thousands of Enterprises is not the promotion of a
single policy but the mutual coordination and implementation of a series of pol-
icies; thus, it has extremely important meaning, which formulates major targets
during the 11th Five-Year Plan and requests of greatly raising energy utilization
efficiency of enterprises entering into Energy-saving Action of Thousands of
Enterprises and that energy consumption of major product units can reach
advanced level in the same industry and some enterprises reach international
advanced level or leading level in the industry, bringing great rise of energy-saving
level and realizing energy conservation about 100 million tce. In the action, we
will strengthen supervision and management of the government to energy-saving
of key energy-consuming enterprises, promote enterprises to accelerate reform of
energy-saving technique, enhance energy-saving management, raise energy utili-
zation efficiency, and pull fierce rise of energy-saving level in the industry through
effective management, implementing incentive policy, and establishing assessment
mechanism. This target has been decomposed to each enterprise provincially.
Enterprises participating in Energy-saving Action of Thousands of Enterprises
have signed energy-saving agreement with local government and promised to
realize energy-saving target.
Implementation of Energy-saving Action of Thousands of Enterprises has very
important meaning for pushing forward enterprises to accelerate the reform of
energy-saving techniques, strengthening energy-saving management, raising
energy utilization efficiency, and raising economic benefits, which can also
encourage more enterprises to participate in saving energy. In many provinces
(districts and cities), quantity of enterprises has been enlarged and energy-saving
action of thousands of enterprises has been expanded except that thousands of
local enterprises have been taken in local energy-saving management system,
which has extremely important meaning for relieving restraints to energy and
environment confronted by economic and social development in China.
By the end of 2008, the thousands of Enterprises had achieved the target of 11th
Five-Year Plan ahead of schedule. Among them, 483 enterprises accounting for
nearly 50 % had achieved much more. In 2008, the thousands of enterprises saved
energy for 35.7 million tce, and had accumulated energy conservation for
106.2 million tce, which was 106.2 % of the target.
6.2.1.4 Voluntary Agreement for Energy Conservation
Energy-saving voluntary agreement (Voluntary Agreement, abbreviated as VA)

refers to an agreement reached by the government (or authorized agency) and
enterprises. In the agreement, enterprises take the initiative to promise to reach
certain energy-saving or environment conservation targets; and the government
offers corresponding support and incentive measures; its assessment and audit are
implemented by a third party.
VA is a kind of non-mandatory management mode applied by many countries
to raise energy utilization efficiency, which can effectively make up for shortages
of mandatory energy-saving measures such as administrative and legal means. VA
has three advantages compared with mandatory energy-saving measures:
The first one is the large flexibility. In a macroscopic view, VA has flexible
implementation form; different countries and regions can design implementation
schemes and forms flexibly, even the name of VA does not appear; there is also
huge space in contents and accessory policies of the agreement. Enterprises just
need to promise to reach certain energy-saving or emission reduction target; the
method and way to realize the target can be chosen automatically completely and
the government will not interfere in it almost.
The second one is the low cost. The government can realize rigid energy-saving
and environment-conservation target faster by lower expense through VA com-
pared with issuing administrative policies and formulating laws and regulations;
while execution and implementation of policies and regulations have higher cost
than VA.
The third one is that it gives consideration to both energy-saving and envi-
ronment conservation. Since 1990s, many European countries have taken VA as
national policies of reducing emission of CO2, while there were still no definite
results of negotiation of international society about emission of CO2. At present,
Euramerican VA is mainly designed aiming at emission reduction of greenhouse
gases.
In Holland, the government signed VA with Ministry of Industry in 1992,
which promised to raise 20 % of energy efficiency between 1989 and 2000; then
thousands of companies in 31 industries participated in the agreement. Till 2000,
the final energy efficiency has been raised by 22.3 %.
In America, most of VA such as Green Illumination Plan, Energy Star (which

can be referred to Chap. 3 in the book), Climate Star Plan, Climate Challenge Plan,
and Alcan Voluntary Partnership Plan are guided by U.S. Environmental Protec-
tion Agency and Department of Energy; industries participating in the agreement
should promise to take in specific schemes of the government and reach specific
emission reduction capacity. While the government offers corresponding prefer-
ential measures such as authentication and granting label, supports in technique
and information, education training, and capital support etc.
In Denmark, the government regulates to levy carbon emission to enterprises.
However, enterprises sign VA with the government, the tax can be mitigated.
Denmark can raise 24 % energy efficiency yearly through VA.
In Germany, VA of climate protection takes raising energy efficiency and CO2
emission reduction of departments as the target. If enterprises do not reach preset
target, the government will punish them through formulating stricter regulations or
raising revenue.
In Canada, there are over 100 types of VAs covering many fields such as
reallocation of resources, technological reform, equipment renewal, and compre-
hensive utilization of resources.
In China, Shandong Economic and Trade Commission signed energy-saving
VA with Jinan Steel and Laiwu Steel in April, 2003, which is the first batch of VAs
in China and pulls the prelude for VA landing in China. It is regulated in the
agreement that participants can enjoy three preferential policies: gain the honor-
able title of Chinese experimental enterprise of energy-saving VA, superior con-
sideration of applying interest subsidy projects of national loans, and exempted
from inspection for energy utilization condition of enterprises.
Implementation of energy-saving VA brings practical benefits to both enter-
prises. In 2003, Jinan Steel saved energy amounting to 187,000 tce in total,
reducing 3,360 tons of SO2 emission and 640,000 tons of CO2 emission; Laiwu
Steel saved energy amounting to 37,000 tce in total, reducing 662 tons of SO2
emission and 127,000 tons of CO2 emission. Both enterprises realized 122 million
Yuan of energy-saving benefit and enjoyed preferential policies in the agreement.
Energy-saving Law revised and issued in 2007 definitely puts forward sup-
porting and publicizing energy-saving VA by fiscal and tax price policies. In
recent years, the number of enterprises implementing energy-saving VA has been
larger and larger, and the benefits to themselves and the society have been greater
and greater.
6.2.2 Steps of Power Consumer and ESCO to Carry

Out DSM Cooperation
In order to effectively carry out DSM and avoid insufficient funds of users, blocked
financing channels, and inadequate experience, they can jointly carry out DSM
cooperation with energy service company, which often seeks potential customers.
If power consumers have the intention to carry out DSM, they can contact and
negotiate with energy service company. There are the following steps from
mechanism generally applied in America:
1. Energy service company seeks potential clients or power consumers to make
them keep contact with energy service company. Each energy service company
will directly or indirectly employ personnel or team to seek or confirm potential
customers, contact power consumers, and introduce basic principles of Energy
Management Contract mechanism. Once users have the intention to carry out
DSM projects such as energy-saving reform, they can contact with Energy
Service Company; furthermore, they can also participate in communication
meeting hold by energy service company and contact with it for cooperation.
2. Audit of power utilization. Energy service company will roughly audit and
diagnose equipments of users and propose preliminary technical and economic
suggestions with primary willingness to participate in DSM.
3. Project agreement. After energy service company conducts audit at investment
level, both parties can draft basic project agreement, which can include a third
party (such as bank and house renting company etc.). Specific agreements are
energy service agreement, energy-saving benefit guarantee contract and project
agreement. The book is attached with model text of energy-saving service
contract.
4. Engineering design. After the project agreement is signed, Energy Service
Company should make preparation for specific technical specification about
designing energy-saving engineering. Some ESCOs have their own design
engineers, while some employ engineering consultants. Finally, they invite
tenders by this technical specification.
5. Engineering construction. Most ESCOs employ project managers to supervise
installation of energy-saving equipments. These project managers supervise
contractors by virtue of standard construction contract. Quality of construction
influences energy-saving capacity of the project, thus, they especially focus on
this stage.
6. Acceptance of works. In these steps, users just need to accept the project instead
of designing and implementing it, then, they pay for the project according to
acceptance result.
7. Maintenance and monitoring. Energy service company should maintain and
monitor the project during the contract period. Saved expense of energy in all
projects should also be detected so as to determine profit distribution between
users and energy service company.
6.2.3 Experience of Power Consumers to Participate in DSM
Today, we advocate saving electricity and using electricity scientifically, it is not a

commonplace. Operation cost of enterprises determines their competitiveness
fundamentally. It is the path to victory for industrial enterprises to remain
invincible in market competition through implementing DSM, raising utilization

ratio of power, and reducing cost of power consumption.
It is indicated in the investigation of EDF to 1,200 users that 39 % of users hope
to reduce electric charge through DSM, 51 % hope to acquire suggestions about
how to use electricity, while 70 % show interest to influences of DSM upon their
consumption. It is clear that many users hope to positively participate in DSM. In
practices, lots of users can acquire much professional knowledge about energy.
In over 10 years in the past since concept of DSM was introduced into China,
users have positively participated in DSM. Large- and medium-sized power
consumers in metallurgy, petrifaction, building materials, chemical industry, tex-
tile, machinery, and medicine industry are the foothold of DSM work in China,
which strive for changing rough development mode with high energy consumption
and low output, positively explore new ways to reduce cost, increase benefit, and
raise competitiveness of enterprises under the policy of promoting energy devel-
opment and conservation simultaneously and placing energy conservation at the
top position, making great achievements.
Experience of some enterprises to carry out DSM takes on as follows.
6.2.3.1 Experience of a Petroleum Group Company to Carry Out DSM
An oil group company administrates lots of oil fields and consumes much elec-
tricity every year, which has promoted and applied DSM technique from 2009 to
2011 so as to save energy and improve efficiency. It can be seen from imple-
mentation effect that power increase at the peak has been effectively controlled;
increase rate of annual load has fallen from 7 % in 2008 to 1 % in 2011; increase
rate of annual power consumption has fallen from 8 % in 2008 to 4 % in 2011,
saving 69.74 kWh than the planning level and acquiring RMB 2.79 billion Yuan
of direct economic benefit. Experience of the company to promote DSM can be
concluded as the following points:
1. Stick to adjusting measures to local conditions. There are many subordinate
enterprises of the group company, which formulates model schemes according
to practical situations of each enterprise, gradually promote and implement
them.
2. Stick to the principle of being hard first and easy then, less investment and
faster effect. Positively respond to peak valley TOU tariff; take peak clipping
and valley filling as the top task; then make great efforts to reduce production
losses and living illumination losses such as losses in power transmission and
distribution, oil extraction, water injection, and oil transportation etc.
3. Stick to scientific procedures strictly. The group company has established an
organization similar to energy service company, which takes responsibility for
setting up projects, establishing research group, carrying out load investigation,
setting up files of basic data, making technical screening, and confirming
technical schemes etc.
The above principles have a referential meaning for users to carry out DSM.
Otherwise, they cannot achieve good effects and will encounter many difficulties;
then, the work cannot be pushed forward easily; side effects and doubts may be
caused; what is worse, they will make detours and get half of the result with twice
effort.
6.2.3.2 Experience of an Oil Field to Carry Out DSM
One of Chinas major oil fields consumes electricity mainly for electric traction,
which accounts for over 90 % of total electricity consumption; while illumination
covers about 2 %. In 2010, two demonstration projects with electric traction and
green-illumination electricity conservation as the center were carried out so as to
control electric charge of oil extraction. In illumination, it replaced ordinary fil-
ament lamp by compact fluorescent lamp, fluorescent lamp in thick tube by
fluorescent lamp in thin tube, and high voltage mercury lamp by high voltage
sodium lamp. In electric traction, it applied six typical replacement schemes:
super-high slip-ratio electromotor, no-load device with adjustable initiation
number, electromagnetic clutch electromotor, level-adjustable adjustable-speed
motor, variable frequency governor, and hydraulic coupler etc.
Implementation effect of demonstration project is remarkable; 4.33 million
Yuan is invested in demonstration project of electric traction, 1,826 kW of peak
load are reduced, saving 14.47 GWh and 5.64 million Yuan of electricity directly;
the period for recovery of investment is 9.2 months. 1.355 million Yuan is
invested in green-illumination demonstration project, 1,670 kW of peak load are
reduced, saving 3.8 GWh and 2.6 million Yuan of electricity directly; the period
for recovery of investment is just 6.1 months.
6.2.3.3 Experience of an Oil Extraction Plant to Carry Out DSM
Electric charge of an oil extraction plant covered a high proportion in the pro-
duction cost before 2006. In order to reduce electric charge, it cooperated with
energy service company to carry out DSM in 2006. The Energy Service Company
invested RMB 3.19 million Yuan (including expenses in project design and
equipment investment, the oil extraction plant didnt contribute); RMB 5.43
million Yuan of electric charge can be saved yearly. Saved electric charge in the
following years should be enjoyed by the oil extraction plant expect that half of
saved electric charge was paid to energy service company from 2007 to 2008;
besides, reformed equipments should belong to the plant. It can be seen that
energy-saving benefit and economic benefit are remarkable. Major measures take
on as follows:
1. Peak clipping and valley filling. Arrange production reasonably and transfer
loads at the peak to the valley. According to operation way of water injection
pump electromotor designed at the peak and valley of power grid, power rate of
single electromotor is 2.2 MW; stop for 4 h at the peak load of power grid and
start a new electromotor at the valley. In this measure, investment is not nec-
essary; about RMB 900,000 Yuan of electric charge can be saved yearly
because it is settled by peak valley TOU tariff.
2. Set up 6 kV reactive compensation device. In order to raise load factor of the
circuit, install an electrical condenser on the distribution wire amounting to
6.3 MVar in total so that the power rate rises from 0.63 to 0.88, investing RMB
700,000 Yuan and saving RMB 1.1 million Yuan of electric charge; the period
for recovery of investment is 8 months.
3. Set up 0.4 kV electromotor reactive compensation device. In order to raise load
factor of the electromotor of the oil extractor, we can install a set of no-power
static compensating condenser matched with power of the electromotor on the
electromotor of each oil extractor amounting to 9 MVar of total capacity and
RMB 1 million Yuan of investment so that load factor of the electromotor rises
from 0.40 to 0.75, saving RMB 2.8 million Yuan of electric charge; the period
for recovery of investment is 4 months.
4. Renew and reform water injection pump electromotor with high energy con-
sumption and low voltage electromotor. In order to raise efficiency of the pump
and reduce losses of power, we can renew J electromotor operating for many
years to Y high-slip electromotor. It is 15 MW in total; RMB 1.2 million Yuan
is invested and RMB 630,000 Yuan of electric charge is saved yearly; the
period for recovery of investment is 23 months.
6.2.3.4 Experience of a Steel Mill Plant to Carry Out DSM
One steel plant is a big power consumer, which pays RMB 1 billion Yuan for
electric charge yearly. It has started to apply advanced DSM technique and method
and made scientific management to DSM, power consumption, and electricity
conservation since 1997 under the guide of the local government, power grid
enterprise, and Power Technology Economy Research Institute of Chinese Elec-
tricity Science Institute, achieving certain economic and social benefits. The fol-
lowing works are implemented: strive from raising load factor of power
consumption by peak clipping and valley filling; make technical reform to
equipments such as draught fan and water pump by frequency control of motor
speed; carry out energy-saving technique reform of new and old transformers; save
energy by extensively applying power economizer of the electromotor; push for-
ward electricity conservation of green illumination engineering; raise operation
level of equipments by no-power compensation on the spot. RMB 22.26 million
Yuan was actually invested in 12 energy-saving reform project in 1999 with an
annual income for over RMB 10 million Yuan; the overall period for recovery of
investment is 2.23 years.
6.2.3.5 Experience of a Coal Mine to Carry Out DSM
A medium-sized coal mine with annual output of 2 million tons of coal, whose
production cost is rather high due to the old equipment and high energy con-
sumption. In 2000, it applied DSM technique, resulting that yearly output of coal
rose by 6.0 %, actual yearly electricity consumption fell by 3.2 %, decrease rate of
comprehensive power consumption per ton reached 9.1 %, realizing an annual
electricity saving capacity of 1.6 GWh, and saving RMB 1 million Yuan of electric
charge. It mainly applied the following measures: implement grid-distribution and
consumption-reduction engineering, renew and reform old high-consumption
transformers and guide wires, reasonably adjust layout of power grid, install no-
power compensation device and reform frequency control of motor speed of the
electromotor. Bedsides, it still made great efforts to management and economic
measures, for example: (1) conduct rigid control and management to departments
and workshops with large load; prevent large-load operation during the peak period
of power consumption; (2) strengthen scheduling management, make overall reg-
ulation and control to loads needing regulating and controlling, operating, and
stopping equipment through monitoring facilities such as industrial television
and equipments so that the power grid is at the best operation state; (3) establish
reward system for energy-saving reform projects and enlarge punishment force to
those that exceed the maximum demand.
6.2.4 External Conditions for Power Customers

to Participate in DSM
The benefit that customers get from DSM is manifested in reducing the electric
cost expenditure achieving effective input and high return of energy and power
saving measures, which are main criteria for the customers to measure whether
they participate in or actively participate in DSM.
If market obstacles cannot be overcome through the measures such as subsidies,
etc., to guarantee reasonable investment return, as the main participant and
investor of power efficiency projects, the power customers activity will be
severely influenced due to market failure.
Seen from the actual situations of some enterprises in implementing DSM
projects, there are approximately several problems [1]: energy-consumption cal-
culation, power supply system, power saving consciousness, blocked information,
technical and quality problems of part of products, which result in higher initial
investment of part of projects, investment return risk and limited application range
of high efficiency products.
With the constant advancing of energy-saving and emission reduction work,
much more attention paid by the Chinese government to DSM will further improve
the external environment of DSM. Measures are taken to provide certain conditions
and environment for the customers to participate in DSM, including: the govern-
ment constantly constructs a legal environment and improves incentive policies; the
government departments, power grid enterprises lay stress on propaganda and
training, establish some exhibition centers, open free phones, establish energy-
saving websites, and DSM websites or relevant columns; local, national, and
international meetings are regularly held; ESCOs and industry are constantly cul-
tivated, and auxiliary services of energy source audit are provided, etc.
In order to establish a long-term DSM mechanism, the customers should
actively respond to the call of the Chinese government by paying more attention to
energy-saving and electricity saving and actively participating in DSM, and make
their own contribution to building a resource-saving and environment-friendly
society.
6.3 Approach and Means for Power Customers

to Participate in DSM
6.3.1 Electricity Saving Potential of Terminal Electrical

Equipment and Technology
Electricity saving effect of DSM is achieved mainly by the updating and upgrading
of terminal electrical equipment. It is estimated that the lighting electric energy in
China approximately accounts for 1012 % [7] of the total electricity generation
amount, the electricity consumption by driving motors approximately accounts for
60 % of the industrial electricity consumption (i.e., 50 % or so of the total elec-
tricity generation amount), and the electricity of refrigerating AC (works mainly
by depending on motors) approximately accounts for 1015 % [8]. These elec-
trical devices are the key to terminal electricity saving, and have larger electricity
saving potential. For the customers, it means electricity saving opportunity. Power
saving can be achieved by depending on scientific and technological progress
through adopting high efficiency equipment to replace low efficiency equipment,
and also can be realized by changing and optimizing life habits.
At present, the fields of equipment having power saving potential mainly
include the lighting equipment, household appliances (electric cookers), AC,
electric motor and speed regulation technology, waste heat and residual pressure,
heat pump technology, transformers, reactive power compensation technology,
production electrical equipment and processes, interruptible load technology, and
shifting load by technical ways, etc. With the technical progress, other relevant
equipment and technologies will appear. The lighting equipment, electric motors,
AC, etc., are hereby introduced especially.
6.3 Approach and Means for Power Customers to Participate in DSM 403
6.3.1.1 Lighting Equipment
The lighting equipment includes the electric light source and the illuminating
device, the electric light source refers to light emitting devices such as light bulbs,
lamp tube lamps; and the lighting device refers to leads, lamp heads, sockets,
lampshades, compensators, and controllers, etc. Electricity saving potential exists
in the selection, installation, and use of the electric light sources and illuminating
devices, of which the electric light sources are critical.
There are many classification ways of the electric light sources, and they can be
classified into three categories: incandescent lamps, gas discharge lamps, and other
electric light sources according to electric light conversion mechanism. See
Fig. 6.5.
General
incandescent lamps
White coating
Incandescent
incandescent lamps
lam ps
Krypton
incandescent lamp
Infrared reflecting film
incandescent lamp
Tungsten halide
Fluorescent high
lamp pressure mercury
lamps
High pressure
Lighting electric
light sources
mercury lamps
pressure
H igh
High pressure Xenon lamps

sodium lamps
G as discharge
Metal halide lamps

lamps
Ceramic metal
Straight tube
halide lamps
lamps
Low pressure Circular tube
pressure
fluorescent lamps lamps

Low
Low pressure
Compact
sodium lamps
Other electric
light sources
High frequency
electrodeless lamps
Light-emitting
diodes
Fig. 6.5 Classification of electric light sources

1. Incandescent lamps. General lighting incandescent lamps are used in living

rooms, drawing rooms, halls, guest rooms, shops, restaurants, walkways,
meeting rooms, yards, etc.; tungsten halide lamps are improved incandescent
lamps containing a certain proportion of halides in bulbs, and mainly used in
meeting rooms, exhibition and display halls, drawing rooms, commercial
lighting, lamps for movies, theatres, and stages, instruments and meters,
automobiles, aeroplanes, and other special lighting places.
2. Gas discharge lamps. Low voltage fluorescent lamps are used in living rooms,
drawing rooms, halls, shops, restaurants, walkways, meeting rooms, yards, etc.;
low voltage sodium lamps are used in tunnels, ports, docks, mines, etc.; high
voltage mercury lamps are used for road lighting, indoor and outdoor industry
lighting, commercial lighting, etc.; high voltage sodium lamps are used for road
lighting, flood lighting, square lighting, industrial lighting, etc.; metal halide
lamps are used for industrial lighting, lighting for city lighting engineering,
commercial lighting, stadium lighting, road lighting, etc.; and ceramic metal
halide lamps are used in emporiums, show windows, key displays, commercial
streets, etc.
3. Other electric light sources. High frequency electrode less lamps are used for
public structures, shops, tunnels, pedestrian streets, high mast street lamps,
safely lighting and other outdoor lighting; light emitting diodes are used for
traffic signal lamps, expressway division lighting, road guardrail lighting,
automobile tail lights, exit and entrance indicating lamps, bridge or building
profile lighting, decoration lighting, etc.
All countries are constantly developing new lighting power saving technology,
and with the technical progress, novel high efficiency electric light sources are
appearing constantly, consequently bringing power saving potential. For example,
compact fluorescent lamps are used to replace the general lighting incandescent
lamps (the intensity of illumination after replacement is same), the power saving
rate can reach up to more than 70 %, as shown in Table 6.1.
In Table 6.1, the first replacement mode refers to using a 25 W compact
fluorescent lamp to replace a 100 W general lighting incandescent lamp, saving
electrical load of 75 W with the power saving rate reaching 75 %, and corre-
spondingly reducing electricity cost expenditure by 75 % under the condition of
guaranteeing the same illumination intensity; the second replacement mode is to
use a 16 W compact fluorescent lamp to replace a 60 W general lighting incan-
descent lamp, saving electrical load of 44 W with the electricity saving rate
reaching 73 % and correspondingly reducing the electricity cost expenditure by
73 % under the condition of guaranteeing the same illumination intensity; and the
third replacement mode refers to using a 10 W compact fluorescent lamp to
replace a 40 W general lighting incandescent lamp, saving the electrical load of
30 W with the electricity saving rate reaching 75 % and correspondingly reducing
the electricity cost expenditure by 75 % under the condition of guaranteeing the
same illumination intensity.
Table 6.1 Electricity saving after incandescent lamps is replaced with compact fluorescent lamps
Serial Type Power Replacement mode Power saving Rate of power saving or electricity Remark
No. (W) effect (W) expense saving (%)
1 General incandescent 100
lamp
lamp
lamp
4 Compact fluorescent 25 First replacement 1 ? 4 75 75 Same illumination
lamp mode intensity
5 Compact fluorescent 16 Second 2 ? 5 44 73 Same illumination
lamp replacement intensity
mode
6 Compact fluorescent 10 Third replacement 3 ? 6 30 75 Same illumination
lamp mode intensity
6.3 Approach and Means for Power Customers to Participate in DSM
405
406
Table 6.2 Electricity saving after the straight tube type Fluorescent lamp is replaced
Serial Tube Ballast ? Power Luminous Luminous Replacement mode Luminance Rate of
No. diameter fluorescent lamp (W) flux (lumen efficacy improvement electricity saving
(mm) type or lm) (lm/W) (%) or electricity
expense saving
(%)
1 38 Inductance type 40 2,850 72
T12
2 26 Inductance type 36 3,350 93 First replacement 1 ? 2 17.54 10
T8 mode
3 26 Electronic type 32 3,200 100 Second 1 ? 3 12.28 20
T8 replacement
mode
4 16 Electronic type 28 2,900 104 Third replacement 1 ? 4 1.75 30
T5 mode
6 The Important Participants in Demand-Side Management: Power Consumers
Table 6.3 Indexes of high intensity gas discharge lamps
Serial Type Capacity Luminous Luminous Life Replacement mode Luminance Rate of
No. (W) flux (lumen efficacy (lm/W) (Hour) improvement electricity saving
or lm) (%) or electricity
expense saving
(%)
1 Fluorescent high 400 22,000 55 15,000
pressure mercury
lamp
2 High pressure 250 22,000 88 24,000 First replacement 1?2 0 37.5
sodium lamp
3 Metal halide lamp 250 19,000 76 20,000 Second replacement 1 ? 3 -13.6 37.5
mode
4 Metal halide lamp 400 35,000 87.5 20,000 Third replacement 1 ? 4 37.1 0
mode
6.3 Approach and Means for Power Customers to Participate in DSM
407
During updating and upgrading of straight tube type fluorescent lamps, using
the inductance type T8, electronic type T8, and electronic type T5 to replace the
inductance type T12 can save electricity by 1030 % under the condition of
improving the light efficiency, as shown in Table 6.2.
In Table 6.2, the first replacement mode refers to using a 36 w inductance type
T8 to replace a 40 w inductance type T12, saving electricity by 10 % while
improving the illumination intensity by 17.54 %; the second replacement mode is
to use an electronic type T8 to replace an inductance type T12, saving electricity
by 20 % while improving the illumination intensity by 12.28 %; and the third
replacement mode refers to using an electronic type T16 to replace an inductance
type T12, saving electricity by 30 % while improving the illumination intensity by
1.75 %.
The high intensity gas discharge lamps have high efficiency and low efficiency.
Accurate selection cannot only improve the illumination intensity but also save
electricity expense, as shown in Table 6.3.
In Table 6.3, the first replacement mode refers to using a 250 W metal halide
lamp to replace a 400 W fluorescent high pressure mercury lamp, reducing the
electricity expense by 37.5 % under the condition of guaranteeing the same illu-
mination intensity; the second replacement mode is to use a 250 W metal halide
lamp to replace a 400 W fluorescent high pressure mercury lamp, reducing the
electricity expenditure by 37.5 % under the condition of losing the illumination
intensity by 13.6 %; and the third replacement mode refers to using a 400 W metal
halide lamp to replace a fluorescent high pressure mercury lamp of the same
capacity, improving the illumination intensity by 37.1 %, although there is no
electricity saving.
6.3.1.2 Motor
The electric motor is a key device of the electric drive system, and is also a main
electricity consumption part. It is classified into the DC motor and AC motor
according the category power supply.
The DC motor has the advantages of good speed regulation performance, large
startup, braking and overload torque, and easy control, but it has complicated
structure, high manufacture cost, large maintenance quantity, and needs a DC
power supply, thereby limiting its application in some measure. It is mainly used
in places with higher requirements for startup, speed regulation, etc.
The AC motor has the advantages of simple structure, low manufacture cost,
convenient maintenance, high running efficiency, and reliable work. The field with
large modification potential for customers lies in induction motors. The operation
of the induction motor will consume reactive power, and the increase of the
reactive power will result in reduction of load factor, thereby limiting the capacity
of the power system for providing active power and increasing loss. Because
reactive power loss can result in unfavorable influence on the power system, the
electricity price system stipulates the standard load factor for customers, and for
the customers lower than the standard load factor, the electricity cost expenditure
will increase. From the aspect of saving cost, it is necessary for the customers to
carry out electricity saving modification.
The operation principle of the induction motor decides that it consumes active
power for converting electricity into mechanical energy as well as consumes
reactive power to build a necessary rotating magnetic field. As a result, there are
two approaches for saving the electricity of the motors, one approach is to improve
the manufacture efficiency of the motors, i.e., high efficiency motors are adopted to
replace relatively low efficiency common motors, which is a basis for improving
the operation efficiency and load factor as well as a main electricity saving
technical measure widely used for long term; the other is to improve the operation
efficiency of the motors, i.e., speed regulation technology is adopted to improve
the startup performance and operating characteristic to improve the system effi-
ciency of electric drive.
The high efficiency motors have the following advantages: (1) low loss, the
efficiency of the high efficiency motors is 13 % higher than that of the standard
motors through reasonable design of the electrical part and adoption of low loss
material, and its loss is generally lower by about 20 % compared with the common
motors; (2) short investment recovery period, although the manufacture cost of the
high efficiency motors is 1530 % higher than that of the standard motors and its
purchase expense is high, practices prove that for the motors with the annual use
time of more than 2,000 h, the expense for purchasing the high efficiency motors is
generally paid back within 3 years due to the reduction of electricity cost
expenditure, and the annual use hours are longer, the recovery time is shorter; (3)
low total maintenance expense, with the service life the high efficiency motors
have better operating reliability and lower maintenance workload than those of the
standard motors due to low operating temperature, low noise and stable operation,
and the total maintenance expense of the high efficiency motors within its service
life is lower than that of the standard motors; and (4) capacity increase, after the
high efficiency motors are adopted, not only the line loss is reduced but also the
capacity of the original power supply equipment is increased virtually because the
reactive power loss is reduced and the load factor is high, consequently the input
power and input current of the motors are reduced.
Known from the introduction of Chap. 1 of the book, the current motor effi-
ciency in China has a quite large improvement potential. The AC motor speed
governing technology is developing fast, resulting in great improvement of the
operating efficiency of the motors. Seen from the application of speed governing
technology, one category for improving the efficiency of the motors is the process
control of production technology, and the other category is speed regulation
driving electricity saving. The process control of production technology mainly
aims at achieving the purposes of improving the technology and the work effi-
ciency to obtain the benefits of improving product quality and increasing the
output, obtaining part of electricity saving benefits in some cases, and it is widely
applied to the control of production technological equipment in all departments of
national economy. The speed regulation driving electricity saving aims at
improving the whole energy using efficiency of the power driving system to obtain
the electricity saving benefit, and is mainly used for driving of fluid equipment of
fans, pumps, etc., with low load factor and big working condition variation, and is
partially used on working machines with low load factor needing heavy load
starting, which have remarkable electricity saving effect and have been the main
application fields of AC speed governing technical electricity saving.
There are three speed regulation modes for induction motors: frequency regu-
lation, regulation of magnetic pole pairs, and slip speed regulation, there are nine
matured types widely used, as shown in Fig. 6.6.
The high efficiency speed regulation and low efficiency speed regulation are
based on the perspective of energy-saving, the high efficiency speed regulation
modes include pole-changing control, concatenation control, frequency control
and inner feedback regulation, and the low efficiency speed regulation modes
include electromagnetic clutch speed regulation, rotor series resistance speed
regulation, stator variable voltage speed regulation, hydraulic coupling speed
regulation, and hydroviscous clutch speed regulation.
Seen from the electrical and mechanical perspectives, the hydraulic coupling
speed regulation and hydro-viscous clutch speed regulation belong to the
mechanical speed regulation mode, and others belong to the electrical speed
regulation mode.
Pole-changing
control
speed regulation
High efficiency
Concatenation
control
Frequency control
Inner feedback speed Electrical

regulation speed regulation
regulation mode
AC speed
Electromagnetic
clutch speed
regulation
Rotor series
resistance speed
speed regulation
regulation
Low efficiency
Stator variable
voltage speed
regulation
Hydraulic coupling
speed regulation
Mechanical
Hydro-viscous speed regulation
clutch speed
regulation
Fig. 6.6 Classification of motor speed regulation modes

What deserves to be mentioned is the frequency control. Frequency control

refers to speed regulation changing the stator power supply frequency of a motor to
change the synchronous rotation speed of the rotating magnetic field, and is a high
efficiency speed regulation mode without additional slip loss. It has the remarkable
advantages of high speed regulation efficiency, low starting energy consumption,
and wide speed regulation range, can realize step-less speed regulation, has fast
dynamic response speed and high speed regulation precision, is simple and con-
venient to operate, and is easy to realize automatic production technology control.
In addition, power frequency can automatically be put into operation without
influence on production operation after the device is failed; the frequency speed
regulation has wide application range as the mounting conditions are flexible, is
superior to other speed regulation modes, and is one of the speed regulation modes
of fastest demand growth in the markets.
6.3.1.3 Air-Conditioning Equipment
Air conditioning is to control the temperature, humidity, freshness, etc., of indoor

air within some range that the living of people or the production and operation of
equipment require under natural environment conditions to improve the comfort of
people or the working efficiency of production. There is a variety of AC, and seen
from the range of temperature regulation, the AC basically can be classified into
two types: one type is cooling AC only having the function of cooling, and the other
is cooling-heating AC having the functions of cooing and heating. It can be clas-
sified into two types according to the size, one type is central AC centralizing cold
sources or heat sources, mainly used in places with large area and many rooms, such
as hotels, commercial buildings, apartments, restaurants, office buildings, exhibi-
tion halls, libraries, gymnasiums, hospitals, theatres, recreation centers, and
workshops, etc.; and the other is the dispersed AC with a cold source or heat source,
such as the cabinet type, window type, split type AC etc., mainly used in small-area
single rooms such as living rooms, hotels, restaurants, shops, and offices, etc. For
the central AC, a set of cold storage equipment is added on the basis of the tradi-
tional central AC for changing the energy using mode, and such AC formed like
that is called cold storage AC. Its main electricity saving function is embodied in
saving peak electrical load of the power grid and saving the primary energy sources
of the power system instead of saving electricity (in fact, it consumes more elec-
tricity). For the customers, it can save electricity cost expenditure.
It is well-known that the peak hours of the common AC are superposed with the
peak hours of the power grid, the peak hours of the power grid are just the peak
hours of the ACs operation, and the off-peak hours of the power grid are the time
segment of the AC in the state of no operation or less operation. The cold storage
AC converts electricity that cannot be stored into cold energy for storage during
off-peak hours of power grid load, and releases the stored cold energy to realize
AC during the peak hours of power grid load, thereby realizing the power load
shifting of customers terminals to convert the traditional hard load into
Table 6.4 Saving situations after traditional central AC is changed into cold storage AC in a
region [8]
Type of Building area System Investment Annual operating Investment
customer (thousand installed increase and maintenance cost recovery
square meter) capacity rate (%) reduction rate (%) period
reduction rate (month)
(%)
Shopping 4 28.3 24.8 48.7 19.0
store
Gymnasium 75 30.3 17.8 31.0 21.4
Office 23 37.3 36.3 29.0 82.1
building
flexible load, changing the power mode of the AC under the condition of no
changing the demand mode of the AC and making great contribution to the
operation of the power system. Pushed by the corresponding peak valley TOU
tariff made by the governments and power grid enterprises, the application of the
cold storage AC is extended.
Table 6.4 lists the electricity cost savings in a region after the conditional
central AC is changed into the cold storage AC, and the investment payback period
is related with the local policies, such as the expense of increasing electric
capacity, ratio of peak to off-peak electricity price, etc.
6.3.1.4 Life Habit
Apart from electricity saving through technical updating and upgrading of terminal
electrical equipment, it can be achieved by changing life habits and optimizing life
style, for example, appropriate equipment is selected, operates at the power grids
off-peak hours, and consumes less power at peak hours by fitting for the electricity
price policies and according to the peak valley TOU tariff for residential customers
made by the Chinese government; and concerning the energy-saving call put
forward by China, residential customers should make active response by reducing
standby loss of household appliances and setting reasonable temperature of air
conditioners, and improve electricity saving awareness.
6.3.2 Basic Work and Procedure for Carrying Out DSM
6.3.2.1 Basic Work
Establish energy-saving and electricity saving ideas. Whether the customers are
big ones or small ones and no matter which industry they are in, participating in
DSM firstly must establish the energy-saving electricity saving ideas. DSM is a
strategic choice of China for saving energy and electricity, the Chinese govern-
ment has promulgated some laws and regulations, of which the Law of the Peo-
ples Republic of China on Energy Conservation stipulates that energy
conservation is an obligation of each individual citizen, and corresponding policies
will be constantly promulgated to promote the sustainable development of DSM.
Power customers shall implement the policies and regulations of the country,
respond to the call of the government, actively adopt rational electricity using
technology and measures, coordinate with power utilities in electricity using
management activities, and participate in the implementation of DSM plans.
Follow up and familiarize relevant information on technology and equipment of
DSM through various channels. DSM requires new, high efficiency technical
equipment and means, so the information is critical, it is necessary for the cus-
tomers to follow up and learn the relevant information on DSM, know the relevant
policies and technology as well as the information on ESCOs. Government
departments and power utilities put propaganda and popularization on its first
agenda and actively expand its propaganda channels. For example, relevant gov-
ernment departments establish websites such as http://www.secidc.org.cn, etc., and
State Grid Corporation of China and some provincial power corporations establish
DSM websites such as http://www.sgdsm.com, construct some DSM exhibition
halls, and set up the open free phone whose number is 95598. Through the relevant
channels each customer can inquire and learn the relevant DSM information on
electricity using and saving knowledge, latest energy-saving and electricity saving
technology, energy-saving electricity saving products and its manufacturers, rel-
evant DSM cases, etc., the customers can familiarize DSM through various
information channels, and simultaneously increase the opportunity of participating
in DSM. For example, it is known from http://www.bjdsm.com that whatever
engineering projects of cold storage AC electricity using technology (including ice
storage AC and water-storage AC) implemented in Beijing area and forwardly
applied for Beijing cold storage AC demonstration projects can obtain project
subsidy service.
Lay stress on energy-saving management and set up corresponding organiza-
tions. According to relevant regulations, key electricity using units should regu-
larly submit reports on the energy utilization according to the state regulations,
including information on electricity and demand, load change and demand, elec-
tricity intensity, energy-saving benefit analysis for implementing rational elec-
tricity using measures, etc., to the relevant departments of the governments. Large
medium-sized power customers should be staffed by technicians having electricity
saving knowledge and establish corresponding DSM organizations for mainly
dealing with the rational electricity using management of their own units and being
responsible for management, supervision, and inspection of electricity consump-
tion of their own units to promote the sustainable and effective development of the
energy-saving and electricity saving work of their own units.
Try to carry out electricity using analysis and audit. Electricity using analysis
and audit is for the purpose of knowing about electricity using characteristic and
using situations of various electrical equipment, analyzing and evaluating the
electricity using efficiency of each link of an enterprise, and finding weak links,
energy-saving and electricity saving potential and peak load shifting potential so
as to find out improvement measures and links that can participate in DSM.
Generally, energy-saving service companies are more professional and experi-
enced in electricity using analysis and auditing.
Before contacting with ESCOs, all customers, especially big customers with
DSM departments, can make some simple electricity using analysis and auditing
and simply analyze and learn about the potential and possibility of the enterprises
implementation of DSM and the fields having the potential. As a result, in the
process of cooperation with the energy services companies, the customers can win
advantages in negotiation.
This work can be finished with the help of DSM decision support system
software (as shown in Fig. 6.7) developed by SGERI (former SPERI), which is a
single-handed computer version and is being updated to the C/S and B/S version.
The interface and the function will be more remarkable. Apart from inquiring
about parameter data on some DSM technologies and equipment, the software not
only can analyze and calculate the energy consumption level of in-service
equipment of an enterprise, but also can analyze and estimate the potential of
updating and upgrading the equipment and changing its production mode, the
investment required for implementing theses schemes, profits obtained after the
project is implemented, for example, how much electricity it can save, how much
electricity cost it can save, how many years the investment will be paid back, etc.
The software provides the major functions for the customers as shown in Fig. 6.8.
1. Data, parameter and information inquiry. It provides some parameters of the
terminal equipments including lighting implements, household appliances,
motors, frequency converters, energy storage equipments, transformers and so
on. The customers can inquire the information on the price, performance
parameters, etc., of high efficiency equipment of relevant fields.
2. Energy-consumption analysis. It estimates the energy consumption of a variety
of in-service equipment operated in an enterprise and analyzes the electricity
cost of each process. These data can be used for comparison with competitors
of the industry concerned.
3. Potential estimation. It provides analysis of the energy-saving potential and
expenditure saving potential of updating and upgrading equipment and
changing production mode. These data can help a customer learn about the
energy-saving potential of its enterprise concerned.
4. Cost-benefit analysis. It provides analysis of investment recovery period,
benefit-cost ratio for updating and upgrading of some devices, etc. These data
can provide decision basis for leaders in participating in DSM and carrying out
updating and upgrading of equipment.
Fig. 6.7 Interface of DSM decision support system software
DSM decision support system software
Data, parameter and Potential Capital

Analysis Else
information inquiry estimation optimization
Analysis of Energy Consumption
Analysis of Load
Analysis of Line Character
Analysis of Financing
Fig. 6.8 Major functions of DSM decision support system software for customers
5. Capital optimization. The software can provide optimal DSM combined

scheme for a fund.
[Case 6-1] Electricity consumption analysis and audit in Shougang Group

Shougang Group was a big power consumer in Beijing before moved out from
Beijing. In 1997, Electric Power Research Institute of China, Beijing Management
office for Planned, Economic and Safe Use of Electricity together with Shougang
Group carried out the audit of some devices in Shougang Power Factory, one of
which was the water purification pumping station having the peak load shifting
potential.
Based on investigation and analysis, there are five water pumps that can be
firstly carried out peak load shifting, and the total capacity of the motors is
200 kW. By using the DSM decision support system software, it is estimated that
water pump transformation totally needs RMB 525,000 Yuan, including the
development cost of RMB 300,000 Yuan, the cost of the control devices of RMB
25,000 Yuan, and the water tank modification cost of RMB 200,000 Yuan, the
water pumps can run by peak load shifting after modified, the five water pumps
can annually reduce peak power of 584 MWh (according to the peak valley hours
of the peak valley table), annually saving electricity cost of RMB 127,000 Yuan
calculated according to the then peak valley tariff, and the investment could be
paid back within 4 years or so [9].
According to the initial analysis and audit, there is great feasibility for carrying
out DSM, thereby providing good basic data for DSM decision.
6.3.2.2 Flow
For a power customer, there are generally three phases before participating in
DSM:
1. The customer familiarizes and understands DSM, and learns about the propa-
ganda of governments at all levels, power grid enterprises, power generating
enterprises, ESCOs, etc., through various channels.
2. The customer makes initial analysis or estimation according to their electricity
using situations, which can be made by using software.
3. The customer decides whether relevant DSM projects are implemented. After
implementing the relevant DSM projects is decided, there are two channels to
carry out the relevant work, one channel is to do it by itself, and the other is to
jointly do it by cooperating with an energy service company. If the imple-
mentation is made jointly by cooperation with the energy service company,
refer to see Chap. 5 of the book for the concrete flow. Figure 6.9 shows the flow
of DSM for power customers.
Fig. 6.9 Flow of carrying

out DSM by themselves for Set up electricity saving and
power customers expenditure saving objectives
Analyze electricity saving and

peak load shifting potential
Design and establish rational

DSM scheme
Implement DSM project by

itself or inviting other units to
participate in the project
through bidding
Monitor and evaluate the

project and obtain electricity
saving profit
For the customers, the flow of carrying out DSM by themselves is simple,
including:
Setting up electricity saving and expenditure saving objectives;
Analyzing electricity saving and peak load shifting potential;
Designing and establishing rational DSM schemes;
Implementing DSM project, during which other units can be selected to par-
ticipate in the implementation through bidding;
Monitoring and evaluating the implementation effect (to summarize the expe-
rience for subsequent items as reference);
The profit obtained from the project is totally disposed by the customers.
6.3.3 Cooperation with ESCOs to Jointly Carry Out DSM
ESCOs are specialized companies that are operated based on contract energy
source management mechanism and with the purpose of profiting. They provide a
package of services in energy source efficiency audit, energy-saving project
design, purchasing of raw materials and equipment, construction, supervision,

training, operation management, etc., and make profit and development through
sharing energy-saving benefit obtained from the implementation of projects with
their customers.
If a company carries out DSM by itself, the benefit obtained is disposed only by
the company; but if the company carries out DSM by cooperation with the ESCOs,
the benefits obtained should be shared with the ESCOs. Why cooperate with the
ESCOs?
First, DSM involves many factors, such as fund input, scheme design, selection
and purchasing of equipment, project construction, operation and maintenance,
etc., and it is difficult for a customer to deal with it or it is necessary to establish a
corresponding organization to finish the functions of an energy service company.
Second, there is certain complicacy or uncertainty in various policies, technical
levels, and product markets, and there is risk for a power customer during
implementation. The ESCOs can easily judge what items can be carried out and
what products can be purchased because they make profound study and under-
standing on the policies, contact a lot with the markets and deeply know about the
markets. For example, some enterprises exaggerate their products quality and
energy-saving effect and disturb the market order so that the customers cannot
distinguish from these information, but the ESCOs are specialized and experienced
in this, and can easily distinguish the difference, thereby avoiding many risks.
In addition, the ESCOs are responsible for project financing during the
implementation of the project, carry out design, purchasing, installation, prepa-
ration and debugging of equipment (the customer also can list them in written form
and get approval from the ESCOs) required for the project, and complete the
construction on schedule. This is very important for the customers as the cus-
tomers have no pressure and risk of financing.
In general, as stated in Chap. 5 of the book, the ESCOs are experienced and
staffed by technicians, have the advantages in the aspects of wide information,
energy-saving professional, advanced technology, all-round service, low cost,
scientific management, etc. Even if large-sized enterprises have a great number of
energy sources and facilities and abundant funds, transferring their energy source
facilities to specialized ESCOs to manage will minimize the management cost,
improve the system reliability, and clarify responsibility.
So the customers can carry out projects with less investment that are simply
operated and easy to control, and for relatively complicated projects with much
more investment and it is better to cooperate with ESCOs.
In the process of the implementation of projects, the ESCOs are responsible for
a package of service and realization of energy-saving objectives. Then what role
do the customers play in the process of DSM?
To ensure smooth cooperation, the ESCOs should be evaluated and selected.
Different ESCOs have different backgrounds, are involved in different fields, and
have different credit grades. It is necessary for the power customers to evaluate a
plurality of energy service company competitors and then select one company to
sign contracts or carry out other commercial operation.
To ensure the smooth progress of the project, it is necessary for the customers to
fully communicate with the ESCOs and sign contracts with them for guarantee.
Before signing the contracts, the calculation method and quantity of annual energy-
saving benefit, and proportions of both parties in sharing energy-saving benefits,
etc., are evaluated by a third party. The contracts should stipulate the implemen-
tation progress of the project, the starting date of energy-saving benefit sharing,
benefit sharing time segments, energy-saving benefit sharing proportion, etc., as the
basis of project evaluation and benefit sharing. In addition, it is necessary to stip-
ulate the ownership of the project equipment. Furthermore, the project ownership
belongs to the ESCOs before the duration of the contract and the payment of total
money by the customers; after the contract expires and the customer pays the due
money to the energy service company according to the stipulations, a part (or the
total) of the equipment in the project belongs to the customers according to situ-
ations. The contracts should precisely stipulate which equipment belongs to the
customers and which equipment belongs to the energy-saving service companies.
To ensure the smooth realization of the energy-saving objectives, the contract
should stipulate the calculation method for energy-saving effect and project
acceptance criteria, and should stipulate the implementation of the monitoring and
evaluation of the project.
To ensure the sustainability of the energy-saving effect of the project, it is
necessary for the customers to accept the training and instruction of the ESCOs
during the implementation of the project for improving the relevant knowledge,
learning about how to use and maintain the relevant equipment, and improving the
levels in management and technology.
6.4 Industrial Customers Participation in DSM
Industrial consumers are big electricity consumers, and have large DSM potential.
Concerning the terminal electricity using mode, industrial electricity covers var-
ious electricity using modes such as motors, electric heating, lighting, and elec-
trochemistry, etc. There is tremendous energy-saving potential and large benefit
space for industrial customers to participate in DSM when analyzed from man-
agement measures or technical means. The industrial customers should carry out
DSM from the aspects of management and technology.
6.4.1 Attach Importance from the Aspect of Management
6.4.1.1 Lay Stress on DSM and Set Up Corresponding Organizations
Large medium-sized power customers should be staffed by professionals with

energy-saving knowledge to deal with DSM and be responsible for management,
supervision, and inspection of the electricity energy utilization of their units,

thereby promoting the sustainable and effective development of DSM work in their
units. For large customers, setting up an energy-saving and emission reduction
organization system and improving the relevant rules and regulations are basic
guarantee for DSM work. Seen from DSM practices that have been carried out,
large-sized enterprises can carry out DSM work under the leading of the energy-
saving and emission reduction leading group. Many central enterprises set up
special work organizations, and require its subsidiary enterprises to establish and
improve energy-saving and emission reduction work organizations, thereby pre-
liminarily forming the energy-saving and emission reduction organization system
from the top down.
6.4.1.2 Enhance Enterprise Management to Adjust Product Structure
Enhancing enterprise management is one of effective ways promoting DSM work.

The measures include positively developing products with high technical content
and high added value to gradually eliminate backward production capacity, and
adjusting production structure.
Although technological equipment and production process are different in each
industry, but the ways for improving energy utilization are similar: the first way is
to enhance energy-saving management, set up an perfect management system,
implement strict check, enhance supervision and inspection as well as propaganda
and training, constantly improve management quality, improve operation level,
improve the information system as well automatic control level, etc.; the second
way is to optimize technological structure and product structure, improve technical
equipment level, and improve energy utilization efficiency through large-sized,
automatic equipment; and the third way is to constantly reduce energy loss through
progress of energy-saving technology by adopting energy-saving new technology.
6.4.1.3 Follow Up and Popularize the New Technology and Equipment
The modern society is a progressive and innovative society, it is necessary for

enterprises to constantly follow up advanced process and technology and deter-
mine the fields of DSM projects that they can participate in through technical
economic analysis and comparison. The enterprises need to reduce the unit con-
sumption of product output while improving the technical level and intensive
production level, optimizing product structure and improving competitiveness.
Electric equipment newly added should meet latest national energy-saving
standards, have energy-saving quality certification marks, and have low energy
consumption and high efficiency performances. For production processes newly
added, its energy consumption and electricity should meet national or local
standards; and high efficiency motors are adopted, speed regulation technology is
6.4 Industrial Customers Participation in DSM 421
adopted to improve the starting performance and operation characteristic of motors

to improve the system efficiency of electric driving.
Concerning the production mode, DSM technology should be preferentially
adopted to realize peak load shifting, improve energy-consumption structure as
well as power efficiency.
6.4.1.4 Fit Electricity Tariff Policy and Optimize Production Mode
To improve the entire efficiency of the power system, the Chinese government will
constantly improve corresponding electricity tariff policies, for example, peak
valley TOU electricity tariff, seasonal electricity tariff (flood season-dry season
price), interruptible price, etc., the power customers should actively estimate their
own peak load shifting potential, seriously adjust production process or operation
working conditions under the condition of no influence on production, optimize
the production mode to shift transferrable load to operate at valley hours at night,
thereby realizing peak load shifting. Although there is an increase of electric
energy, good economic benefit will be obtained.
6.4.1.5 Analyze Electricity Cost Bill and Find Out Electricity Saving
Potential
Each industrial enterprise can know about the load situations and analyze the
potential problems in its electricity consumption through research on annual
electricity cost bill. Energy using optimization inside the enterprise is issues from
the bills:
1. Is the monthly load quite dispersed? The bill includes the data of the maximal
load of each month. If these data are dispersed, it means unstable load and low
electricity consumption efficiency, and it is necessary to study the causes and
improvement directions, for example, is it related to the factors of the market
environment, raw materials, the climate environment, and operation and
maintenance situations of equipment, etc.?
2. Is the maximal load utilization time rather low? Maximal load utilization time
is the quotient of dividing electricity consumed in billing period by the maximal
load. Its actual value is generally about 5,000 h for enterprises of three-shift
systems, and is generally lower than 2,000 h for enterprises of one-shift sys-
tems. Surely, the maximal load utilization hours are not only related to working
time, but also related to the type of production equipment and other whole
conditions, and therefore it can be used as the basis for comparison with the
average level and advanced level of other enterprises in the same industry.
3. Is the proportion of electricity at valley hours (low price electricity) reason-
able? For the enterprises of three-shift systems, the load is more stable, and the
electricity at each period is uniform. But there is possibility that some
enterprises can shift part of work in the daytime or the first half of the night to
be done in the second half of the night. For example, an iron making plant had
an ore crusher, just continuous work of three shifts could meet the demands of
material using; later another one was purchased, one crusher was started at the
parity periods of the daytime, and both crushers were started at the second half
of the night and basically were not used at peak hours, thereby shifting the load
at high price hours to the low price hours under the condition of meeting
material use requirements, and the proportion of the electricity at valley periods
slightly rises, thereby saving electricity cost expenditure. For the enterprises of
one-shift system, the electricity at valley periods may be very small, but some
work having no influence on production can be carried out at the valley periods.
For example, an office building can adopt the cold storage AC to shift part of
load to the valley periods at night.
To research and analyze the above several problems can preliminarily find out
where DSM can be carried out.
6.4.1.6 Actively Participate in Voluntary Energy Conservation

Agreement
Voluntary energy conservation agreement has been landed on China and obtained
some effect in Shandong Province, and the customers participating in the agree-
ment also have obtained corresponding benefit. China still encourages enterprises
to actively participate in voluntary energy conservation agreement.
Enterprises excluded the top 1,000 enterprises can make application for par-
ticipating in the VA program. The governments can offer subsidies or preferential
policies if the enterprises commit to produce energy conservation benefit, thereby
bringing benefits for China and the enterprises and simultaneously greatly
improving the social images of the enterprises and intangible values of the
products.
6.4.2 Implement from the Aspect of Technology
At present, the equipment fields having energy-saving potential for the industrial
customers mainly include lighting equipment, AC, motors and speed regulation
technology, heat pump technology, transformers, reactive power compensation,
energy storage technology, electric production equipment and process, and inter-
ruptible load technology, etc. With the technical progress, other relevant equip-
ment and technology will appear. The lighting equipment, motors, and reactive
power compensation are mainly introduced as follows:
6.4.2.1 Lighting Equipment
The lighting equipment has wide application range covering industrial, commer-
cial, and residential customers. Although the lighting electricity quantities of the
industrial customers are small, but the total is large, and it is an important aspect of
DSM. Great energy-saving potential can be obtained from rationally optimizing
the lighting schemes. In general, the industrial customers can optimize the lighting
from the following aspects:
Rationally Select Optical Light Source According to Requirement of Luminance
Rational luminance is mainly for protecting the eyesight of workers and improving
the product quality and labor productivity, and electric light sources are selected
generally according to the visual requirements and different use places: for large-
sized open working places without special requirements for light color, high
pressure lamps, metal halide lamps, and high pressure mercury lamps, etc., can be
adopted; for lower places requiring lamps to be suspended lower, it is appropriate
to select fluorescent lamps or low-power high pressure sodium lamps; and for
large-area places requiring high luminous efficiency, metal halide lamps can be
adopted. For the concrete using range refer to the Sect. 6.3.
Apart from rational selection of electric light sources, rational selection of
lighting devices and full utilization of the configuration of electric light sources are
the aspects of DSM needing consideration.
Make a Clear Optimization Mode and Carry Out Technical Substitution
In the process of carrying out DSM in China, with the promoting of green lighting
engineering, high efficiency lighting electricity saving products such as T8, T5
fluorescent lamps, high pressure sodium lamps, metal halide lamps, high-fre-
quency electrodeless lamps are greatly popularized in the fields of offices, office
buildings, emporiums, houses, squares and street lamp lighting, and better elec-
tricity saving effect is obtained by matching with corresponding lighting wiring
schemes and control systems.
According to the practices and experiences, lighting substitution popularization
in China at present mainly gather in the following fields: compact fluorescent
lamps are used to substitute incandescent lamps, saving electricity by about 70 %;
thin-tube three band fluorescent lamps are used to substitute thick-tube low effi-
ciency fluorescent lamps of common fluorescent powders, saving the electricity by
about 25 %; novel high efficiency high pressure sodium lamps and metal halide
lamps are used to substitute high pressure mercury lamps, low efficiency sodium
lamps and tungsten halogen lamps, saving electricity as well as reducing mercury
pollution; and electronic ballasts or low energy consumption inductance ballasts
are used to substitute common high energy consumption inductance ballasts,

saving the electricity by about 55 or 40 %, respectively. In recent years, LED
lamps have been developed fast and widely used for traffic signal indicating lamps,
automobile lamps, etc., saving electricity up to more than 80 % and having longer
service lives.
[Case 6-2] Energy-saving lighting modification of industrial customer
An enterprise intended to adopt 48 W inductance ballasts with the price of
RMB 17 Yuan per unit, and later adopted 36 W electronic ballasts GLYZ-
36DFA(X) with the price of RMB 35 Yuan per unit according to the recom-
mendation of an ESCO. The number of electronic ballasts installed was 6,000, and
the practices of more than 1 year shows remarkable energy-saving effect. The
calculation of benefit analysis is given as follows (the electricity price for the local
commercial customers is RMB 0.75 Yuan/kWh, and the government gives the
reward according to RMB 8 Yuan per piece).
1. Comparison of electricity cost
Usage of electronic ballast
6,000 pieces 9 36 W 9 8 h 9 365 days 9 0.75 Yuan/kWh = RMB 473,040
Yuan
Usage of inductance ballast
6,000 pieces 9 48 W 9 8 h 9 365 days 9 0.75 Yuan/kWh = RMB 630,720
Yuan
Annual electricity cost saved
630, 720 - 473, 040 = RMB 157,680 Yuan
2. Comparison of purchasing cost:
Government reward:
6,000 pieces 9 8 Yuan/piece = RMB 48,000 Yuan
Extra expenditure of purchasing cost:
(35 Yuan/piece - 17 Yuan/piece) 9 6,000 pieces - 48,000 Yuan = RMB
60,000 Yuan
3. Investment payback period:
60:0
T 0:38 Year 5Months
157:68
4. Total money saved in three years:

157:68 3 60 RMB 413 thousand Yuan
If there is no government reward, the payback period is 8 months.
If the electricity price is RMB 0.25 Yuan, the payback period is 14 months; if
the government reward is ignored, the payback period is 24 months, i.e., 2 years.
Seen from this, the electricity price is higher, much more profit can be obtained
from investment of DSM. If there is governmental reward, the payback period is
shortened.
6.4.2.2 Motor
Motors are widely used in fans, water pumps, driving systems, etc. The motor
efficiency in China is lower than the international advanced level, and with the
addition of the progress of speed regulation technology, there is great potential in
the motor field.
At present, about 60 % of the power consumption is consumed by motors. In
1998, America put forward the Motor Challenge Program after studied and found
based on estimation that the motor self efficiency improvement had the electricity
saving potential of 24.6 TWh, accounting for 4.3 % of the energy consumption of
the motor, and improving the efficiency of the motor system with the methods of
speed regulation had the energy-saving potential of 60.6 TWh. While in China, the
energy utilization efficiency of the motors is generally 20 % lower than the
international advanced level, thereby there is more energy-saving potential.
Energy-Saving by Selecting High Efficiency Motors
High efficiency motors refer to motors whose ratio of effective output power to
input power (efficiency value) meets the energy-saving evaluating value of
national standards, and also refer to low loss motors. The high efficiency motors
have the characteristics of high efficiency, high load factor, low operation tem-
perature, large temperature rise redundancy, small vibration, high reliability, low
noise, good interchangeability, etc.
The high efficiency motors have lower operation cost, fast payback, and tre-
mendous benefit. The annual savings are more than RMB 20,000 Yuan if the
efficiency of a motor of 200 horsepower is improved by 3.5 %, and the payback
period is less than one year, and the cost saved is remarkable based on the analysis
that the general service life of the motor is 15 years.
[Case 6-3] Economic comparison analysis of 11 kW 4-pole standard motor and
high efficiency motor
11 kW, 4-pole motors are taken as the example to carry out economic analysis
of high efficiency motors and standard motors according to the following critical
Table 6.5 Data comparison of motor

Series of motor Price of Operation cost for Proportion of initial Payback
motor 10 years (RMB investment in 10-year period
(RMB thousand Yuan) operation cost (%) (year)
Yuan)
Standard motor Y 3,950 138 2.9
(g = 88 %)
High efficiency motor 4,540 133.5 3.4 1.31
YX2 (g = 91 %)
Comparison of high 590 higher 4.5 saved 0.5 higher
efficiency to
standard motor
conditions: 4,000 h of annual operation time, 75 % of load factor RMB 0.5 Yuan/
kWh of electric price, and 6 % of discount rate. The analysis results are shown in
Table 6.5.
Data reveal that the initial investment of the motor is about 3 % of the total
10 year operation cost, and the proportion of the high efficiency motor in the total
10 year operation cost is slightly higher. Extra cost expended for investment of
high efficiency motors can be paid back in less than 1 year and a half. Conse-
quently, adopting high efficiency motors can bring remarkable economic benefits
for the motor customers.
Energy-Saving by Using Speed Regulation Technology
Regulating rotation speed according to the operation state of AC motors has good
economy. The modification potential of speed regulation is large as there is a great
variety of motors, especially the speed regulation energy-saving technology of
large medium-sized fans, pumps, their energy-saving rate is generally 2530 % or
so, covering pumps, fans, compressors, textile machines, lifters and transportation
equipment in the industries of mining, metallurgy, textiles, chemical, power plants,
traffic and transportation. For example, in a zinc roasting plant, the frequency
converters were installed on the motors of the rotary furnace, the motors ran stably
and reliably, were easy to operate and convenient to maintain, annually saving
electricity of 120 MWh and increasing the output value of RMB 1.18 Million
Yuan; and in a steel plant, the electro slag furnace was carried out variable fre-
quency speed regulation modification, saving the electricity by 70 %, and saving
electricity cost of RMB 1 Million Yuan. It should be demonstrated that there is
certain technical difficulty in speed regulation modification engineering, the power
customers should cooperate with the ESCOs as much as possible.
In China, there are two popularized categories of high efficiency speed regu-
lation technology at present, one category is variable frequency speed regulation,
and the other category is inner feed speed regulation technology. The variable
frequency speed regulation technology has no additional energy loss, high
efficiency, wide speed regulation range, high precision and small starting energy
consumption; and the inner feed speed regulation technology is especially suitable
for high pressure large-capacity motors needing speed regulation due to low
control voltage and small harmonic pollution. The high efficiency speed regulation
technology is especially suitable for fans and pump load needing frequent speed
regulation, and its electricity saving rate can reach up to 2060 % compared with
the traditional method. Hence, the high efficiency motor speed regulation tech-
nology has wide application prospect.
Energy-Saving by the Modification of All Parts of Power Driving System
Power driving systems generally have the following problems: the motors and the
driven equipment are old and backward and have low efficiency; the system
matching is unreasonable and has the phenomenon of light load drive, the
equipment stays in low load operation for long term; the system regulation mode
and the control technology are backward, for example, some fans and pumps have
lower efficiency than advanced technology due to regulation by mechanical
throttling mode.
Based on these problems, the customers can adopt the following measures
according to concrete situations: updating and eliminating low efficiency motors
and high electricity equipment according to concrete situations, positively using
high efficiency energy-saving motors, rare earth permanent magnetic motors, high
efficiency driving systems, etc.; rationally configuring the motors and the driven
equipment; actively popularizing advanced motor speed regulation technologies
such as variable frequency speed regulation and permanent magnetic speed reg-
ulation, improving the regulation mode of fan and pump motor systems, and
gradually eliminating the mechanical throttling regulation mode of flashboards,
valves, etc.; and optimizing the operation and control of the motor systems.
Motor key modification fields of some industries are as follows found from
studies, the customers can make comparison according to the situations to fully tap
energy-saving potential.
Power: adopt variable frequency, permanent magnetic speed regulation and
computer control to modify fan, water pump systems, especially thermal power
generating units of 200 MW and above.
Metallurgy: adopt frequency conversion, permanent magnetic speed regulation
to modify blowers, dedusting fans, cooling water pumps, heating furnace fans,
and casting decaling water pumps.
Nonferrous metal: adopt the automatic control to modify dedusting systems and
speed regulation to modify fans.
Coal: adopt speed regulation to modify mine ventilators and drainage pumps,
and computer control to modify systems.
Petroleum, petrochemical, chemical: adopt frequency conversion speed regu-
lation and automatic control to modify technological system process pumps.
Electromechanics: develop and manufacture energy-saving motors, motor sys-

tems and corollary equipment.
Light industry: adopt frequency conversion, permanent magnetic speed regu-
lation to modify injection molding machines and hydraulic oil pumps.
6.4.2.3 Reactive Power Compensation
The motor consumes active power as well as reactive power in the process of
electricity energy consumption. Transmitting the reactive power by a power net-
work can result in high losses, and the voltage quality of the customers will be
influenced. To reduce the line loss on transmission lines of the power grid and
improve the voltage quality of the customers, the load factor for the customers has
certain limitation requirement in China, and is calculated and checked according to
time segments. With the deep development of energy-saving and emission
reduction work, this requirement will be stricter.
Apart from centralized compensation at substations, it is necessary to make
disperse compensation for the customers. For the customers, installing reactive
compensators can improve the load factor and reduce electricity cost expenditure,
while reducing power grid loss, guaranteeing voltage quality, and improving
product quality.
6.5 Commercial and Residential Customers Participation

in DSM
Commercial customers, residential customers, and some small-sized industrial

customers are mainly accessed to the distribution part of the power grid, their electric
equipment has smaller power, and the geographical distribution of the customers is
dispersed. But the electricity mainly gathers in the equipment of lighting, AC and
household appliances, and the residential and commercial customers and small-sized
industrial customers can similarly have high energy-saving potential through posi-
tive management means and rational energy using technology.
6.5.1 Attach Importance from the Ideological Aspect
6.5.1.1 Positively Use Electricity Saving Products and Form

the Electricity Saving Habit
Law of the Peoples Republic of China on Energy Conservation definitely stipulates

that all units and individuals should, in accordance with law, fulfill their obligation
to conserve energy. Residential customers and commercial customers should
6.5 Commercial and Residential Customers Participation in DSM 429
actively respond to the call of the Chinese government to improve the energy-
saving awareness and use energy-saving products by the following ways: actively
learning the relevant regulations and documents, participating in energy-saving
investigation developed by the governments, power utilities, ESCOs, etc., accept-
ing energy-saving education and training, visiting propaganda exhibitions of power
equipment and DSM, constantly improving energy-saving and electricity saving
awareness and appropriately changing electricity using habits and work and rest
habits. For example, the devices with energy efficiency marks such as energy-
saving lamps, energy-saving refrigerators, energy-saving AC with energy, etc., are
used; AC temperature is set according to the standards advocated by the Chinese
Government (e.g., the AC temperature is set not lower than 26 C in summer, and
not higher than 18 C in winter); electric equipment should not run on standby as
much as possible; escalators in emporiums can adopt sensors, and start running only
when someone take them and stop running when nobody uses them; the working
mode of lighting lamps is regulated according to the quantity of people, etc.
6.5.1.2 Actively Participate in the Propaganda Made by Governments

and Power Grid Enterprises
With the constant deepening of DSM work, the governments and power grid
enterprises carry out propaganda by the following measures: using modern pro-
paganda medias such as broadcasts, televisions, newspapers and websites, and the
ways of field exhibitions, etc.; compiling and publishing various professional and
popular books and propaganda materials and widely spreading these books and
materials in various exhibitions, fairs and proseminar; holding various professional
training and popular science lectures, international and domestic meetings for
academic exchange, technical exchange and achievement and experience
exchange; and organizing propaganda teams to make propaganda of relevant DSM
with multiple forms and through multiple channels in communities and schools.
By participating in these activities, the power customers can fully improve their
energy-saving environmental protection awareness, and improve their cognition
and using faith in DSM products and technologies.
In addition, the customers can obtain great economic benefits from participating
in DSM demonstration projects, for example, bulk purchase or group purchase,
popularization of lighting DSM, contract energy management, quality-commit-
ment system, etc.
6.5.1.3 Fit for Electricity Price Policy to Change and Optimize

Electricity Using Habit
The residential customers can select appropriate devices to shift electricity at peak
hours to valley hours according to the electricity tariff policies promulgated by the
Chinese government, such as peak load TOU tariff, flood season-dry price,
interruptible price, etc. To facilitate the residential customers to learn about the
advantages of peak valley out-of-time tariff, part of household appliances is taken
as the example to be elaborated as follows:
[Case 6-4] Benefit of peak valley tariff for residential customers
In some regions, the residential customers were given the choice of single
electricity price or peak valley tariff. Table 6.6 shows the tariff in 2010. A washing
machine with the washing power of 380 W and dewatering power of 260 W was
taken as an example, calculate the benefit obtained from changing the use time
from the original 20:0022:00 to 23:001:00 based on the annual use times of 50
according the peak valley tariff. For the lighting and refrigerators, etc., that cannot
make load shifting, a 40 W fluorescent lamp (used at 18:0023:00), and a 150 W
refrigerator (used all day) were taken as the example, calculate the benefit that the
customer can obtain from the peak valley tariff.
Washing machine According to the ratio of the washing time to the dewatering
time of the washing machine of 4:1, i.e., if the washing time and dewatering time
is 1.6 and 0.4 h respectively each time, the annual electricity fee executing the
single electricity price is RMB 18.8 Yuan calculated by the following formula:
0:380 kW 1:6 h=time 0:260 kW 0:4 h=time
50 times 0:5283 Yuan=kWh RMB 18:8 Yuan
and the annual electricity fee executing the peak valley TOU tariff is RMB
12.8 Yuan calculated by the following formula:
0:380 kW 1:6 h=time 0:260 kW 0:4 h=time
50 times 0:3583 Yuan=kWh RMB 12:8 Yuan
The result is annually saving RMB 6 Yuan.
Fluorescent lamp The annual electricity fee using the single electricity price is
RMB 38.6 Yuan calculated by the following formula:
0:04 kW 5 h=day 365 days 0:5283 Yuan=kWh RMB 38:6 Yuan
and the annual electricity fee executing the peak valley TOU electricity tariff is
0:04 kW 3 h=day 0:5583 Yuan=kWh 0:04 kW 2 h=day
0:3583 Yuan=kWh 365 days RMB 34:9 Yuan
The result is annually saving RMB 3.7 Yuan.
Refrigerator The annual electricity fee executing the single electricity price is
0:15 kW 24 h=day 365 days 0:5283 Yuan=kWh RMB 694:2 Yuan
and the annual electricity fee executing the peak valley TOU tariff is RMB 615.3
Yuan calculated by the following formula:
Table 6.6 Electricity tariff for residential customers in some region

Item Unit Peak Off-peak Valley Single
electricity electricity price electricity price electricity price
price
Time 18: 0021: 00 8: 0017: 00 22: 007: 00 0: 0024: 00
segment
Electricity RMB 0.5583 0.5283 0.3583 0.5283
price Yuan/
kWh
0:15 kW 3 h 0:5583 Yuan=kWh 0:15 kW 9 h 0:3583 Yuan=kWh

0:15 kW 12 h 0:5283 Yuan=kWh 365 days RMB 615:3 Yuan
The result is annually saving RMB 78.8 Yuan.

Thus, it can be seen that the residential customers can obtain certain benefits by
executing the peak valley electricity tariff or changing life habits according to the
electricity tariff policies.
6.5.1.4 Reduce Standby Loss of Household Appliances
In accordance with the energy-saving call put forward by the Chinese government,
the residential customers should make active response, form good electricity
saving habits to reduce the standby loss of household appliances, and set rational
temperature of AC, etc. When the household appliances are not used, the equip-
ment should be powered off. Energy-saving products with low standby energy
consumption should be the first-choice.
The standby loss of an AC is generally 35 W. In case of the annual working
days and actual operation time of an AC is 150 days and 300 h, respectively, it can
annually save electricity about 20 kWh when the AC is powered off with good life
habit of the customer instead of in standby operation. The standby loss of a
television is generally 1 W. In case of the annual operation time of a television is
1,000 h, it can annually save electricity about 8 kWh when the television is
powered off instead of in standby operation. These two-household appliances can
annually save about RMB 20 Yuan. Although the money saved is not much for a
household, the benefit for the total country is over RMB 5 billion Yuan at least
which is very large.
6.5.2 Implement from the Aspect of Technology
6.5.2.1 Lighting
According to the statistics, 2040 % of building energy of all commercial cus-

tomers is used for lighting, of which 6085 % of lighting lamps are fluorescent
lamps [10]. So the commercial departments can adopt appropriate lighting mod-
ification measures to save a large number of energy. Seen from the previous
introduction, energy-saving lamps have higher electric saving rate, thereby being a
key field.
There is a great potential in lighting equipment, but it should be pointed out that
besides the economy of the energy-saving products, the key to popularize energy-
saving equipment in China is the quality of the products, for example, the markets
of energy-saving lamps are intermingled with the ones of good quality and bad
quality, some disqualified products and inferior products flood on the markets and
compete with qualified products in price, and some inferior lamps are only used for
dozens of hours, thereby greatly harming the benefit of the customers, so the
customers should select licensed products obtaining relevant national certificates
as much as possible during selecting energy-saving products, only the products
marked with the energy efficiency labels can achieve good energy-saving, money-
saving economic benefit. If a great number of products are needed, the best way to
reduce risk is to cooperate with the ESCOs.
[Case 6-5] Good economic benefits obtained by an emporium through modifi-
cation of ballasts
An emporium used to adopt the lighting mode of double-tube 48 W common
fluorescent lamps and matched inductance ballasts and starters, totally 1,000
groups, and now its lighting mode is modified into the mode of 1,000 groups of
double-tube 36 W thin-diameter grille lamps and matched double-tube electronic
ballasts, wherein the unit price of the common fluorescent lamps is RMB 5 Yuan,
one group including two sets of inductance ballasts and starters costs RMB
30 Yuan, the unit price of the thin-diameter grille lamps is RMB 7.5 Yuan, the
unit price of the double-tube electronic ballasts is RMB 65 Yuan, the daily use
time is 10 h, and the electricity price is RMB 0.7 uan/kWh. Calculate the energy-
saving effect.
The calculation is shown in Table 6.7.
Just taking the electricity cost saving into consideration instead of government
reward
and savings of lamp tubes, the payback period is 0.570 years
3:5 104
calculated by 6:132 104 or 6.849 months, i.e., the investment can be paid back in
less than 7 months.
If the expenditure saving
for lamp tube is taken intoconsideration, the payback
3:5 104
period is 0.548 years calculated by 6:132 104 2:5 103 or 6.581 months, i.e., the
payback period is slightly reduced.
Additionally, if the government reward isthen included, the benefit is greater,
3:5 104 1:0 104
the payback period is only 0.392 years calculated by 6:132 104 2:5 103 or
4.701 months, i.e., the investment is paid back in less than 5 months.
The customer unnecessarily considers the payback period and just cares about
the electricity cost if cooperates with the ESCOs. The annual electricity cost
saving is RMB 6.132 9 104 Yuan, even through half of the energy-saving benefits
Table 6.7 Benefit calculation process of energy-saving lighting modification project for an emporium
Item Double-tube 36 W thin-diameter Double-tube 48 W common Comparison
grille lamp and matched double-tube fluorescent lamp and matched
electronic ballast inductance ballast and starter
Annual electricity cost required under (1) Total power = 2 9 36 W/ (1) Total power = 2 9 48 W/ (1) Annual load savings = 96 -
same luminance group 9 1,000 groups = 72 kW group 9 1,000 group = 96 kW 72 = 24 (kW)
(2) Electricity = 72 kW 9 10 h/ (2) Electricity = 96 kW 9 10 h/ (2) Annual electricity-
day 9 365 days = 2.628 9 105 day 9 365 days = 3.504 9 105 saving = 3.504 9 105 -
kWh kWh 2.628 9 105 = 8.76 9 104 (kWh)
(3) Electricity cost = 2.628 9 105 (3) Electricity cost = 3.504 9 105
(3) Annual electricity cost
kWh 9 0.7 Yuan/kWh = RMB kWh 9 0.7 Yuan/kWh = RMB saving = 2.4528 9 105 -
1.8396 9 105 Yuan 2.4528 9 105 Yuan 1.8396 9 105 = 6.132 9 104
(Yuan)
Expenditure for lamp tube (based on The expenditure of 2 years for lamp The expenditure of 2 years for lamp The expenditure saving of 2 years for
expenditure of 2 years, electronic tubes = 7.5 Yuan/piece 9 2 tubes = 5 Yuan/piece 9 2 lamp tubes is RMB 5.0 9 103
ballasts are replaced every 2 years pieces/group 9 1,000 groups 9 1 pieces/group 9 1,000/ Yuan, i.e., annually saving RMB
and inductance ballasts are time = RMB 1.5 9 104 Yuan groups 9 2 times = RMB 2.5 9 103 Yuan and monthly
replaced every year). 2.0 9 104 Yuan saving RMB 2.08 9 102 Yuan.
Investment for ballasts and starters 65 Yuan/piece 9 1,000 30 Yuan/piece 9 1,000 Extra investment of electronic ballasts
pieces = RMB 6.5 9 104 Yuan pieces = RMB 3.0 9 104 Yuan relative to inductance
ones = 6.5 9 104 -
3.0 9 104 = RMB 3.5 9 104
Yuan
6.5 Commercial and Residential Customers Participation in DSM
Government reward According to the reward RMB 5 Yuan Limited use, gradually eliminate the
for each energy-saving lamp tube, inductance ballasts.
the total reward = 5 Yuan 9 2
pieces/group 9 1,000
groups = RMB 1.0 9 104 Yuan
433
of the previous 2 years are shared with the ESCOs, the emporium still can save the
electricity cost expenditure of several hundreds of thousand Yuan in RMB within
several years.
[Case 6-6] Good economic benefit obtained by a university through modification
of ballasts
In a modification project of a university, 200,000 pieces of T8 thin-tube 36 W
fluorescent lamps and 100,000 pieces of double-tube electronic ballasts were
installed, the annual electricity saving is 7.2 GWh, the local electricity price is
RMB 0.5 Yuan/kWh, the unit price of the fluorescent lamp is RMB 7.5 Yuan, the
unit price of the electronic ballasts is RMB 65 Yuan, and the reward provided by
the government is 10 Yuan per piece. Calculate: (1) the benefit under the condition
without government reward; (2) benefit under the condition with government
reward; (3) the benefit under the condition of 10 % up and down in the electricity
price.
The calculation process is as follows:
1. Total investment: 200,000 pieces 9 RMB 7.5 Yuan/piece ? 100,000 pie-
ces 9 RMB 65 Yuan/piece = RMB 8 Million Yuan;
2. Government reward: 100,000 pieces 9 RMB 10 Yuan/piece = RMB 1 Mil-
lion Yuan;
3. Annual electricity cost saving: 7.2 GWh 9 RMB 0.5 Yuan/kWh = RMB
3.6 Million Yuan;
4. Annual electricity cost saving
under the condition of 10 % up in the electricity price: 7.2 GWh 9 (RMB
0.5 Yuan/kWh 9 1.1) = RMB 3.96 Million Yuan;
under the condition of 10 % down in the electricity price: 7.2 GWh 9 (RMB
0.5 Yuan/kWh 9 0.9) = RMB 3.24 Million Yuan;
5. For the calculation of the payback period see Table 6.8.
Seen from this, the lighting equipment DSM project in the university has
achieved obvious effect. The price of the electricity price is higher, the benefit
obtained from the energy-saving project is better, and it is necessary to carry out
DSM projects, if there is governmental reward, the payback period will be
shortened, but if there is no reward, the payback period is within 2.5 years and
therefore the project is feasible.
Table 6.8 Payback period of energy-saving lighting modification project for a University under
different factors
Item 10 % up in electricity Unchanged electricity 10 % down in
price price electricity price
Exclude government 8 8 8
3:96 2:02 (years) 3:60 2:22 (years) 3:24 2:45 (years)
reward
Include governmental 81 81 81
3:96 1:77 (years) 3:60 1:94 (years) 3:24 2:16 (years)
reward
The customer unnecessarily considers payback period and just cares about the
electricity cost if cooperates with the ESCOs. The annual electricity cost saving is
RMB 34 million Yuan, even through half of the energy-saving benefits of the
previous 3 years are shared with the ESCOs, the university still can save the
electricity cost expenditure of RMB 10 million Yuan within several years.
6.5.2.2 Air Conditioning
With the development of social economy in recent years and the constant
improvement of peoples living level, the AC possessive quantity is constantly
increasing. Meanwhile, with the prosperous development of the third industry, the
central AC possessive quantity is increasing year after year. In China, the AC has a
greater gap in average energy efficiency and average management level with the
international advanced levels, and there is a great potential in the load shifting and
electricity saving of the AC, including:
1. Using high efficiency energy-saving AC. In China, the AC energy efficiency
standards are lower; all manufacturers fight for markets, reduce the cost, and
therefore ignore the energy efficiency for long term. According to the report of
authority departments on household AC energy efficiency ratio test in China,
the civil AC with the energy efficiency ratio lower than 2.6 accounts for 28 %,
and those with the energy efficiency ratio higher than 3.0 only accounts for
7.7 %. But the energy efficiency ratio of the high efficiency energy-saving AC
generally can reach up to 3.5, greatly improving the electricity using efficiency
of the AC and improving the energy efficiency by more than 25 % compared
with the general AC.
2. Popularizing cold storage central AC. Compared with the conventional central
AC, the cold storage central AC is added with a cold storage device, can store
cold energy using the valley power of the power grids and release cold energy
at the peak hours of the power grids instead of starting up or less using the
refrigerating machine, thereby shifting peak load, and changing the electricity
using mode of the AC under the condition of no change of the AC demand
mode is a great contribution to electricity using process of the cold storage AC
and becomes a main technical means of peak load shifting. Moreover, the cold
storage central AC can annually save the operation cost by 1030 % compared
with the conventional AC system. The final purpose of the cold storage tech-
nology is to reduce the electric load of the customers at the peak hours through
peak load shifting, if a factory needs refrigerating the environment or producing
large electricity using peak due to the operation of the ice making machine, it is
necessary to use the cold storage technology. This technology is concretely
used in the following places: (1) dairies, breweries (requiring batch refrigera-
tion); and (2) commercial buildings, gymnasiums, office buildings (cold supply
mainly occurs in daytime). For electricity consuming units with even load
curves such as hotels, hospitals and factories, the cold storage technology is not
recommended. When the plant size increases and the refrigerating demand
increases, the cold storage technology can be used to avoid the addition of new
ice making devices.
3. Adjusting the temperature of commercial AC. At present, in hotels, restaurants,
and commercial buildings in China, the AC temperature in summer is generally
set at 2425 C, and appropriately adjusting the temperature has little influence
on the comfort but can reduce the AC load. According to the relevant infor-
mation, the rise of the AC by 1 C can reduce the load by 5 % above. The
Chinese Government advocates that the AC temperature is not lower than
26 C in summer and not higher than 18 C in winter.
4. Improving the design, installation and operation management of large-sized
central AC. For large-sized central AC, the host, water pump management
system, terminal device, the control system, etc., are involved, not only all the
devices are required to meet the energy-saving requirements but also the system
is required to be entirely optimized for energy-saving; and moreover, regular
adjustment should be maintained to guarantee that the system runs under the
optimal state. In China, there is great potential in this respect.
[Case 6-7] Cold storage system of an emporium

With the AC cold supply area of 15,000 m2, an emporium made a cold storage
system scheme under the instruction of an ESCO. Figure 6.10 shows the designed
daily hour-by-hour cold load under the conditions that the designed maximal load
is 2,200 kW, and the daily total load cold capacity is 21,000 kW.
Table 6.9 shows the configuration and cost of main devices of a cold storage
AC which adopts four double-working-condition refrigerating machines with the
refrigerating capacity of 350 kW and two ice storage tanks with the total cold
storage capacity of 12,000 kWh as the ice storage equipment.
The AC system adopts fractional cold storage strategy and ice storage priority
working mode, wherein the fractional cold storage system refers to refrigerating
and cold storage using valley power at night and simultaneously using the
refrigerating machine and cold energy stored at night to meet the AC load. This
cold storage mode can reduce the capacity of the refrigerating machine, conse-
quently reducing the distribution equipment and electricity consuming quota,
saving the initial investment and similarly reducing the operation cost; the ice
storage priority refers to that the load is borne by ice melting when the AC load is
lower than the ice storage capacity, and then the refrigerating machine runs for
compensation under the condition of variable load when the AC load is larger than
the ice storage capacity. The service life of the engineering is 25 years, and the
annual use time is 59 months, approximately 150 days.
For the operation strategy of the cold storage AC system see Table 6.10,
wherein (1) cold storage (23:07:00): the refrigerating machine runs according to
the ice making working conditions, totally storing cold 11,264 kWh (calculated by
100 RT/unit 9 3.52 kW/RT 9 4 units 9 8 h) to the ice storage device in 8 h; (2)
2500
2000
Load(kW)
1500
1000
500
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hour
Fig. 6.10 Designed daily hour-by-hour cold load of an emporium
ice melting and cold supply (9:0022:00): the ice of the ice storage device melts
and outputs, totally outputting cold capacity of 10,790 kWh in 13 h according to
the stable load output of 830 kW; and (3) refrigerating machine supplies cold
(9:0022:00): the refrigerating machine stays in variable load running to com-
pensate the short load, totally supplying cold capacity of 10,210 kWh in 13 h.
To promote the application of energy-saving technology in DSM, the region
where the emporium is located implements the policy of peak valley TOU tariff for
the power customers using the double storage technology, as shown in Table 6.11.
1. Operation cost of cold storage AC
Because the value of the AC load is closely related with the local outdoor
meteorological parameters, according to the characteristics of meteorological
parameters, the operation cost of the refrigerating device in economic analysis is
calculated based on that cold supply time for 100 % load accounted for 20 % of
the cold supply period of the AC, the cold supply time for 75 % load accounted for
50 %, the cold supply time for 50 % load was 20 %, and the cold supply time for
25 % load is 10 %; and the cold supply period of the AC in the emporium was
150 days, the energy efficiency ratio of the ice making condition of the refriger-
ating machine was 4, and the energy efficiency ratio of the AC condition of the
refrigerating machine was 5, then operation costs are calculated as follows:
100 % load running expense
For the running situations of a cold storage AC in cold storage and double cold
supply under the condition of 100 % load see Table 6.12.
Cold supply period 20 % 9 150 = 30 (days)
Ice storage electricity cost Under ice storage condition, the refrigerating unit,
cooling water pump, cooling tower and primary ethylene glycol pump run
according to the working conditions, and the chilled water pump and secondary
Table 6.9 Configuration and cost of main devices of AC

Serial Title of equipment Specifications Quantity Power Total Cost (RMB
No. (kW) power thousand Yuan)
(kW)
1 Double-working- 100 RT 4 sets 90 360 1,540
condition screw
machine
2 Cooling water pump 260 m3/h 4 sets 15 60 150
3 Cooling tower 260 m3/h 2 sets 9 18 300
4 Chilled water pump 240 m3/h 4 sets 11 44 75
5 Primary ethylene glycol 350 m3/h 4 sets 8 36 100
pump
6 Secondary ethylene 250 m3/h 4 sets 10 40 100
glycol pump
7 Ethylene glycol 21 tons 168
8 Ice storage device One suit 1,020
9 Plate heat exchanger 1250 kW 2 sets 300
10 Electronic water 260 m3/h 4 sets 136
processor
11 Automatic control One suit 340
Total refrigeration 558 4,229
capacity
Remark RT refers to USRT, 1RT = 3.52 kW
glycol pump do not run. The ice storage electricity cost is calculated by the
formula:
Cs G Ts Pv 6:1
where,
Cs The ice storage electricity cost;
G The sum of the powers of all running devices;
Ts The ice storage time;
Pv Electricity price of valley load period.
The total cost of ice melting cold supply and AC cold supply During the cold
supply period, the cooling water pump, cooling tower, chilled water pump, pri-
mary ethylene glycol pump, and secondary glycol pump run according to the
working conditions, and the refrigerating machine run according to the variable
loads. The total cost of ice melting cold supply and AC cold supply is calculated
by the formula:
Cac Cr Ca 6:2
where,
Cac The total cost of ice melting cold supply and AC cold supply;
Cr The electricity cost of the refrigerating machine;
Table 6.10 Operation situation of cold storage AC

Time Cold load Ice melting cold Units cold Cold storage
(kW) supply load (kW) supply load (kW) capacity (kWh)
23: 007: 00 8 9 1,408 = 11,264
7: 009: 00
9: 0010: 00 830 830 0
10: 0011: 00 1,220 830 390
11: 0012: 00 1,720 830 890
12: 0013: 00 1,830 830 1,000
13: 0014: 00 1,920 830 1,090
14: 0015: 00 2,050 830 1,220
15: 0016: 00 2,090 830 1,260
16: 0017: 00 2,200 830 1,370
17: 0018: 00 2,050 830 1,220
18: 0019: 00 2,000 830 1,170
19: 0020: 00 1,250 830 420
20: 0021: 00 990 830 160
21: 0022: 00 850 830 20
22: 0023: 00
Total (kWh) 21,000 10,790 10,210 11,264
Table 6.11 Electricity tariff of shopping store unit: RMB Yuan/kWh

Item Peak hours Flat hours Valley hours
8: 0011: 00, 7: 008: 00, 23: 007: 00
18: 0023: 00 11: 0018: 00
Cold storage electricity price 0.85 0.58 0.23
Conventional refrigerating electricity price 0.75
Ca The running electricity cost of the auxiliary equipment at refrigerating

hours.

Qcp Qcf
Cr Pp Pf 6:3
R R
where,
Qcp The cold supply quantity at peak hours;
Qcf The cold supply quantity at flat hours;
R The AC energy efficiency ratio in working conditions;
Pp Electricity price of peak load period;
Pf Electricity price of flat load period.

Ca G Tp Pp Tf Pf 6:4
Table 6.12 Power consumption of equipment in operation under the condition of 100 % load
unit: kW
Working Host Cooling Cooling Chilled Primary Secondary
condition water tower water ethylene glycol ethylene glycol
pump pump pump pump
Ice storage 360 60 18 0 36 0
Dual cold Variable 60 18 44 36 40
supply load
where,
Tp The running time at peak load period;
Tf The running time at flat load period.
The daily running cost under 100 % load: It is calculated by the formula:
C Cs Cac
6:5
Cs Cr Ca
where,
C The daily running cost under 100 % load.
For the calculation process of the operation cost of the cold storage AC under
the condition of 100 % load see Table 6.13.
The calculation principle of the operation cost when the refrigerating device
runs under other loads is similar to this, and the calculation results of daily
operation cost and total cost under various loads are shown in Table 6.14.
2. Operation cost of conventional AC
Model selection of main equipment of conventional AC
Table 6.15 shows the main equipment and expense of conventional AC
according to the cold supply area, cold supply amount and designed daily hour-by-
hour cold load of the AC of the emporium.
Operation cost of AC under 100 % load.
The energy efficiency ratio of the refrigerating machine in AC condition is 5. It
can be known from Table 6.10 that the daily electricity of the emporium is
21 MWh, and the electricity cost calculation is shown in Table 6.16.
The operation cost of the conventional AC under other loads are based on the
same calculation principles as this, just one unit and one water pump are started
when the load is below 1,200 kW, and the operation cost calculation results are
shown in Table 6.17.
Table 6.13 Operation cost of cold storage AC under the condition of 100 % load
Item of cost Calculation process
Ice storage electricity cost (360 ? 60 ? 18 ? 36) 9 8 9 0.23 = RMB 872.16 (Yuan)
Electricity cost of (2,160 ? 5 9 0.85) ? (805,095 9 0.585) = RMB 1,301.00
refrigerating machine (Yuan)
Operation cost of auxiliary (60 ? 18 ? 44 ? 36 ? 40) 9 (6 9 0.85 ? 7 9 0.58) = RMB
equipment at refrigerating 1,813.68 (Yuan)
hours
Daily operation cost under the 872.16 ? 1,301.00 ? 1,813.68 = RMB 3,986.84 (Yuan)
condition of 100 % load
Total cost for operation of 3,986.84 9 30 = RMB 119.6 (thousand Yuan)
30 days under the
condition of 100 % load
3. Comparison of cold storage AC and conventional AC.

The total cost and the annual maintenance expenses of the equipment of the
conventional AC are lower than those of the cold storage AC, but the service life
of the conventional AC is shorter (20, 5 years shorter than the cold storage AC),
and it is important that the annual expenditure of the cold storage AC is lower than
that of the conventional AC. If 70 % of the annual benefit within the project period
is given to the energy service company, the emporium annually saves the
expenditure of RMB 50,000 Yuan, and after the project contract expires, the
annual savings of RMB 160,000 Yuan is owned by the emporium, as shown in
Table 6.18.
6.5.2.3 Heat Pump
Heat pump technology is a kind of new energy technology attracting much

attention worldwide in recent years. The well-known pump is a machine or
device capable of increasing potential energy, for example, the water pump mainly
Table 6.14 List of daily operation cost and total cost of cold storage AC under various load
levels
Item Unit 100 % 75 % 50 % 25 % Total
load load load load
Daily Ice storage RMB Yuan 872.16 842.2323 775.164 532.058
electricity cost
cost Dual cold RMB Yuan 3,114.68 2,492.165 1,972.5 1,813.68
supply cost
Total RMB Yuan 3,986.84 3,334.397 2,747.66 2,345.74
Number of days Days 30 75 30 15 150
Total RMB 119.6 250.1 82.4 35.2 487.3
thousand
Yuan
Table 6.15 Main equipment and cost of conventional AC

Serial Title of Specifications Quantity Power Total Cost (RMB
No. equipment (kW) power thousand Yuan)
(kW)
1 Screw chiller 340 RT 2 sets 240 480 2,300
2 Cooling water 500 m3/h 3 sets (one as 45 90 150
pump standby)
3 Cooling tower 500 m3/h 2 sets 25 50 420
4 Cooling water 450 m3/h 3 sets (one as 40 80 81
pump standby)
5 Electronic water 500 m3/h 2 sets 140
processor
6 Automatic 1 suit 260
control
Refrigeration 700 3,351
total
Table 6.16 Operation cost of the conventional AC under 100 % load

Item of cost Calculation process
Electricity cost of refrigerating host 21,000 7 5 9 0.75 = RMB 3,150 (Yuan)
Electricity cost of auxiliary equipment (90 ? 50 ? 80) 9 13 9 0.75 = RMB
2,145 (Yuan)
Operation electricity cost of air conditioning under 3,150 ? 2,145 = 5,295 (Yuan)
100 % load
pumps water from a lower position to a high position, but the heat pump is a
device that can obtain low grade heat energy from air, water, or soil in the nature
and do work electrically to provide high grade heat energy for use by people. It
consumes a part of energy to tap energy stored in environmental medium and
increase the potential temperature for utilization, but the power consumed by the
entire heat pump device is just 1/3 or lower of the heat supply, which is an energy-
saving characteristic of the heat pump. Classified according to the medium for
fetching heat in heating condition of the heat pump unit, the heat pump has two
basic types: the air source heat pump and the water source heat pump.
The heat pump system can supply heat and AC as well as supply domestic hot
water, and is multifunctional. One system can replace the original two devices or
systems including the boiler and the AC; it can be applied to hotels, emporiums,
office buildings, school, etc., and is more suitable for heating and AC of villas.
Compared with the traditional heating mode, the heat pump system has no com-
bustion, no smoke exhaust and no waste, and does not need the place for stacking
fuel and waste, thereby realizing zero emission. Apart from above sources of
energy, a large amount of industrial exhaust heat, waste heat, and residual heat in
reclaimed water produced by waste water disposal factories can be utilized. As a
result, the heat pump system can consume little electricity to obtain 34 times of
heat, thereby greatly reducing the operation cost.
Table 6.17 Operation cost and total cost of conventional AC under various load levels
Item of cost Unit 100 % 75 % 50 % 25 % Total
load load load load
Daily Refrigerating RMB Yuan 3,150 2,362.5 1,575 787.5
electricity host
cost Auxiliary RMB Yuan 2,145 2,145 2,145 2,145
equipment
Total RMB Yuan 5,295 4,507.5 3,720 2,932.5
Number of days Day 30 75 30 15 150
Total RMB thousand 158.9 338.1 111.6 44.0 652.5
Yuan
Table 6.18 Index comparison of cold storage AC and conventional AC

Serial Index Unit Cold Conventional Difference of cold
No. storage AC storage AC to
AC conventional AC
1 Initial investment RMB 4,229 3,351 878 extra
thousand
Yuan
2 Annual operating cost RMB 487.3 652.5 165.2 less
thousand
Yuan
3 Annual maintenance RMB 21 17 4 extra
expense thousand
Yuan
4 Annual expenditure RMB 508.3 669.5 161.2 less
(exclude initial thousand
investment) RMB
Yuan
5 Service life year 25 20 5 extra
Remark the annual maintenance expense is based on 5 % of equipment investment
For most of public buildings (especially commercial buildings) has smaller heat
load in winter than cold load in summer, the heating capacity of the heat pump unit
is greater than the refrigerating capacity, only selecting the heat pump system can
result in 50% unused rate of the heat pump equipment, so an energy storage heat
pump system is generated. The energy storage heat pump system is a system that
combines the energy storage and the heat pump for making overall planning of
cold and heat sources for a whole year according to the overall characteristics of
winter-summer load of buildings.
Saving cost has been taken into account in the initial investment for the energy
storage heat pump system. In general, this system can reduce the heat pump
capacity by about 30 %, consequently about 30 % of the distribution capacity is
reduced. Meanwhile, the lower grade heat source side demand is consequently
reduced due to winter demand. These overall considerations give it certain
advantages in initial investment compared with the conventional heat pump
system. Especially in some regions with poorer water source conditions, or

engineering projects having no sufficient areas to adopt water source heat pump
technology, with this mode these problems can be solved. Concerning the oper-
ation, the water energy storage heat pump system adopts the energy storage mode
in winter and summer, the difference electricity price between peak hours and
valley hours is fully implemented during operation according to the power poli-
cies, the time annually using peak valley tariff can reach to 240280 days, so the
operation cost is reduced by 2030 % compared with the conventional heat pump
system, the investment benefit is greater.
[Case 6-8] Heat pump and energy storage technical application in video building
1. Engineering situation
A video building having the total building area of 12,600 m2 is a larger video
product wholesale base. The building is modified on the basis of the original
storehouse market, and is equipped with a central AC system which runs for 10 h
every day. The maximal cold load in summer is 1,260 kW, and the maximal heat
load in winter is 1,100 kW.
2. Engineering design of energy storage heat pump system
Considering energy-saving and operation cost, it is decided to adopt water
source heat pump technology for cold and heat sources. According to the local
water situations, the water pumping and recharge rates of a single well are 60 m3/
h, and the water amount is less, so it is necessary to open two pumping wells and
two recharge wells if the conventional water source heat pump technology is
adopted. In view of just 10 h of the daily operation of the building, the mode of the
combination of the water source heat pump and the energy storage technology is
considered and the daily operation time of the unit and well water is increased to
1314 h, thereby reducing the instantaneous requirements for well water. For such
combination mode, only opening one pumping well and one recharge well can
meet the requirements of the system.
To promote the development of DSM in the region where the video building is
located, the region executes the peak valley TOU tariff for commercial customers,
and there is top peak electricity tariff for July, August, and September, as shown in
Table 6.19. Considering the currently implemented peak valley electricity tariff
and according to the local power policies, the energy storage equipment in the
video building stores energy at electricity valley hours at night by utilizing the
energy storage technology, and releases the energy stored at night at peak hours in
the daytime, thereby reducing the opening time of the heat pump unit at peak hours
in the daytime and consequently reducing the operation cost.
The summer designed daily 24 h cold load and winter designed daily 24 h heat
cold curve of the video building are shown in Figs. 6.11, 6.12.
According to the load situations, just the water amount provided by one water
effluent well, namely the water rate of 60 ton/h, is used to meet the requirement of
the water source heat pump for well water.
Table 6.19 Peak valley electricity tariff for video building
Time Sharp peak hours Peak hours Flat hours Valley hours
July, August, and September Time segment 11:0013: 00 20: 0021: 00 10: 0011: 00 7: 0010: 00 23: 007: 00
13: 0015: 00 15: 0018: 00
18: 0020: 00 21: 0023: 00
Electricity price (RMB Yuan/kWh) 1.27 1.16 0.72 0.3
Other months Time segment 10: 0015: 00 7: 0010: 00 23: 007: 00
18: 0021: 00 15: 0018: 00
21: 0023: 00
Electricity price (RMB Yuan/kWh) 1.16 0.72 0.3
6.5 Commercial and Residential Customers Participation in DSM
445
1400
1200
1000
Load(kW)
800
600
400
200
0
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Fig. 6.11 Summer designed daily 24 h cold load drawing
1200
1000
800
Load(kW
600
400
200
0
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Fig. 6.12 Winter designed daily 24 h heat load drawing
One water source heat pump unit with the refrigerating capacity of 840 kW and
heating capacity of 900 kW is selected and runs at valley hours at night in summer
and winter, and stores energy in the energy storage tank which has the capacity of
3,020 kWh. At peak hours in the daytime, first the energy storage tank releases the
energy, and then the host directly supplies cold or heat at flat hours in the afternoon.
The load distribution is shown in Fig. 6.13.
The heat pump equipment runs for 4 h at valley hours at night in summer, and
stores cold energy in the energy storage tank. At the peak hours of 11:0013:00 in
the daytime, the heat pump host stops running, and the energy storage tank directly
supplies cold, and the heat pump host supplies cold at other hours, compensating
the cold by the energy storage tank. The system supply and return water tem-
perature is 714 C.
1500
Cold supply of cold
storage equipment
1000
Cold supply of
Load (kW)
500 heat pump host
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hour
-500
Cold storage of
heat pump host
-1000
Fig. 6.13 Summer designed daily 24 h equipment load distribution
The heat pump equipment runs for 3 h at valley hours at night in winter and
stores cold energy inside the energy storage tank. At the peak hours of
10:0013:00 in the daytime, the heat pump host stops running, and the energy
storage tank directly supplies heat, and the heat pump host supplies cold at other
hours, compensating the heat by the energy storage tank. The system supply and
return water temperature is 447 C.
3. Actual operation situation of engineering
The operation cost in the whole winter is RMB 58,000 Yuan, the operation cost
in the whole summer is RMB 38,000 Yuan, and the annual total cost is RMB
96,000 Yuan, i.e., the unit square meter cost is RMB 7.6 Yuan, saving a lot of
electricity cost compared with other modes (for example, the cooling-heating air
conditioner).
6.6 Other Customers Participation in DSM
In general, power generating enterprises and power grid enterprises are enterprises
of generating and transmitting power, belonging to the supply side, but the power
generating enterprises need plant electric consumption, and the power grid
enterprises are also special power customers due to line loss, and should carry out
DSM inside the enterprises as the common customers. How to reduce the plant
electric consumption and line loss, which is the DSM in a broad sense, is a
problem that the power generating enterprises and power grid enterprises need to
considerate.
6.6.1 Power Utilities
As customers, the power utilities should carry out DSM work from the following
aspects:
6.6.1.1 Attach Importance from the Aspect of Management
Enhance Enterprise Management Level to Reduce Plant Electric Consumption and

Line Loss
Some power plants have the problems of evaporating, emitting, dripping, or

leaking of liquid or gas, some power grid enterprises have the problems of elec-
tricity use based on human relationships and electricity losing, and there is energy-
saving potential in the power plants and power grid enterprises. It is necessary to
enhance management, set up and improve management system by implementing
strict check, strengthening supervision inspection as well as propaganda and
training, constantly improving the management quality as well as operation level,
perfecting information systems, improving the automatic control level, etc., to
analyze energy-saving potential, enhance their own management, and constantly
reduce load demand and loss.
In China, central power utilities have obtained some successful experience in
energy-saving management work. Five largest power generating groups basically
carry out benchmarking management and realize benchmarking management
inside and outside the companies and gap and cause analysis. Two largest power
grid companies launch line loss management rules and other regulations, and
basically have established comprehensive and systematic management index
systems. All basic power grid enterprises have established effective line loss index
evaluation methods to definitely determine the working direction, management
range, main flow and evaluation methods, and comprehensively carry out four
dividing management work including voltage-dividing, region-dividing, line-
dividing, and transformer-diving to effectively manage line loss.
Follow up the Energy-Saving and Electricity Saving Technology to Popularize the

New and Advanced Ones
New equipment and flow of power generating enterprises and power utilities
constantly come out, the power generating enterprises and the power utilities need
constant following up advanced process and technology and determine the fields of
DSM that they can participate in through technical economic analysis and com-
parison, thereby improving the technical level and competiveness as well as
reducing the plant electric consumption rate and line loss rate.
6.6 Other Customers Participation in DSM 449
The power generating enterprises can adopt the following measures: carry out
high efficiency modification of the flow passage components of the old units; use
frequency conversion technology on the motor system to reduce the plant electric
consumption; carry out technical modification on coal burning boilers including
plasma ignition, less oil ignition, etc.; modify the turbine thermal systems and
draining system, and carry out sealing modification of air preheater and furnace
roof; carry out frequency conversion technology for auxiliary equipment, adopt
speed regulation technologies such as frequency conversion, double speed motor,
hydraulic coupling for main auxiliary equipment, and adopt high efficiency fans
and high efficiency water supply pumps to reduce plant electric consumption; and
adopt matured reliable inside furnace water treatment technology for treatment
equipment to reduce boiler blow down, etc.
To improve the system reactive compensation and voltage quality and reduce
power grid loss, major measures that can be taken by the power utilities include:
popularizing large-section conducting wires; adopting electric and electronic
technologies such as compact lines, flexible transmission technology, conventional
series capacitor compensation, controllable series capacitor compensation, static
var compensation, etc.; using reel iron-core transformers, amorphous alloy trans-
formers, low energy consumption switchgear, energy-saving fittings for distribu-
tion grid, popularizing single-phase distribution technology, etc.
6.6.1.2 Implement from the Aspect of Technology
Lighting equipment, motors, and cold storage AC can be carried out DSM like
other customers. In addition, there are special aspects for carrying out DSM as
follows:
Modification and Optimization Operation of Power Generating Equipment
The power generating equipment and technology in China have a gap compared
with the advanced technologies, such as high power supply coal consumption, high
ultra supercritical unit proportion, etc. For the power generating enterprises,
reducing the energy consumption and improving economic benefit of the power
plants can be achieved by technical innovation, system modification, equipment
management, and operation optimization.
On the basis of technical introduction, make efforts to develop supercritical
units, ultra supercritical units, large-sized air-cooling unit technology of 600 MW
and above, develop and improve distributed control systems (DCS) possessing
independent intellectual property, and enhance the development and application of
simulation systems.
Continue to study monitoring and optimized operation and state maintenance
technology of power plants, and improve the automatic production level and
modern management level of the power plants by focusing on studying and
popularizing mechanical, electric, and furnace integration control technology and

plant-level automatic systems, popularizing new energy-saving and oil saving
technologies such as plasma oil-free ignition technology, carrying out variable
frequency speed regulation technical modification of large power fans and pumps,
and adopting high efficiency fans/water pumps to reduce plant electric
consumption.
Update and modify thermal power units of 200 and 300 MW to reduce coal
consumption, improve the equivalent availability coefficient and peak load shift-
ing, and rationally prolong the service life of the unit.
The electricity of the fan and pump high voltage motors of the power plants is
high, accounting for higher proportion in the plant electric consumption. Many
power plants have great potential in motor frequency conversion modification, the
motor frequency conversion modification effect is remarkable, and the feasibility
of energy-saving modification is quite high. According to relevant estimation,
modifying fans and water pumps can reduce plant electric consumption rate by
1.5 %. For example, after carrying out chop internal feed speed regulation energy-
saving modification of two draught fans and two blowers in 2010, a power plant
have realized annual electricity savings of 7 GWh and annual economic benefit of
about RMB 2 Million Yuan, recovering the investment in less than 2 years.
Another power plant modified a unit and installed a full-capacity steam feed pump
in 2011, the plant electric consumption of the unit is reduced by about 2 %, the
power supply coal consumption is reduced about 1 gce/kWh, and the annual
economic benefit is about RMB 4 Million Yuan. A power plant increases the on-
grid electricity at peak hours by scientifically, rationally adjusting the operation
mode under the condition of ensuring the stable operation of units. Seen from this,
power generating enterprises, especially power plants having old units, have
greater energy-saving and electricity saving potential.
[Case 6-9] Condensate pump energy-saving modification project of a power
plant
A power plant is equipped with two domestic critical 600 MW direct air-
cooling units. The barrel vertical condensate pump equipped on the unit con-
densate system adopts four-stage impellers, the first stage impeller is a double
suction impeller, needing sucking in net positive heat of 5.2 m. At the end of 2010,
high-temperature large-load operation of more than half a year found that the
designed surplus of the condensate pump was too large, in addition that the
perennial load of the unit was not high (the load factor was only 70 %) and the
water level of the deaerator was adjusted by adopting conventional water level
throttling, thereby resulting in the problem that the pump always ran under the
condition of high throttling, low operation efficiency of the condensate pump, high
throttling loss of the condensate system, and high plant electricity. To save the
energy, reduce the loss, and save the plant electric energy, the enterprise decided to
make energy-saving optimization modification on the condensate pump and the
condensate system.
First the condensate pump and the condensate system were carried out diag-
nosis tests. The main test items included the performance of the condensate pump,
the resistance of the condensate pump pipeline system, and the comprehensive
parameters of the condensate thermal system. The conclusions obtained from test
diagnosis were as follows: (1) the performance parameters of the pump self were
close to those of the original design, belonging to normal operation aging, and
there was little energy-saving potential seen from the operation efficiency of the
pump; (2) the resistance pressure drop of the entire condensate water pipe was
gathered on the adjusting gate and the throttling loss of the adjusting gate was too
large, and the throttling loss of the adjusting gate should be reduced as much as
possible; and (3) the pump lift that the condensate pump required under all testing
conditions is too high, it was necessary to change the condensate pump to be
smaller.
According to the test results and by combining the characteristics of the power
plant, the condensate pump was technically modified, and a variable frequency
speed regulator was installed. Test shows that the maximal operation efficiency of
the condensate pump is increased from 82.6 to 86.4 % after modification and
reaches to the internal advanced level of the similar products, saving the electric
energy of about 1.1 MWh/h, totally saving electricity 6.6 GWh calculated based
on annual operation time of 6,000 h, and having the total benefit of about RMB
2 Million Yuan calculated based on the electricity price of RMB 0.3 Yuan/kWh.
The total investment for pump modification is RMB 400,000 Yuan, the total
investment for frequency conversion modification is RMB 2.3 Million Yuan, and
the payback period is 16 months which is less than one year and a half.
[Case 6-10] Fan frequency conversion modification project of a power plant
A power plant has the total installed capacity of 2 9 200 MW, and uses a lot of
fans and water pumps of 6 kV voltage grade, and each unit has two water supply
pumps, two circulating water pumps, two condensate pumps, two draught fans,
and two blowers, having the total power of 30.5 MW; air pump motors electric
energy accounted for near 70 % of the plant electric consumption, so improving
the 6 kV high voltage motors in the whole plant and reducing the electric con-
sumption of these motors are effective means to reduce the plant electric
consumption.
In 2010, the power plant decided to make frequency conversion energy-saving
modification to part of the fans after made relevant investigation and analysis. As
the power plant had no experience in fan frequency conversion modification and
was not sure about the actual potential of the frequency conversion modification,
the power plant just selected four draught fans of two units to make frequency
conversion modification.
Before modification, the draught fans of the boilers stayed in operation state for
long term and the unit load was mostly above 130 MW to lead to just less than
55 % of the baffle opening of two fans, a large amount of energy consumption was
consumed on the baffles to result in lower system efficiency and higher energy
consumption. After modification, the energy-saving effect is obvious with the

changes as follows:
1. The motor load factor is greatly improved, higher load factor operation within
wider rotation speed range can be maintained (the load factor is still greater
than 0.95 % at 20 % above of the rotation speed);
2. No-load soft starting of the motors is realized, the starting current (smaller than
10 % of the rated current), and the time are greatly reduced, avoiding the motor
insulation aging caused by larger starting current and influence of mechanical
impact on the motor life caused large electric torque, reducing motor mainte-
nance quantity, and saving repair and maintenance cost.
3. Frequency conversation regulation has excellent control characteristics, its
control performance is far better than the baffle regulation, thereby being
propitious to realization of distributed control of the system.
4. After the frequency conversation speed regulation is adopted, the baffle valves
are fully opened, and the environmental noise influence is greatly improved
when the rotation speed is lowered.
After modification, two draught fans of the first furnace annually save elec-
tricity 9.8 GWh, and the electricity saving rate is as high as 68 %; the second
furnace annually saves the electricity of 8.0 GWh, and the electricity saving rate is
63 %. According to the calculation based on RMB 0.3 Yuan/kWh, the two units
annually save the total electricity cost of RMB 5.34 million Yuan and the benefit is
quite remarkable, the total modification investment was about RMB 8 million
Yuan, so the modification cost is paid back just in 2 years.
Power Grid Planning and Construction Energy-Saving
1. Implement nationwide grid connection

Optimal allocation of power sources is an important strategic decision for energy-
saving in China. In China, the grid connection power transmission is realized
through: benefit from staggering peak through which the efficiency of the power
generating unit is improved, the coal consumption is reduced, and simultaneously
the power transmission and transformation loss and line loss are reduced; benefit
from hydropower to thermal power completion, which can effectively save the
investment of power generating equipment and reduce the power generating cost;
benefit from mutual reserve and realization of nationwide grid connection, which
can effectively reduce the capacity of rotation reserve and emergency reserve,
consequently reduce the installed capacity of the power generating equipment as
well as power generating and supply cost and improve the system reliability.
To realize nationwide grid connection, it is necessary to improve the power
transmission technology and study the relevant theories of the power transmission
field. The key work to be done at present is to make haste to study and develop
ultra-high voltage transmission technology in China, carry out deep research on
power market system for making preparation of a nationwide unified power

market, and carry out practical technical research on power transmission grid loss
reduction and improvement of power transmission capacity.
2. Enhance construction and modification of urban and rural power grids
In decades of years, the investment of power grid engineering in China lags behind
that of the power generating engineering so that the increase of power grids is
obviously lower than power generating and electricity and become a neck for
transmitting electricity from power plants to customers. In the urban and rural
power grids, extremely insufficient of distribution grids result in insufficient dis-
tribution capacity of the urban and rural power grids, thereby dissatisfying the
needs of economic development and residential living electric energy, and there is
even increase of line loss rate in some local areas.
Statistical analysis reveals that the cause of low electricity supply reliability and
high line loss rate is distribution grid. So for the modification of the urban and rural
power grids in China, the targets are to improve the electricity supply reliability
and reduce the distribution grid loss, and the concrete measures include: enhancing
planning work and scientifically determining planning technical principles to make
overall planning; simplifying the voltage grade, reducing the voltage transfor-
mation level, gradually improving the distribution voltage grade to be beneficial
for management and economic operation of distribution grids; simplifying the
grids structure and adopting new distribution facilities, and popularizing trans-
formers and lines having obvious energy-saving consumption-reduction effect; and
updating and modifying high energy-consumption transformers and high energy-
consumption motors of rural power grids, appropriately adding reactive compen-
sators according to the principles of overall planning, rational layout, dispersed
compensation, and balance on the spot.
Reduce Loss and Save Energy for Power Grids Transmission
Power grid line loss rate is an important comprehensive technical economic index
of power utilities, reflecting the planning design, production technology, and
marketing management level of power grid. At present, Chinas line loss rate has a
gap with that of developed countries worldwide, and the energy-saving potential is
great, and minimizing irrational electricity loss to make the line loss rate meet the
advanced level is one of core contents of the modern management of the power
utilities. At present, the total loss rate at power transmission, transformation,
distribution, and consumption in China is about 16 %, of which the electricity loss
of the customers accounts for 50 % or so and the electricity loss of the major grids
accounts for 30 % above.
1. Economic dispatch and economic operation of power system
Performing economic dispatch of the power grids and realizing source optimal
allocation are overall and strategic issues. According to the dispatch experience,
the general concept for economic dispatch of the power systems is made in this
way: economic load distribution can save fuel by 0.51.5 %, the benefit of eco-
nomic combination can reach to 12.5 %, the benefit from grid loss correction can
reach to 0.050.5 %, and the economic benefit of hydropower and thermal power
dispatching is higher than the benefit of the economic load distribution of the
thermal power system.
At present, the economic dispatch based on energy management system (EMS)
mainly focuses on the power generating and transmission especially for large
region power grids and provincial ones, is gradually, widely applied in China,
containing supervisory control and data acquisition (SCADA), automatic genera-
tion control (AGC), generating plan, etc. With the deepening of power industry
system reform in China, the power market is preliminarily formed, thereby
forming the economic dispatch under power market environment, which is con-
tained in the power market technical support system.
Economic operation of the power grids is an important aspect of energy-saving
and consumption reduction of the power industry, mainly including the following
measures: rationally adjusting operation voltage to achieve loss reduction effect by
appropriately adjusting the voltage within allowable deviation; increasing parallel
line operation and ring grid open loop operation to achieve the purpose of eco-
nomic operation of power lines and reduce transmission loss; improving the
economic operation degree of transformers to reduce transformation loss; and
adjusting load curve and balance three phase load to achieve the energy-saving and
loss-reduction purposes of improving load factor and peak load shifting.
[Case 6-11] Distribution transformer modification project of a provincial
power grid enterprise
A provincial power grid enterprise had the line loss rate of 6.78 % in 2010, and
popularized energy-saving transformer in the technical energy-saving aspect apart
from the improvement of energy-saving management and power grid economic
operation management in order to further improve the electricity transmission
efficiency and reduce the transmission line loss rate and promote power grid side
energy-saving and emission reduction. On the end of 2010, the power grid
enterprises distribution grid had more than 30,000 sets of S7 distribution trans-
formers. There was great energy-saving modification potential.
In 2011, the company invested RMB 500 million Yuan for construction and
modification of rural distribution grids, mainly popularizing the application of
energy-saving equipment by installing 10,000 amorphous alloy transformers and
10,000 single-phase transformers in the provincial range to reduce low voltage
distribution loss, of which the single transformers had the total capacity of
500 MVA and were mainly applied to household electricity as well as part of street
lamp electricity and small commerce electricity. The main capacity types of the
single-phase transformers were 50, 80, and 100 kVA, the single transformers with
the capacity of 50 kVA accounted for more than 3/4 of the total, and those with the
capacity of 80 kVA accounted for 1/10 of the total. The amorphous alloy trans-
formers had the total capacity of 2570 MVA, and the amorphous alloy
transformers with the capacities of 160, 200, 250, and 315 kVA accounted for 4/5
of the total.
According to the preliminary statistical analysis of the power grid enterprise,
10,000 single-phase transformers in the whole province can annually save the
electricity of 25 GWh, 10,000 amorphous alloy transformers can annually save the
electricity of 60 GWh after put in use for one year, this project can annually save
the electricity of 85 GWh. According to the calculation based on RMB 0.5 Yuan/
kWh, the annually saved electricity by this project is equivalent to the electricity
cost saving of RMB 42.5 Million Yuan, thereby having remarkable energy-saving
effect as well as economic benefit.
2. Compact line technology
New technologies have been constantly applied to transmission and distribution
lines in China, and the line planning design adopts compact lines and large-section
transmission conducting wires. Through optimal arrangement of the conducting
wires, the compact lines shorten the phase distance, improve the electromagnetic
environment, greatly reduce the transmission lines, save the cost of the trans-
mission lines, improve the effective utilization rate of the transmission lines and
greatly reduce the electricity loss of the transmission and distribution lines.
3. Reactive power compensation and reactive power optimization of power
system
The reactive power of the power system is close related with the voltage level of
the power system, and maintaining all voltages of the power system in allowable
ranges requires the support of reactive power. The reactive power is generally
based on balance on the spot, and optimal operation of the reactive power can
reduce the active power grid loss of the system. If the reactive power is balanced
well in a power system of 1 GW, the annually saved electricity from the power
plant, substation, and customers of the power grid exceeds 100 GWh, saving the
capacity of 2030 MW for the generators, transformers, and transmission equip-
ment of the system. The measures for realizing the reactive power economic
operation of the power system include: improving the reactive power compensa-
tion capacity of the system; realizing the rational balance dispatch and automatic
control of the reactive power; enhancing reactive power management of the cus-
tomers by forbidding inverse flowing of reactive power to the power grid; and
enhance the reactive power and voltage management.
Since 2003, China has obtained achievements in application and popularization
of reactive power automatic compensation technology, thereby guaranteeing the
quality of power transmission of the system to a certain extent in China, ensuring
the safe and reliable operation of the power grids in China and bringing certain
energy-saving loss-reduction benefits. During 2003 and 2010, China raised the
investment on reactive power automatic compensation projects of the power
systems and obtained great effect, accumulatively saving electricity of about
5 TWh.
Good reactive power optimization work cannot only improve the voltage
quality of the power grids and enhance the stability of the power grids, but also
effectively reduce the grid loss and improve the economic benefit of the power
grids.
[Case 6-12] Reactive compensation project of a power grid enterprise
1. Background
In a power grid enterprise, insufficient reactive power compensation and lower
load factor of the single-circuit supply line results in large transmission loss of the
power grid, thereby being unfavorable for safe, stable operation of the power grid.
To improve the voltage quality of the transmission line and tap the energy-saving
loss-reduction potential, the enterprise scientifically employs various regulation
means according to the system load change, and basically realizes automatic
reactive power regulation and optimization control by installing static reactive
power compensation complete equipment, thereby greatly reducing the reactive
power displacement between voltage grades, improving the voltage quality, and
constantly improving the operation economy of the power grid.
2. Modification effect
For data comparison before and after installation of the reactive power compen-
sator see Table 6.20. After the installation of the reactive power compensator, the
security, reliability, and economy of the transmission line are improved, mainly
manifested in the following aspects:
The line loss rate is reduced from 12.6 to 10.8 %. This line annually transmits
electricity about 11 GWh, and the transmission line annually saves the elec-
tricity loss of 286 MWh after the installation of the reactive compensator.
The load capacity of equipment and lines is improved by 12 %. The load
capacity of the equipment is greatly improved after the reactive compensator is
installed, formerly it only could drive seven pumped wells that could not
simultaneously run, but now ten pumped wells can be simultaneously opened,
saving the power grid investment of RMB 84,000 Yuan.
The load factor is greatly improved from 0.85 before compensation to 0.92 after
compensation, thereby greatly improving the transmission efficiency of the
power grid and the operation security.
Table 6.20 Parameter data comparison of transmission line before and after Installation of
reactive power compensator
Item Load Average voltage Transmission capacity Line loss rate
factor (kV) (%) (%)
Before compensation 0.82 12.6
After compensation 0.92 An increase of An increase of 12 % 10.8
0.2 kV
3. Cost-benefit analysis
Known from the aforementioned, the installation of the compensator annually
reduces the electricity loss, annually saving the electricity cost of RMB 172,000
Yuan calculated based on the electricity price of RMB 0.6 Yuan/kWh. In addition,
the investment of the power grid is reduced by RMB 84,000 Yuan due to the
improvement of the line transmission capacity.
The total investment of the project is about RMB 405,000 Yuan, and the
payback period is 1.87 years just less than 2 years calculated by (405 -
84) 7 172.
6.6.2 Agricultural Customers
In the vast rural areas of China, especially the north areas, agricultural customers
consume electricity mostly for irrigation. The irrigation and drainage electric
energy in China is 44.55 TWh, and it accounts for nearly half of the electric
energy of agriculture, forestry, animal husbandry, and fishery service industries. In
China, the field of DSM that the agricultural customers participate in is mainly
irrigation and drainage electricity. Electricity saving of water pumps is one of main
electricity saving potential for the agricultural customers. So the means for the
agricultural customers to participate in DSM includes: rationally arranging the
irrigation time according to peak valley TOU electricity price; replacing high
efficiency electric water pumps; and adopting reactive power compensation on the
spot to improve economic benefit for agricultural motors. During the power crisis
of California in America, one of the measures taken in DSM was modification of
agricultural water pumps, mainly adopting reactive power local compensation
technology.
At present, the rural electric irrigation and drainage systems in China generally
have the problems of low load factor, large reactive power losses and serious
electricity waste. Electric irrigation and drainage is used for draining surplus
accumulated water in rainy years or rainstorm periods and irrigating the fields in
arid years or crop water requiring periods. At present, the farmland in most regions
of China depends on the electromechanical irrigation and drainage expect for few
regions depend on gravity irrigation. In all rural areas covered by the power grid,
the electric irrigation and drainage develops fast. The electricity of agricultural
irrigation and drainage increases obviously due to the rapid development of
electric irrigation and drainage in the rural areas. According to relevant infor-
mation, the electricity of irrigation and drainage seasons generally accounts for
1525 % of the agricultural electricity and results in power grid peak load in the
irrigation and drainage periods. But in non-irrigation and drainage seasons, energy
loss increases due to efficiency reduction of the electric irrigation and drainage
systems. Relevant investigation finds that the agricultural electric irrigation and
drainage equipment in rural distribution grids has very lower natural load factor,
some even below 0.4, due to the characteristics of many points, long lines, wide
range, seasonality of load demand, light load drive, etc. Consequently, to reduce
the reactive power loss of the lines, save the electricity, improve the operation
conditions of the agricultural irrigation and drainage motors, and improve the load
coefficients of transformers and motors to render the motors stay in economic
operation state, tap agricultural electricity using potential and improve the eco-
nomic benefit, the reactive power local compensation technology can be adopted
for the agricultural motors. The customers electricity fee expenditure as well as
the electric irrigation and drainage cost can be reduced. Effective electricity saving
measures include improving the output capacities of the transformers and the
power grids, appropriately increasing the electric load to tap the potential of
agricultural power supply and consumption equipment, and relieve the power
supply shortage under the condition of no need of applying for increasing the
electricity using capacity; and improving the power supply quality of the power
grids as well as working characteristics and output torque of irrigation and
drainage equipment, etc.
As there are a variety of agricultural irrigation and drainage motors that have
different powers and sizes, the workload of calculating the electricity savings one
by one is tremendous and unnecessary. According to empirical data obtained from
relevant information, the comprehensive electricity saving rate of the common
motors adopting the reactive power local compensation technology is 1022 %,
taken 17 % in this book. In general cases, after the reactive power local com-
pensation technology is applied, the motor load factor can be improved to more
than 0.9, and the electricity saving effect is obvious. The price for mounting a
reactive power local compensator is RMB 80 Yuan/kVar, provided the power
factor of an agricultural motor is 0.700.85 before reactive power compensation
and is 0.95 after compensation, the irrigation and drainage motor needs a com-
pensator of 0.30.7 kVar/kW, taken 0.5 kVar/kW in this book. Due to simple
installation and no installation cost, the technical modification expense of the
motor per kW is RMB 40 Yuan (0.5 9 80), and the direct cost per kW for
reducing the motor load is RMB 235 Yuan (40 7 0.17). Moreover, in most areas,
the agricultural irrigation and drainage electricity price adopts the peak valley
electricity price. Irrigation and drainage operation can be arranged at valley hours
as much as possible.
In the north areas of China, the spring irrigation time is generally March, April,
and May, and the flood drainage time is June, July, August, and September, the
winter irrigation time is October and November, totally less than 1,500 h. The
irrigation and drainage motors with the reactive power local compensators are used
to run day and night in irrigation busy seasons. The annual total irrigation time is
1,500 h, and the reactive power local compensator generally has the service life of
10 years.
Economic benefit index analysis through adopting the reactive power local
compensation technology for agricultural irrigation and drainage motors shows
that the agricultural customers can obtain benefits from this technology, and the
investment for the technology can be paid back in very short time within the
service life of the technology, and the agricultural customers can obtain investment
net benefit within one year. Furthermore, the technology has a lot of advantages,
and higher investment has better economic effect. In fact, this technology can
bring significant economic, source, and environment benefits for the society.
6.7 Case Analysis
Common customers and power utilities have the issues of modification of trans-
formers and reactive compensators. This section introduces the modification of
transformers and reactive power compensation.
6.7.1 Modification of Transformer [11]
6.7.1.1 Course of Modifying Transformer
The transformer is one of the important electric equipment in the power system,
and transmission and distribution of electricity and the electricity consumption of
various devices in the power system are achieved by changing voltage through the
transformers. The transformers are sure to produce loss during power transmission.
The loss of the transformers mainly comes from no-load loss (iron loss) of the
cores and load loss (copper loss) of the windings, both loss values are the main
basis for judging whether the transformers are energy-saving series products. As
the transformers are important energy-consuming equipment, it is necessary to tap
its energy-saving potential. In addition, due to high proportion of old distribution
transformers, replacing them can promote the energy-saving and consumption
reduction of enterprises, thereby bringing economic benefit.
The Minimum Allowable Values of Energy Efficiency and the Evaluating Values
of Energy Conservation for Three-Phase Distribution Transformers (GB20052
2006) issued by General administration of quality supervision, inspection, and
quarantine (AQSIQ) of the Peoples Republic of China on Jan 9th, 2006. It stip-
ulates the minimum allowable values of energy efficiency and the evaluating
values of energy conservation of series distribution transformers, S11 series
products and above are recommended as the energy-saving series products of oil-
immersed distribution transformers, and SC10 series products and above are
commended as the energy-saving series products of dry-type transformers. In
addition, the energy-saving products includes amorphous alloy transformers and
iron-core transformers, omni-sealed transformers, package transformers, etc., that
meet the above standard.
Currently, the Chinese government has promulgated policies on eliminating
high energy consumption S7/SL7 series distribution transformers and has suc-
cessfully carried out the popularization and application of S9 series distribution
transformers, and has sequentially developed high efficiency transformers such as

the amorphous alloy transformer, S11 series transformers, etc. To promote the
energy-saving of the distribution transformers, relevant departments of China
made the power industry standard Guide for energy efficiency and techno-eco-
nomic appraisal of distribution transformers and then the mandatory national
standard Minimum Allowable Values of Energy Efficiency and the Evaluating
Values of Energy Conservation for Three-Phase Distribution Transformers
(GB200522006) in 2004.
With the economic development and progress of science and technology, new
and low loss energy-saving transformers have been developed and applied. In
recent decade years many transformer manufacturers in China have introduced
advanced manufacture technology and equipment, and have rapidly developed the
omni-sealed transformers, epoxy resin dry-type transformers and combined sub-
station, improving the technical level of the transformers in China. These trans-
formers adopt new material, new processes and new technologies, and show
excellent performances in energy-saving effect, safe reliability, free maintenance,
etc. With the advancing of the times and the development of the enterprises,
energy sources grow shortage increasingly, and the application of the energy-
saving transformers is especially significant. At present, the major energy-saving
transformers include the S11 series distribution transformers, dry-type distribution
transformers, amorphous alloy transformers, single-phase winding iron-core
transformers, on-load voltage regulating distribution transformers, package
transformers, etc., of which the S11 series transformers have wide application
range, have the superior performance to the S9 series transformers, are energy-
saving and have moderate economic indexes, and its no-load loss is averagely
30 % lower and the no-load current is averagely reduced by 70 % compared with
the S9 series transformers, and the S11 series transformers are matured in tech-
nology and can be used in large quantity.
The dry-type distribution transformers have the characteristics of simple
structure, convenient maintenance, flame retardancy, dust prevention, etc., and are
widely used in places with higher requirements for safe operation. The epoxy resin
dry-type transformers have obtained great progress in China, the loss of SC(B)9
series is greatly reduced compared with the older series products, i.e., the no-load
loss and on-load loss of the SC(B) 9 series dry-type transformers are averagely
reduced by 10 % or so compared with the SC(B)8 series dry-type transformers;
and compared with the SC(B) 9 series, the no-load loss of SC(B) 10 type energy-
saving transformer series is averagely reduced by 11 %, the on-load loss is
averagely reduced by 5.5 %, the transformer noise level is obviously reduced, and
China and Europe mostly use this type of dry-type transformers.
The amorphous alloy distribution transformers are transformers made of
amorphous alloy material instead of cold rolling silicon sheets, and at present
amorphous super-microcrystalline soft magnetic alloy material rather than silicon
steel, ferrite, and perm alloy has been made into various magnetic devices to be
applied to the power industry, electronic industry, and power electronic technical
fields. The total ownership cost (TOC) of the amorphous alloy transformers is
10 % lower than that of the SC(B) 9 transformers. With the enlarging of pro-
duction scale of the amorphous transformers and increase of the electricity price,
the amorphous transformers will have lower TOC value.
The single-phase winding iron-core distribution transformers has been applied
to single-phase three-wire systems of low voltage distribution in many developed
countries, such as America, having significance in reducing low voltage distri-
bution loss. As the single-phase transformers can be directly installed at electricity
using load center, the power supply diameter is shortened, the voltage quality is
improved, the low voltage line loss is reduced, and the customers investment on
low voltage line loss is greatly reduced. The single-phase winding iron-core
transformers can obviously improve the power supply quality such as voltage drop
and high harmonic, etc. This transformer has little no-load loss and on-load loss
compared with a three-phase transformer with the same capacity, and is especially
applied to the areas of small load dispersed distribution and no three-phase load.
The on-load voltage regulating distribution transformer is a distribution trans-
former capable of regulating the primary winding of the transformer to keep the
secondary output voltage stable through the on-load voltage regulating switch
configured on the transformer under the condition that the transformer does not cut
off load. As the distribution transformer is closest to the load, keeping the output
voltage stable is especially important when the power grid voltage, and the
electricity using load fluctuation are large. Under such condition, the loss of
the distribution transformers and low voltage lines can be remarkably reduced, the
operation life of the low voltage electric equipment is prolonged and the operation
efficiency of the electric equipment is improved through the tap exchanger of the
transformer to make self voltage regulation under the condition of carrying load to
guarantee that the distribution transformer and low voltage load run in optimal
conditions, and the energy-saving effect is more remarkable.
The package transformer is widely used in the construction of city power grids,
has the functions of intelligence, small size, fire prevention, etc., and is one of the
most economic, convenient, and effective equipment.
In recent years, the loss of the transformers has been reduced mainly by
developing the soft magnetic material (silicon steel sheet), conducting material
(oxygen free copper conductor or copper foil), transformer structure, and process
in China. At present, the silicon steel sheets for iron-core material have the general
thickness of 0.23-0.30 mm, in the future thinner silicon steel sheets will be used,
and the silicon steel sheets with the thickness of 0.18 mm have been used. The
development of amorphous material promotes the constant development and
progress of energy-saving transformers and the energy-saving effect is more
obvious.
6.7.1.2 Technical Economic Analysis of Energy-Saving Transformer
The economy comparison of the S11-MR-400/10 type distribution transformer and

the S9-M-400/10 type distribution former is taken as the example to analyze the
energy-saving effect of the energy-saving transformers. The no-load loss of the

S11 transformer is 30 % above lower than that of the S9 transformer, the no-load
current is greatly reduced, but the load loss is equivalent to that of the S9 trans-
former, the S11 transformer is especially suitable for rural distribution grids and
residential customers whose peak load time is short. For the relevant parameters of
both transformers see Table 6.21.
1. Operation cost analysis
The empirical formulas of the annual operating electricity and cost of the trans-
former are shown in Formulas (6.6) and (6.7).

SN SN
W T0 P0 0:05 I0 Tk Pk 0:05 Uk 6:6
100 100
C W P 6:7
where
W Annual operating electricity of the transformer, kWh;
C Annual operating electricity cost of the transformer, RMB Yuan;
P0 No-load loss, kW;
Pk Load loss, kW;
SN Rated capacity, kVA;
Uk Impedance voltage percentage, %;
I0 No-load current percentage, %;
P Electricity price, RMB Yuan/kWh;
Table 6.21 Relevant Parameters of S11 and S9 Distribution Transformers [13]

No. Rated capacity No-load loss Load loss No-load Impedance
(kVA) (W) (W) current (%) voltage (%)
S11 S9 S11 S9 S11 S9 S11 S9
1 30 100 130 600 600 1.4 2.1 4 4
2 50 130 170 870 870 1.2 2 4 4
3 80 175 250 1,250 1,250 1.1 1.8 4 4
4 100 200 290 1,500 1,500 1.0 1.6 4 4
5 125 235 340 1,800 1,800 1.0 1.5 4 4
6 160 270 400 2,200 2,200 0.9 1.4 4 4
7 200 325 480 2,600 2,600 0.9 1.3 4 4
8 250 395 560 3,050 3,050 0.8 1.2 4 4
9 315 475 670 3,650 3,650 0.8 1.1 4 4
10 400 565 800 4,300 4,300 0.7 1 4 4
11 500 675 960 5,100 5,100 0.7 1 4 4
12 630 805 1,200 6,200 6,200 0.6 0.6 4.5 4.5
13 800 980 1,400 7,500 7,500 0.6 0.6 4.5 4.5
14 1,000 1,155 1,700 10,300 10,300 0.5 0.8 4.5 4.5
15 1,250 1,365 1,950 12,000 12,800 0.5 0.6 4.5 4.5
16 1,600 1,650 2,400 14,500 14,500 0.4 0.6 4.5 4.5
T0 Whole-year no-load utilization hours of the transformer, hour;

Tk Whole-year equivalent full-load utilization hours of the transformer, hour.
The whole-year no-load hours, equivalent full-load hours of the transformers

are taken 8,600 h and 2,200 h, respectively, the operation situations of the S11 and
S9 distribution transformers with the rated capacity of 400 kVA are compared
using Formulas (6.6) and (6.7), and the analysis is as follows:
The annual electricity consumption of the S11 distribution transformer with the
capacity of 400 kVA is
WS11 8; 600 0:565 0:05 0:7 400=100 2; 200 4:3 0:05 4:0
400=100
17; 283kWh;
The annual electricity of the S9 distribution transformer with the capacity of

400 kVA is
WS9 8; 600 0:80 0:05 1:0 400=100 2; 200 4:3 0:05 4:0
400=100
19; 820 kWh;
The annual electricity savings of the S11 distribution transformer relative to the
S9 distribution transformer with the capacity of 400 kVA is
DW jWS11 WS9 j j17; 283 19; 820j 2; 537 kWh
According to the electricity price of RMB 0.5 Yuan/kWh, the annual electricity
cost of the S11 distribution transformer is
CS11 17; 283 0:5 RMB 8; 642 Yuan;
The annual electricity cost of the S9 distribution transformer is
CS9 19; 820 0:5 RMB 9; 910 Yuan
The annual running cost difference between both transformers is
jCS11 CS9 j j8; 642 9; 910j
DC % 12:8 %
CS9 9:910
In the similar way the annual running costs of S11 and S9 distribution trans-
formers of other capacities are compared and estimated, and the results are shown
in Table 6.22.
Seen from Table 6.22, compared with the S9 product, the annual running cost
of the S11 product is averagely reduced by 13.11 %. From this, the S11 distri-
bution transformer has better economy than the S9 one according to the operation
cost of the transformers.
Table 6.22 Comparison of annual operation costs of S11 and S9 distribution transformers
Rated capacity (kVA) Annual operation cost (RMB Yuan) Annual operation cost
reduction percentage (%)
Type S9 Type S11
30 1,420 1,246 12.26
50 2,013 1,755 12.82
80 2,936 2,493 15.09
100 3,461 2,945 14.91
125 4,120 3,534 14.22
160 4,974 4,243 14.70
200 5,923 5,085 14.16
250 6,958 6,034 13.29
315 8,334 7,292 12.50
400 9,910 8,642 12.80
500 11,913 10,365 12.99
630 14,758 12,653 14.26
800 17,626 15,476 12.20
1,000 22,835 19,847 13.09
1,250 27,171 23,507 13.49
1,600 32,294 28,381 12.12
Average reduction 13.11
2. Estimation of payback period for newly-purchased S11 distribution transformer

Taking the 400 kVA distribution transformer as the example, according to the
above calculation, the annual electricity savings of the S11 distribution transformer
relative to the S9 distribution transformer is 2,537 kWh, i.e., the electricity saving
per kVA is 6.34 kWh calculated by 2,537/400, annually saving the electricity cost
of RMB 3.17 Yuan according to the electricity price of RMB 0.5 Yuan/kWh, the
unit kVA price difference between the S11 and S9 distribution transformers is
about 4.94 Yuan/kVA year, and then the payback period of the 400 kVA S11
distribution transformer relative to the S9 distribution transformer is 1.56 years
calculated by 4.94/3.17. Refer to the loss level of Table 6.21, the energy-saving
benefit as shown in Table 6.23 can be obtained according to the calculation of the
distribution transformers of each capacity.
Known from Table 6.23, the increased investment using S11-M distribution
transformer relative to the S9-M one generally can be paid pack within two years,
above comparison is just based on direct benefit, and the indirect benefit brought
about from energy-saving is greater. As a result, the S11 transformers are the best
choice for new distribution transformers.
6.7.2 Modification Process of Reactive Power Compensator
The configuration of the reactive power compensator can be carried out according
to the following steps:
Table 6.23 Energy-savings and payback period of S11 distribution transformer relative to S9
distribution transformer
Rated Electricity Electricity fee savings Price difference between Payback
capacity savings [kWh/ [RMB Yuan/(kVA S11 and S9a (RMB Yuan/ period
(kVA) (kVA year)] year)] kVA) (years)
50 10.32 5.16 12.30 2.38
80 11.07 5.54 8.58 1.55
100 10.32 5.16 8.49 1.65
125 9.37 4.69 6.23 1.33
160 9.14 4.57 8.72 1.91
200 8.39 4.19 6.96 1.66
250 7.40 3.70 5.96 1.61
315 6.61 3.31 5.98 1.81
400 6.34 3.17 4.94 1.56
500 6.19 3.10 4.32 1.40
630 6.68 3.34 4.00 1.20
800 5.38 2.69 3.94 1.47
1,000 5.98 2.99 3.42 1.14
1,250 5.86 2.93 2.24 0.76
1,600 4.89 2.45 3.29 1.35
a
The price odds are based on the difference between the average price per kVA of S11-M
transformers produced in 2002 of the five winning bidder manufacturers and the average price per
kVA of S9-M transformers produced in 2002 of the ten winning bidder manufacturers
6.7.2.1 Definitely Decide the Basic Principle of Reactive Power

Compensation [12]
For reactive power compensation, only definitely deciding the principles of

reactive power compensation can achieve rational allocation and optimal com-
pensation for equipment compensation as well as guarantee the safe, stable, and
economic operation of the power grids and equipment. According to the charac-
teristics and requirements of the power system and equipment, the following basic
principles for reactive power compensation should be noted.
1. Region local balance, i.e., the reactive power local balance for distribution
systems of 110 kV and above. Implement the combination of dispersed local
compensation and substation centralized compensation with the dispersed
compensation as the major; the combination of the power grid compensation
and customer compensation with the customer compensation as the major;
high combination of voltage compensation and low voltage compensation
with the low voltage compensation as major; and the combination of the loss
reduction and voltage regulation with the loss reduction as the major.
2. The substation of each voltage grade should be rationally configured with
typical reactive power compensators of appropriate scale, and the capacity of
the reactive power compensators installed is determined according to design
calculation. The installed reactive power compensators should not cause
obvious amplification of system harmonic to avoid a large amount of reactive

power flowing through the transformer, the primary load factor should not be
lower than 0.95 when the major transformer is in maximal load, and the
capacity of the reactive power compensator is configure according to 1030 %
of the capacity of the major transformer.
3. In places where a lot of cables are used, inductance reactive power com-
pensators with appropriate capacity should be dispersedly configured at dif-
ferent voltage grades and the inductance capacity of each transformer should
not exceed 20 % of the capacity of the major transformer.
4. Parallel capacitor groups and parallel reactors should adopt the automatic
switching mode.
5. The high voltage side of the major transformer of a substation should have the
functions of collecting and measuring the parameters of bidirectional active
power, reactive power, etc.
6. The reactive power compensation of public power grids is mainly centralized
compensation at low voltage side of a public distribution transformer, is
compensated to 0.95 above of the power compensation according to the
condition of the maximal load factor of the public transformer is 75 % and the
natural load factor is 0.8, and is configured according to 2040 % of the public
transformer capacity.
7. Public transformer capacitor groups should be equipped with control devices
which can automatically switch according to the reactive power (or current)
with the voltage as the constraint condition.
8. Power customers should make reactive power compensation by adopting
appropriate compensation modes and compensation capacity according to
their load characteristics to guarantee no absorption of reactive power from
the system during peak load as much as possible, and the primary load factor
of the transformer at valley load should reach to 0.95 above.
9. The allocation of the power customer compensation capacity should meet the
following requirements: for high voltage supply power customers of 100 kVA
and above, the primary load factor of the transformer at high load should reach
to 0.95 above; and for other power customers, the load factor should reach to
0.9 and above.
10. The reactive power compensation of power customers should timely switch
capacitor groups controlled by reactive power (reactive current) and voltage
according to its load change, and have the measures preventing inverse
flowing of reactive power to systems.
6.7.2.2 Determine Reactive Power and Reactive Load
For rationally carrying out reactive power, it must be made clear the composition
and generation of reactive power and reactive load and accurate estimation of its
values, and then compensation capacity and modes can be accurately allocated
according to different operation modes and different demands to facilitate the

power system or customers to obtain best electricity quality and maximal eco-
nomic benefit.
1. Reactive power supply. In the power grid system, generators and transmission
lines are important reactive compensation power sources, and the reactive
power sources at the demand-side include transmission lines (containing cable
lines), parallel capacitors, static var compensators, synchronous motors, etc.
The synchronous motor not only is an active power source, but also is a main
reactive power source. The rated load factor of medium small-sized generators
is generally 0.800.85, if the active power output of the generator is not fully
loaded, the reactive power of the generator can be appropriately increased
under the conditions that the voltage of the generator is rated voltage and the
current of the stator and rotor does not exceed the rated value. The charging
power of the transmission line is charging power caused by capacitance current
generated by the transmission line in operation, and has influence on the
voltage, transmission power, and transmission coefficient of all points along the
line. As a result, the customers must calculate the capacitance and charging
power of the line when analyzing the internal operation situations. The parallel
capacitor (also called phase shifting capacitor) is a reactive power source, and
mainly used for compensating the reactive power required by inductance load
in the power grids and improving the load factor of the grids, and has the
auxiliary function of voltage regulation. The parallel capacitor has been widely
used for reactive power compensation of power grids due to its advantages of
simple equipment, convenient installation and maintenance, and low loss and
remarkable electricity saving effect. The dynamic condenser is virtually a
synchronous motor in no-load operation, i.e., a special reactive power motor,
and it has no any mechanical load and just absorbs little active power from the
power grid to supply for its own loss. The condenser is mainly used for gen-
erating reactive power, improving power grid load factor and improving volt-
age quality as well as the operation stability of the power system. As the
dynamic condenser has large capacity, it only can be centrally used and gen-
erally installed in large-sized pivotal substations. The static var compensator
(static compensator) is a dynamic reactive power compensator of advanced
technology with good regulation performance, and mainly consists of the
parallel capacitor group, the adjustable saturable reactor and a detection and
control system. The static compensator has the advantages of the capacitor and
the condenser, not only can generate capacitive reactive power but also can
consume capacitive reactive power, and can compensate voltage deviation as
well as regulate voltage fluctuation. The static compensator has the remarkable
advantage of rapid response, can rapidly finish regulation within several cycles
to maintain stable voltage of the grids and enhance the system stability.
2. Reactive load. The reactive load in the power system is mainly generated by the
motors, transformers, and lines, and the reactive power loss of the asynchro-
nous motor has two parts, one part is no-load reactive power required for
establishing the rotating magnetic field, and the other part is reactive power
consumed in the process of leakage reactance of windings with load. The
reactive power loss of the double winding transformer also has two parts, i.e.,
excitation reactive power loss and magnetic leakage reactive power loss which
should be calculated, respectively, and then the total reactive power is obtained.
6.7.2.3 Determine Reactive Compensation Capacity
Determination of reactive power compensation capacity can be comprehensively

considered from the aspects of improving the load factor, reducing the loss,
improving the operation voltage level, etc. As a result, to determine the reactive
power compensation capacity firstly should determine the compensation targets,
set expected load factor, benefit from loss reduction and regulation of operation
voltage, etc., and then find out main problems according to the characteristics and
situations of the power grids or customers to determine rational or optimal reactive
power compensation capacity.
6.7.2.4 Rationally Configure Reactive Power Equipment
Rational reactive power equipment is configured according to foregoing optimal

compensation capacity determined and by combining the characteristics of various
reactive power sources and the requirements of the power systems and customers.
6.7.2.5 Real-Time Follow Up Reactive Power Compensation Effect
Power grid enterprises should real-time follow up the reactive power compensa-
tion effect after reactive power compensation, monitor the operation security,
stability, and economy of the power equipment to find out whether the expected
targets are met, and make improvement on the basis of relevant analysis.
References
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2011, Beijing
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Cited 12 Jan 2012
8. Yang Z, Lao D (1999) Demand-side management (DSM) and its application. China Electric
Power Press, Beijing
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side management training Proseminar in Nanjing Jiangsu China, Oct 2327
11. State Energy Office, State Grid Corporation of China, State Power Economic Research
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Chapter 7
The Prospects of Demand-Side
Management
7.1 Outlook of Demand-Side Management Under Power

Market Environment
Demand-side management (DSM) has played a very important role in energy

conservation and pollutant reduction of power industry over the 30 years since it is
put forward till today. Facing the new environment, the research and implemen-
tation of DSM need the new evaluation standard, new incentive mechanism and
new implementation measures under current condition of shortage in energy and
power demand and supply, and the new situation of marketization reform of power
industry.
As the marketization reform of power industry in China is deepened constantly,
a good power market mechanism could not be established to meet the rapid growth
of economy and the requirements for sustainable development if IRSP and DSM
are not taken into consideration or the potential and function of demand-side
resources under the new trading rules after power restructuring are ignored during
the reform process. DSM shall be constantly developed with the deepening of the
reform of power system.
7.1.1 Marketization Reform of Power as Well as DSM
7.1.1.1 Marketization Reform of Power is an Inevitable Trend

of the Development of Power Industry
The wave of reform of power industry has started since the later stage of 1980. The
purpose of reform of power industry is to break monopoly, open market, introduce
competition, and improve efficiency.
Under the environment of full competition, power market is the process of
determining electricity price and electricity through the interaction of buyers and
purchasers of power. Specifically speaking, power market is the aggregation of

472 7 The Prospects of Demand-Side Management
management mechanism and implementation system that coordinate operation of

all member organizations of power generation, power transmission, power dis-
tribution, and demand-side consumers in power system by adopting economic
measures and basing on the principle of fair competition, voluntariness, and mutual
benefit.
Figure 7.1 shows the main component part of power market [1], in which
generator (G) and power market (PM) form the main supply subject of market.
Demand-side and retailer forms the main demand subject of market. The trans-
mission (T) of power market includes five parts: independent system operator
(ISO), transmission owner (TO), power exchange (PX), scheduler coordinator
(SC), and ancillary service (AS).
1. Independent System Operator (ISO). ISO dispatches the resources of power
transmission grid and provides service for power transmission users. The basic
requirement for ISO is not to make profit from power market. The responsi-
bilities and rights of ISO are greatly varied in different market models. The
responsibilities and rights mainly include the formulation of operation plan/
operation mode, implementation of dispatching, control and monitoring of
power system, security analysis of on-line power grid and market administra-
tive management.
2. Transmission Owner (TO). The prerequisite for the opening of power grid is
users of power transmission system (including power generators and electricity
consumers) shall be equally treated without discrimination by transmission
owners in the aspect of accessing and utilization of power transmission
equipment.
3. Power Exchange (PX). The basic function of PX is to provide a trading place
for supply-side and demand-side of power concerning future market. The cycle
of the market may be from one hour to several months. The most common form
is day-ahead market, i.e., carry out power trade one day ahead of each operating
day. The day-ahead market could be supplemented by the market with rela-
tively longer period or hours-ahead market. Hours-ahead market provides the
possibility for power trade one or two hours before operation. However, the
Scheduler Power
Coordinator Exchange
(SC) (PX)
Demand-
Generator Power Independent System
Retailor side
(G) Market Operator
(R) Consumers
(PM) (ISO)
(D)
Ancillary Transmission
Service Owner
(AS) (TO)
Transmission(T)
Fig. 7.1 Composition structure chart of power market

7.1 Outlook of Demand-Side Management Under Power Market Environment 473
most basic function of PX is to be as the competition market (POOL) of power

supply-side and demand-side, and form market clear price (MCP), which will
thereafter becomes the basis for settlement of future market.
4. Scheduler Coordinator (SC). SC is a middle man who combines the plan of
power supply-side and demand-side, but does not need to follow PX rules. The
power coordination in some market models is required to be restricted in the
central market (POOL) and no other SC is allowed to operate. For instance, the
power market in England is in this way. Power coordination is carried out in a
decentralized way in some power market models as central market (POOL) or
supervision trade agencies may not exist. SC is an important component in the
structure of many new power markets.
5. Ancillary Service (AS). AS may provide service required for the reliable
operation of power system. It is mainly to provide power and reactive supply
for the safe and reliable operation of power transmission system. It may carry
out transaction in PX or ISO according to the market structure. It could either
be provided in a bundled way or be provided according to the menu in which
the adjusting reserve, spinning reserve, and supplementary operation reserve
(non-spinning reserve) could be provided by users themselves.
The above-mentioned five components of power market may not appear in
some power markets. One or two components may lack in some conditions while
two or more components may be combined into a compound component in other
conditions. However, the corresponding functions are indispensable. For instance,
Norway combines ISO and TO, and England combines ISO/TO and PX into a
national power grid corporation. At first, the above five components were totally
separated in California, but federal energy regulatory commission (FERC)
required in the Order No .2000 suited in 2000 that regional transmission organi-
zation (RTO) that combines PX, ISO, and TO shall be set up in each region.
The final target of marketization reform of power industry is to improve the
market efficiency of power industry, reduce power production and supply costs,
and realize optimization of resources allocation by utilizing market measures in a
maximum way. In terms of the development of power industry and the relevant
social economic links, this target needs to be gradually realized in stages. Make the
reform of power market move steadily forward by gradually introducing compe-
tition in the different links of power production and building market structure in
grade.
The four basic market models in Table 7.1 are corresponding to the different
extent of monopoly and competition of the market respectively from the per-
spective of competition [2].
Currently, the trade model of power market in countries in the world could
generally be divided into two basic types: pool model (Express with P) and
bilateral trade model (Express with B). P ? B model (i.e., organic combination
model of pool model and bilateral trade model) and multilateral trade model could
be derived from these two basic models.
474
Table 7.1 Competition models of power market in different stages

Models of Monopoly Single buyer Whole sale Retail
power market competition
Characteristic Whole system Only the competition of power Add the selection of wholesalers Add the competition of
monopoly generation (limited competition or and power grid enterprises users
perfect competition of power
generation side)
Degree of Competition of No Yes Yes Yes
competition power
generation
Wholesale No No Yes Yes
competition
Competition of No No No Yes
users
Remarks The power of users shall be Users could select other
supplied by power supply power supply
department that has been departments for
connected power supply
7 The Prospects of Demand-Side Management
7.1.1.2 Challenge Brought About by Marketization Reform of Power

to DSM
It can be seen from the practice of reform of power industry in current major
countries (regions) that the marketization reform of power will produce substantial
influence to the investment of resources development of demand-side resources.
This kind of influence includes both the positive and negative influence. The
reform can only produce positive influence on power system and the implemen-
tation of DSM by power users when clear and definite policies are formulated.
The research of the influence of reform of power industry to DSM carried out
by International Energy Agency showed: power reform plays a small role in
eliminating the barriers of DSM in general condition. Some reform measures, such
as separation of power plants from grid, will in fact increase the barriers for the
implementation of DSM on the contrary. Edward Vine and Jan Hamnn [3], etc.,
put forward the inappropriate policies will influence the implementation of DSM
in the reform process of power industry. The reform of power industry will pro-
duce promotion function for the implementation of DSM projects if the govern-
ment adopts effective measures to incorporate DSM into the reform of power
industry and carry out special research.
1. DSM faces new dilemma under power market environment
Power industry in all countries in the world basically adopt vertical integrated
monopoly operation mode of generation, transmission, distribution and sales
before the marketization reform of power, and the subject of DSM implementation
is certainly undertaken by power utilities. The integrated power utilities have the
motivation to design and implement DSM as the implementation of DSM projects
will bring huge economic benefits to them. Meanwhile, vertical integration
structure of enterprises is also a basic favorable condition for the implementation
of DSM.
However, an integrated system is often accompanied by the problems such as
monopoly price and low efficiency. The vertical structure of power industry after
the restructuring is basically divided into three parts: power generation link under
the original integrated model turns into an independent interest subject in the
competitive power generation market, power grid enterprises are transformed into
an infrastructure opening to all power generation enterprises and power users, and
power selling enterprises are only responsible to sell the power bought from
wholesale market to final users. In this kind of industry structure, power generation,
power selling, and power grid enterprises will have no motivation to comprehen-
sively consider the optimization of resources allocation from the two aspects of
power supply and demand. As power generation enterprises and users are separated
on both sides, asymmetry of investment and production will make most power
generators steer clear apart from the technical difficulties. For the same reason,
power grid enterprises will have no interest to continue to engage in DSM as
promotion of energy conservation lamps and high efficiency power devices will not
directly bring economic benefits for them. As the benefits of power selling
enterprises depend on the quantity of sales, they will expect, obviously, selling
more electricity instead of trying to less the electricity consumption.
It is not hard to see that DSM is faced with the challenge of lacking imple-
mentation subject after the restructuring of power industry and marketization
reform, and many DSM projects are trapped in the dilemma of hard to carry on.
DSM is also faced with the dilemma of lacking implementation subject in
China along with the separation of power plants from grids in 2002. Besides,
another difficulty faced by DSM in China is that there is no scientific electricity
price system: general electricity price is low, some measures such as seasonal price
and interruptible load electricity price that could motivate users to conserve energy
voluntarily are not widely promoted, and the ratio of current peak to valley price is
not reasonable enough. Without a reasonable difference of peak and valley elec-
tricity, the electricity charge saved by users will not be enough to compensate the
costs raised to adjust their time schedule and the power utilization mode of users
will be very hard to be motivated to change to realize peak clipping and valley
filling. Users will not stop power consumption equipment in peak period on their
own initiative either to avert the peak for power system without the interruptible
load compensation mechanism. The cold response given by users to DSM caused
by the unreasonable electricity price structure brings difficulty for the imple-
mentation of DSM.
2. The implementation environment of DSM is greatly changed
The marketization reform of power makes the original implementation envi-
ronment of DSM has great changes. Some changes are beneficial to the imple-
mentation of DSM while others deepened the obstacles and barriers of DSM
implementation.
The focus of marketization reform of power is the problem of company
restructuring, commercialized operation and power energy efficiency are not given
due attention or even ignored to some extent during the power reform process. A
more serious problem is that power reform has already brought some negative
influence on power energy efficiency, which mainly reflected in: one is the gradual
weakening of administrative function of power conservation of government
department; the second is the weakening of incentive measures of terminal power
conservation investment. The breaking up of monopoly system of power industry
greatly shaken the industry basis for carrying out integrated resources planning
(IRP) and DSM. Therefore, a serious problem that is going to be faced is should
DSM be carried out after the marketization of power. The lesson of crisis of power
market encountered by California in 20002001 told us DSM is very important. It
shall not only be carried out but also be carried out in a better way after the reform
of power system. Besides, who is the subject in leading the implementation of
DSM after the separation of power plants from grid? It is power grid enterprises
or power generation enterprises? Considering from the interest relation, power gird
enterprises will no longer interest in implementing DSM as they are not respon-
sible for the planning and construction of power source any more, and engaging in
DSM will only has investment without income, while power generation enterprises
will only interest in peak clipping and valley filling as power conservation will
reduce their benefits. In addition, power generation enterprises only have business
contact with some large users and do not have direct contact with most users.
Therefore, it has certain difficulty for power generation enterprises to engage in
DSM work in a large scale.
7.1.1.3 Incorporate DSM into the Marketization Reform of Power
It can be said that marketization reform of power also dissolved some original
obstacles in DSM implementation and brought new opportunities for DSM
implementation while posing challenges to DSM. Meanwhile, the constant deep-
ening of marketization reform of power is also calling for DSM. One of the lessons
from power market crisis of California in the early twenty-first century is that low
elasticity of demand-side resources will produce unexpected negative influence to
power market that is in good operation. The design of mechanism and rules of
competitive power market shall make demand-side resources participating in
market competition. The importance of participation by demand-side resources in
competitive market has already been widely recognized by international energy
industry. The demand-side resources participating in bid competition and market
competition, i.e., users voluntarily operate with reduced load under the condition
of advance notice of system dispatching and implementation of various electricity
incentive policies, has been proved to be an effective mean for peak load shifting.
People have realized from practice that DSM has played a very important role
in supporting the sustainable development of economy and society. DSM could
share the benefits of economic growth under the premise of decreasing social
capital investment, expenditure of electricity charge of users, emission of air
pollution and global warming while reducing energy/power supply burden. DSM
is not only a kind of energy conservation and electricity saving operation mech-
anism but also a kind of long effective public welfare activity.
7.1.2 Development of DSM Under Power Market Condition
7.1.2.1 Development of DSM in the Power Market of Some Countries
The United States
DSM projects greatly declined in 1990 due to the uncertainty brought about by the
marketization reform of power industry. The total investment being used by US
power utilities in DSM projects was reduced by more than 50 %, but the expen-
ditures used for improving energy efficiency projects in 1999 still reached USD
1.4 billion, which is mainly attributed to the adoption of system benefits charge.
DSM project had played a very important role in dealing with the crisis of
California power market in 20002001. The total power consumption in 2001 was
reduced by 6.7 % comparing with that in 2000 due to the threat of supply inter-
ruption and soaring of bulk sale electricity price, but the economy still keeps
increasing. Demand reduction would not happen naturally, and it should be
attributed to the adoption of a series of DSM measures and policies. California had
transferred 10 GW peak loads, which equaled to several large-scale power plants
till 1999 by improving energy efficiency and standard. Some programs such as
public education program, discounts, and other fiscal stimulus programs applied by
government in 2001 could be regarded as the most successful energy conservation
programs in the state level in history. In other aspects, the number of high effi-
ciency power equipment brought by customers in 2001 broke the record. There
were nearly 100,000 high efficiency refrigerators (five times of that in 2000) and
4 million compact energy-saving lamps among them.
California greatly increased the investment to DSM project in 2001 consid-
ering the value of a DSM project, especially for a restructured power market. The
investment reached USD 480 million, which is over 50 % more than that in 2000.
The laws relating to System Benefits Charge are extended to 2012, which will
make the expenditures of all power utilities in California increase by a small part.
This extra part charges could increase the investment to the development of
energy efficiency, renewable energy and its technology by $ 5 billion, which is
also the largest amount of energy development fund brought about by single
legislation.
One famous demand-side response (DSR) project named PJM active load
management (ALM) and started in 1991, is mainly taken as load service entity or
special curtailment service provider (CSP) to participate in management method of
load reduction as the representative of terminal users. Terminal users need to
participate in this plan through CSP. CSP needs to pay certain amount of deposits
(USD 5005,000) each year in participating in ALM. The environment permission
needs to be got if CSP starts to use dispersed power generation. Terminal users
could participate in on their free will and the users participating in the project
could get USD 500/MWh compensation or the compensation calculated according
to the marginal electricity price of real-time system. There are three kinds of ALM,
i.e., direct load control, consumption level of stationary load and load reduction
according to notice. PJM implemented ALM for three times in summer in 2001
and started it when electricity price is higher than USD 135/MWh, while 23 MWh
of electricity was reduced to the average. The phenomenon of emergency power
generation shortage has never appeared since the implementation of ALM. The
load response program (LRP) has been supplemented since July 2002 with the
purpose of encouraging the wide participation of LRP and responding to real-time
electricity price by users. Meanwhile, decentralized electric sources are allowed to
participate in LRP, and specific implementation rules are formulated respectively
for the current load response projects and real-time load response projects.
The United Kingdom
The United Kingdom started the marketization reform of power in 1988. There
was not any clause about improvement of energy efficiency or DSM during the
restructuring of power industry in the United Kingdom as it was believed that the
method forcing the improvement of energy efficiency would appear when the
market was under demand pressure. The practical experience proved that it was
not correct. The United Kingdom set up an independent energy conservation credit
unit to design and monitor DSM projects 3 years later. The first directive is to
reduce carbon dioxide (CO2) by improving energy efficiency. UK power industry
invested USD 165 million funds that are raised to more than 500 projects for
improvement of energy efficiency through power transmission surcharge in the
first 4 years of this DSM project. It is estimated that 6.8 TWh power were con-
served, which equaled to the annual power consumption of 2 million households in
UK. Meanwhile, UK formulated incentive measures, including cost recovery and
compensation of loss of revenues in order to encourage power utilities to play
principal role in DSM. Cost recovery means to incorporate the expenditures of
power utilities for implementing DSM projects into the cost of electricity price.
Compensation of loss of revenues refers to the government disconnects the rev-
enues and quantity of power sale by adopting adjustment mechanism of revenues
of power sale so as to prevent power utilities from suffering economic losses due to
the reduction of quantity of power sale that is caused by the implementation of
DSM.
Demand-side resources participate in rapid frequency response in UK power
market. The demand-side of UK power market could not only respond to the
change of frequency but also the power support provided by power generators in
order to deal with the sudden drop of frequency. The practice has proved that the
responses of demand-side resources are instantaneous and are obviously superior
to power generators. Thirteen cement manufacturing enterprises negotiate and sign
bilateral contract with dispatching organization through integral general agent to
participate in this response project. The maximum instantaneous load to be
reduced could reach 110 MW. Integral general agent plays a very important role as
the bridge of management and optimization. Besides, refrigeration enterprise
associations also participate in this plan and the hierarchical frequency restoration
project.
Northern Europe
The power market of Northern Europe, composed by four countries: Norway,

Sweden, Denmark, and Finland, is the representative of transnational power trade
market. The operation has power futures market and day-ahead spot market named
Elspot. In Elspot, the demand-side resources of Norway and Sweden also partic-
ipate in the bidding of the form of power purchased as megawatts-time-price
that is the same as power generators participating in market bidding. Large users
(above 1 MW) could directly participate in bidding of demand. For instance, it has
been proved that economic benefits could be achieved by industry heating enter-
prises who adopt boilers of various kinds of fuels (electricity, fuel oil or other
alternative energy) by fully utilizing the changing characteristics of electricity
price of spot market. For small users, such as schools heating in Norway could
indirectly participate in demand competition as the agent through their power
suppliers.
All power distribution companies are required to engage in DSM in Norway.
Collect tax from power distribution charges with actual power consumption as the
basis. Power distribution enterprises carry out DSM activity through local energy
efficiency center. Denmark requires power distribution enterprises must introduce
IRP, and prepare a DSM plan of every 2 years and a 20-year energy efficiency
improvement plan. Demark has established energy conservation capital, which is
raised from the small amount additional electricity price in the electricity price of
residents and public service industry. This capital is used to determine and support
energy efficiency projects, including conversion of power and heat to combined
operation of heat and power (CHP). Today, all power thermal plants are supply
heat and all industrial boilers generate power in Denmark.
Summary of Experience of DSM Implementation in the Power Market
It can be seen from the experience of major countries that the improvement of
energy efficiency could not be automatically brought about either through the
restructuring of power industry or the market itself. Lots of market barriers,
including some important and hard to be evaluated external environment, and
information lacking still exists In fact, DSM is often damaged in restructuring
unless it is fully considered in the restructuring process. The focus of DSM is
turning to power distribution companies in many countries. The power distribution
companies in the United States have proved that they have the ability to adopt lots
of measures at low costs to improve energy efficiency within the correct scope of
laws and regulations.
The successful experiences of DSM implementation in major countries could be
summarized to the following several points: (1) Promulgation of relevant laws,
regulations, and policies. For instance, the National Energy Conservation Policy
Act promulgated by the United States in 1992 made relevant stipulations for
carrying out DSM by restructured power utilities; (2) Establishment of economic
incentive mechanism. In order to adapt to the marketization reform of power
industry, many countries issued economic policies of tax reliefs, low interest loans,
financial assistance, and electricity price incentives to support the development of
DSM work, which includes system benefits charge, relevant tax of energy, direct
government funding, etc., in which, system benefits charge is the most common
one to be used. It is the cost attached to electricity price of all power users in
certain proportion; (3) Carrying out energy service through market mechanism.
For example, energy conservation service companies have developed into an
emerging industry in the United States; (4) According to the perspective of

implementation mechanism of DSM under power market environment in major
countries, most areas, including the United States, the United Kingdom, Northern
Europe has implemented DSR and has achieved good effects. It can be seen that
the DSR is an important mechanism for implementing DSM under power market
environment.
7.1.2.2 Plan of DSM of International Energy Agency
As enormous changes have taken place in global power industry in recent years,
previous DSM model has become unable to be fully adapted to the current situ-
ation. The development of DSM and the challenges faced by it is needed to be
reevaluated so as to facilitate the further healthy development of DSM in a
coordinated way. The subject such as function and position, evaluation method,
implementation method, incentive mechanism and technical support system of
DSM under new situation become the hot point for research again. International
energy agency (IEA) carries out an IEADSM plan that lasting for over 10 years.
Seventeen state members, including Australia, the United States, France, Japan,
Canada, and Norway has devoted themselves to the research and development of
DSM together with European Union since 1993, and research and cooperation in
13 aspects have been carried out [4].
1. DSM international database. IEA emphasizes that lots of basic work shall be
carried out to establish the international database and evaluation instruction.
This project takes 7 years to explore the feasibility of establishing interna-
tional DSM database by selecting demonstration project, and distribute lots of
questionnaires to collect information, then design the structure of database,
arrange and input information, establish database, and analyze and arrange
results. The database and methods are continuously renewed and usable
database resources and relevant analysis reports are formed finally.
2. Communication technology that is suitable for DSM. Communication tech-
nology needs to complete the functions of load control, data transmission, load
management, automatic measurement and charging, alarm service of users,
power generation management of users, remote diagnose and monitoring, etc.
The research and development of relevant communication agreements, hard-
ware and software all belong to this scope.
3. Cooperative purchasing mechanism of DSM innovation technology. The cloth
dryers with half power consumption, high efficiency motors with 2040 %
loss reduction, and new generation copiers that could conserve 25 % power
are developed.
4. Realization of advanced integrated DSM method. This project investigated the
enterprise structure and IRP method of all member countries at first, evaluated
and compared the process, models and methods of integrating DSM to IRP by
all participating countries, summarized the methods, technologies, and models

for demand prediction and IRP, and proposed improvement measures.
5. Investigation of DSM technology under market environment. Proposed method
that is suitable for residents, small business users, and small industrial users to
complete DSM. Carry out demonstration projects in all participating countries,
and compare and analyze the results of all demonstration projects in order to
try to find out a DSM plan with more commonness.
6. Research on changing the power environment by DSM and energy efficiency.
Explore the mechanisms that could facilitate DSM implementation and
improvement of power utilization efficiency. The mechanisms could be spe-
cially divided into four kinds: control mechanism and capital support mech-
anism that is used to directly change power utilization behaviors, the support
mechanism to terminal users whose change power utilization behaviors, and
market mechanism in encouraging users to change power utilization behav-
iors. A set of implementation mechanism that prompts DSM and power uti-
lization is also established.
7. International cooperation of market transition. In order to respond to the call
of reducing greenhouse gas emission in Kyoto protocol, the contents of
international cooperation include improving energy utilization efficiency,
increasing the market share of energy storage products, speeding up the
promotion and application of high efficiency energy conservation technology,
reducing the emission of greenhouse gas emission, and establishing an on-line
forum of market transition information exchange to accelerate the exchange
and share of information.
8. Demand-side bidding under power market. Evaluate and prompt demand-side
bidding (DSB) as an effective mean to improve power supply efficiency.
Exploit the potential of DSB and develop new implementation plan by
evaluating the advantages and disadvantages of the mechanism of current
DSB through investigation.
9. Governments function under privatization system. Compare the position and
function of government of each country in DSM, evaluate the response of
government department and the preferred measure after deregulation of power
industry, and propose effective measures of government departments in the
process of prompting DSM implementation.
10. DSM performance contract. Propel the usage of performance contract and
other energy service contracts and establish reasonable profits sharing
mechanism to attract the participation of energy conservation service com-
panies, manufacturers and suppliers of high efficiency energy conservation
products, and power grid enterprises, share the successful experience and
lesson of failure, and publicize and prompt the implementation of performance
contract.
11. Time-sharing charge. It is required to carry out time-sharing charge and
prompt small users to implement time-sharing measurement and time-sharing
charge in order to realize DSB. When is also faced with time-sharing charge,
small users will naturally have the initiative to change power utilization mode
in peak period or at the time with high electricity price. Determine energy
conservation effect of implementing time-sharing charge to small users, and
the corresponding pricing, control and effective implementation mechanism.
12. Energy standard. Propel the coordination and unification of global energy
transmission standard and form an information network of global energy
standard to prompt the mutual understanding and coordinate the intercon-
version of energy standard.
13. DSR resources. The DSR resources projects led by US energy department
and participated by 15 member countries were passed on October 15, 2003
with the purpose of prompting the integration of demand response resources
into power market in all countries, researching the necessary methods, busi-
ness procedure, basis, tools and implementation process in realizing specific
target, establishing the common method for evaluating demand response
resources, setting up the influence model of demand response resources to
electricity price, reserve, capacity market and market liquidity, thereby
determining the value of demand response resource and establishing the
Internet platform of relevant technical exchange.
These projects try to research DSMs function in the power industry of each
country in a comprehensive and deeply manner, tap the potential of DSM, espe-
cially to specially research the implementation measures, incentive mechanisms
and evaluation standards of DSM under power market environment through
cooperation research among multiple countries so as to lay a theoretical foundation
for developing DSM projects in power market.
7.1.2.3 Role Positioning of Each Party in DSM Under Power Market
The role and positioning of each party participating in DSM work will have some
new changes and adjustments with the constant advancing of marketization pro-
cess of power. At first, the role and positioning of parties such as the government,
power utilities, users participating in DSM under traditional vertical integration
operation may change. The functions of some parties may be weakened under
market environment or their roles disappear under power market environment, for
example, power utilities. Second, marketization reform of power will expedite the
creation of some new market participants, such as ESCOs, power exchanges,
retailers/brokers, etc. The foundation of role changing lies in the forming of
market mechanism. All parties participating in DSM at different development
stages of power market will have different roles and positioning as the reform of
power system is promoted gradually and the marketization is also deepened
progressively.
Role of Government and Market in DSM
The attention and support given by government to DSM are mainly out of the
long-term consideration of sustainable development of economy and society,
which is not to exceed the bearing capacity of resources and environment, damage
current living quality and deprive the sustainable development opportunity of
offspring while seeking economic and social development. The government takes
social benefits as the major standard to measure DSM effects, and puts energy
efficiency improvement, electricity saving, pollution emission reduction and pro-
tection of ecological system that supports the health of the globe in an extremely
important position. Except the administrative measures such as laws and regula-
tions, standards and policies are used to prompt energy conservation and electricity
saving, the governments in countries with early implementation of DSM also
directly participate in DSM activities with long-term benefit by taking their
authority. Governments participation is extremely important in places with
market failures and market barriers.
Not as easy as the establishment of a vegetable market, apparel market and
household appliance market, the establishment of an energy efficiency market
needs a gradual exploration process. Throughout the history of energy conservation
activities as well as development and evolution process of DSM, the establishment
of energy efficiency market by developed countries, including the United States is
also in the continuous improvement and perfection stage. The experience of
marketization reform of power industry proved that government still needs to play
the leading role in DSM to make DSM develop in market-oriented direction. Along
with the gradual phase in off market transition, the degree of direct participation by
government might be gradually weakened only when DSM projects operated by
market participants with business interests played the market driven role.
Directive action of government is gradually replaced by market mechanism
along with the development and perfection of power market. The major role
played by government in power market is supervision. Previous DSM projects
prompted by depending on government as the leader under power market envi-
ronment are more often to be implemented through market mechanism. The role of
government is to fully play the fundamental function of market regulation under
macrocontrol so as to ensure the effective implementation of DSM. Of course, the
government still plays the leading role in formulating relevant policy measures,
including in the design of fiscal stimulus, funding mechanism and electricity price
in order to effectively overcome the barriers encountered by carrying out DSM
projects under power market environment.
Gradual Transfer of Subject Role of Power Grid Enterprises in Implementing

DSM
Traditionally, DSM is implemented by vertical integrated power utilities, but this

situation is changed by marketization reform of power industry. Power grid
enterprises become the main subject of DSM implementation after the reform.
Meanwhile, reform also exerted influence on profits distribution mechanism of
original DSM. It is the change of profits distribution that affects the realization of
profits maximization target of power grid enterprises and restricts the initiative of
power grid enterprises to implement DSM.
DSM projects that are implemented with power grid enterprises as the subject
will be gradually reduced along with the further deepening of marketization
reform of power. More DSM projects will be implemented by users, energy
conservation companies and power exchanges under market mechanism. There-
fore, the subject role of power grid enterprises in implementing DSM will be
gradually transferred. Although, part of DSM projects, such as promotion and
application of energy conservation transformers and reactive automatic compen-
sation technology, load management and Orderly Power Utilization must be
implemented by power grid enterprises due to its special position in power market.
Energy Conservation Service Companies Play a More Important Role
Power market environment created a broader platform for energy conservation

service companies (ESCOs). There are more and more ESCOs which will play a
more positive role in the activities such as DSM publicity, energy efficiency
auditing, energy conservation monitoring, information transmission, project con-
sultation, bidding procurement, and communication training by relying on the
market mechanism.
Energy conservation service companies become the bridge and link of power
enterprises, power users, government energy conservation departments by
depending on its special advantages in the aspect of energy conservation tech-
nologies, policy information and service experience. Its principal function includes
the following three aspects: First is to assist government to carry out consultation
service in the aspect of energy efficiency monitoring, energy certification and
energy conservation planning; Second is to undertake the benefits of social service
programs (i.e., meter reading, management of unit area, service after meter, etc.,)
invested by power utilities; Third is to implement energy conservation projects for
users and share energy conservation benefits with users.
Market Trade/Dispatching Organization Provides a Platform for DSM

Implementation
Market trade/dispatching organization provides a just, fair and open trade place
concerning various kinds of power commodities under power market environment.
All parties in DSM projects could participate in the power market trade organized
by market trade/dispatching organization under market condition so as to reach the
target of implementing DSM projects by utilizing market mechanism. It can be
seen that market trade/dispatching organization provides a platform for DSM

implementation.
Therefore, DSM implementation shall be incorporated into the consideration
category of market trade/dispatching organization during the design of power
market so as to make it favorable for resources of demand-side to participate in
market competition during market trade.
Retailers or Brokers Participate in DSM in Place of Users
Some new subjects, retailers or brokers will appear in power market when power
market is developed to the retail competition stage, i.e., users could participate in
market competition. At this time, users shall participate in market competition
more through retailers or brokers and realize the joint participation by demand-
side resources and supply-side resources for market competition. Thereby, retailers
or brokers will participate in DSM in place of users i.e., participate in DSM
through cooperation with energy conservation service companies or directly
through the platform provided by Market trade/dispatching organization.
7.1.3 Demand Response
7.1.3.1 Connotation of DSR
The concept of DSR is put forward after reformation for power market in US for
identifying how to make good use of power DSM to maintain reliable system and
improve operation effectiveness. Broadly speaking, DR refers to a market
engagement activity that users in the power market respond to market price or
incentive mechanism and change general power consumption mode. DR may have
different definitions depending on different aspects. For example, in terms of
resource, it can be used as a resource, referring to reduced peak load or installed
capacity; in terms of capability, it can improve operation reliability of the power
grid and enhance its ability to deal with the emergency; in terms of behavior, it
refers to engagement of users in load management and adjustment of power uti-
lization mode.
Based on above-mentioned aspects, DR may be defined as a management to
drive optimized configuration of power resources and ensure safe, reliable and
economic operation of the power system by stimulating and guiding users to
actively change general power utilization mode and promoting scientific and
reasonable utilization through technical, economic, administration and legal
means.
In countries with more mature power market, DR, depending on different
reactions, should be divided into two categories, price-based DSR and stimulation-
based DSR.
Price-based DSR refers to users response to change of retail prices and

adjustment of power utilization demand, including time pricing, real-time pricing
(RTP) and peak pricing. Users adjust its power utilization period to the period with
lower price and reduce power utilization rate in the period with higher price by
considering its internal economic factors to finally reduce power expense. Users
engaging this DSR program can sign a related pricing contract with the imple-
mentation authority, but users are fully voluntary for load adjustment. Generally
there are following three implementation methods for retail price: (1) force users
to implement a certain pricing mode, like time pricing; (2) set a price as the default
price for users. If it is not acceptable for users, select other prices; (3) provide a
price list to be selected by users based on their requirements.
Stimulation-based DSR refers to a definite or random policy established by the
implementation authority to stimulate users to timely respond to it when the
system reliability is affected or price is higher and reduce load, including direct
load control, disconnected load, demand-side tendering, emergency DSR, and
capacity/auxiliary service options. Stimulation rate is generally independent from
or added on retail prices for users, and their prices may be discounted or com-
pensated for load shedding. Users involving this kind of DSR generally are
required to sign a contract with the implementation authority, clearly indicating
calculation method of basic load consumption and load shedding amount, iden-
tification of stimulation rate as well as penalty measures for violations.
7.1.3.2 Relationship of Orderly Power Utilization and DSR
1. Orderly Power Utilization and DSR are both apparent forms of and attributable
to DSM.
DSM has different forms due to the different market stages. In the initial stage
where the power supply is marketized, DSM mainly depends on various admin-
istration means, like Orderly Power Utilization schemes. As power marketization
is continuously developed, DSM will be more dependent on price leverage and its
final form DR mode will be widely implemented. For DR, the role of market
mechanism in resource optimization is fully achieved by interaction of users and
power companies, and improving security, reliability, and economy of the power
system.
Current Orderly Power Utilization and future DSR are attributable to DSM and
are apparent forms of its impact on different markets. They both depend on
administration and economic means in DSM, but the former focuses on admin-
istration means and the latter on economic means. Figure 7.2 shows the relation of
OPU, DSR, and DSM.
2. Orderly Power Utilization and DSR are continuous and successive.
In terms of application background and purpose, both of them are to make good
use of power generation resources and demand-side resources to meet power
Demand-side management (DSM)
Orderly Power Demand-side

{ Response (DSR)
Utilization (OPU)
marketization (Mainly rely on the (Mainly rely on the marketization
degrees is LOW executive measure) market mechanism) degrees is HIGH
Fig. 7.2 Relation of OPU, DSR and DSM
demand as load is in shortage or electricity is limited, to reduce effect of shortage,

save energy and protect environment, reduce investment in power plant and power
grid construction, and reduce utilization cost.
The development of Orderly Power Utilization is a transition process from
administration means to market means step by step. In managing Orderly Power
Utilization, the government is the implementation body to organize and implement
the whole process for some specific users. DSR mainly focuses on market means to
guide users to reduce peak demand by various pricing and economic stimulation
modes to save energy and protect environment, reduce investment in power grid
construction, and reduce utilization cost. Orderly Power Utilization and DSR have
a common aim to save energy, protect environment, and promote sustainable
development of economy, society, and environment.
In sum, DR and Orderly Power Utilization are two interlinked bodies that the
latter is the apparent form of the initial stage of DSM, and the former is the
apparent form of the advanced stage of DSM.
7.1.3.3 DSR Pricing
DSR pricing is a kind of pricing model that makes corresponding adjustment of the
electricity price of demand-side resources at different time periods according to the
change of supply and demand, and the costs of power generation. DSR pricing has
many forms, which mainly depend on the degree of the openness of power market
environment. RTP is the most prefect one among them and is also the highest form
of DSR pricing. It is a kind of pricing model that is based on certain very short
time period and time-of-use pricing could be got by prolonging the time of pricing
(i.e., taking hours as the basis), while peak and valley pricing could be regarded as
a kind of simple RTP with only several time periods. RTP also has many kinds of
alternative schemes, which could be generalized into two categories: One is all
kinds of price varieties from fixed price to real-time price, including time-of-use
pricing; The second is the generally called negative load scheme (Negawatts),
which is usually based on providing compensation to consumers for consumption
reduction in certain time period, including interruptible load, optional contract,
DSB, etc.
The advantages of pricing of DSR are very obvious [5] either it is RTP or its
alternative schemes.
At first, response pricing is a kind of pricing method that is most close to
marginal cost and is favorable for reasonable sharing of costs analyzing from the
perspective of economics. In the theory of economics, partial equilibrium analysis
and general equilibrium analysis all show the maximization of social welfare could
be realized by pricing according to marginal cost. The marginal cost of power
generation is changing all the times in power industry and the difference is large.
The shorter the pricing time period is, the closer it is to the constantly changing
marginal cost, while the closer the price and marginal cost, the better the principle
of advocated cost compensation and equitable burden sharing be reflected.
Secondly, response pricing could fully utilize limited capacity resources. The
practices in other countries prove that RTP could have the same effect as DSM in
the aspect of avoidable installed capacity. As power industry is capital concen-
trated industry which needs huge front-end investment, we shall take installed
capacity as a kind of rare resource. The building of a 600 MW thermal power
generating unit in China needs nearly RMB 3 billion Yuan investment and the
construction cost of a hydroelectric generating unit is even higher. If Demand-side
price does not include costs information or doe not has enough incentives to
transfer the consumption, the peak demand could not be effectively restrained
definitely and the installed capacity will be forced to be constantly added by
supply side. Although current peak and valley price has the function of peak
clipping and valley filling, the effect (for instance, the peak and valley price will
not change in clear day and rainy day during the same peak time period in the
afternoon of summer, while the response pricing will have difference) of response
pricing will be difficult to be achieved as time span is large and the time sector is
fixed. According to the research result of US economists such as Bernstein, the
effect of peak and valley price is only about 25 % of that of RTP for the most.
Third, the high price in power generation link could be restricted. The problem
of raising price by power generators through market power have happened in many
power markets after the introduction of competition in power generation link. Take
the power crisis in California as an example, the wholesale electricity price in
power generation market is even raised to 20 times of the normal electricity price
when the price in Demand-side is locked by regulatory agency. At last, the peak
load that could not sense any of the price information of power generators can only
depend on power rationing for restriction. Once the response pricing is established
on demand-side, the price spike on power generation side could be transmitted to
consumers in a timely manner. In this way, on the one hand, power consumption
peak could be restricted by price leverage; on the other hand, reduced demand will
also weaken the market power of power generators and thereby restrict the high
electricity price.
Although DSR pricing has the incomparable advantages over traditional pricing
from theoretical analysis, the former will be restricted by many factors in practice.
Those factors could be classified into following three points: First is the problem in
meter. The promotion of response pricing will be restricted if time-of-use
measurement technology lags behind or the costs is too high. Second is the problem
of users response. Response pricing will be in the true sense of the term only with the
response of users, but the implementation effects of response pricing will be greatly
reduced once users do not respond due to the reasons such as small price difference or
the high costs for adjustment. Third is the problem of informing of pricing infor-
mation. The response of users to price change depends on the degree of knowing in
advance of price information and response pricing will loss the due effect if time of
information being transmitted to users could not meet certain timing advance.
7.1.3.4 A Kind of Model of DSRDSB
1. Definition of DSB. DSB is a kind of implementation mechanism of DSM in

power market environment [4]. It is to make users participate in market com-
petition initiatively and get the corresponding economic benefits by changing
their own mode of power utilization instead of being simply the receivers of
price. DSB is an effective way to encourage users to actively change power
utilization mode, improve power utilization efficiency and implement long-
effect mechanism of DSM scientifically.
2. Relation of DSB and DSM. Although DSB and DSM are correlated, the two still
have great difference. Generally speaking, DSB is the short-term load response
behavior and market mechanism based on the market, while DSM refers to the
behavior and mechanism that changes the characteristics of load in a long-term
basis. Figure 7.3 describes the relation of DSB and DSM.
3. Products and service of DSB. Participating in competition, demand-side
resources could fully mobilize users initiative to change the power utilization
mode, make contribution to system reserve, security and environmental pro-
tection, and get certain returns correspondingly through measures of power
consumption reduction, energy conservation, or alternative energy. Therefore,
it equals to provide the potential power products, i.e., the so-called Negawatts
DSB DSM
DSB: Encourage users to utilize power Common points: DSM: Encourage users to reduce load or
flexibly change power utilization mode on a long
Jointly control, term basis.
Market driving; monitor and communication
Including the dispersed and short-term behaviors of means;
Mostly driven by government;
users; Mutually beneficial
Including continuous and effective change of load
Improve market efficiency; opportunities and viewpoint characteristics;
Provide opportunity for users to make money on Bring long-term benefits for social environment,
the market; power utilities and users ;
Have potential energy conservation and Provide opportunity for users to save the costs
environmental protection benefits
Fig. 7.3 Relation of DSB and DSM

replaces Megawatts, or referred to as DSB products, by demand-side compe-

tition after the opening of Demand-side. DSB products could be classified into
two categories (1) All the demand-side resources participate in market com-
petition; (2) Only participate in competition of changing amount of demand.
The participation in competition by all power could be realized through two
ways: (1) Users and power generators directly enter into a bilateral contract in
certain amount and at certain price; (2) Users bid for their own demand curve,
i.e., certain price hoped in certain amount of power. It is similar to the bidding
curves of generators. The content of participating in demand changing amount
is much richer as users could bid for either increase or decrease of load. The
ways and functions of DSB products participating in the market are varied
under different market operation models (physical market or contract market),
market in different time periods (day-ahead market or real-time market) and
market of different forms (major energy market or ancillary service market).
Meanwhile, the functions of DSB are also varied for different participants
(power generation enterprises, dispatching organizations, power distribution
enterprises, and middlemen) in the market. Figure 7.4 summarizes the possible
usage of DSB products.
4. Usages of DSB. Possible usages of DSB products include all kinds of ancillary
service, participate in interruptible power supply contract or peak and valley
electricity price plan, demand quotation and participation in spot transaction,
bilateral contract with power generation enterprises, and bid for increase or
decrease of the output, and alleviate the congestion of power transmission and
distribution in balancing market, in which the links involved in ancillary ser-
vice include frequency control, voltage control, and reserve and black start.
Power generation
Bilateral Enterprise
Ancillary service of
contract bilateral contract
Power market
Power
Balancing market
Power transmission transmission Dispatching

Power Enterprise restriction organization
Trade transmission
restriction Power
distribution
Middle men Power
Balancing
of restriction
market
distribution Power distribution

power supply
enterprises restriction Enterprise Ancillary service
of bilateral
Power supply contract
contract
Trade Balancing
market
Power users Market
Energy flow DSB products
Fig. 7.4 Possible usages of DSB products

Table 7.2 Operation conditions of DSB in power markets in some countries

Country Ancillary Power transmission Power supply Balancing Spot
service restriction contract market market
Finland In operation Permitted In operation Permitted Permitted
Holland Permitted Permitted Permitted Permitted Permitted
Norway Permitted In operation In operation Permitted Permitted
Spain Permitted Permitted In operation Permitted In
operation
Sweden In operation Permitted Permitted Permitted Permitted
The United In operation In operation In operation In operation In
Kingdom
operation
Greece Permitted Permitted Permitted Permitted Permitted
Table 7.2 lists the operation conditions of DSB in power markets of seven
countries.
7.1.4 Development Outlook of DSM Under Power Market

Environment of China
7.1.4.1 Marketization Process and Prospect Forecast of Power

Industry in China
The construction of power market in China could generally be divided into three
stages [6]: From 1985 to 1997, the stage of gradual opening of government and
enterprises and power generation market; From 1997 to 2002, the stage of sepa-
ration of government with enterprises, part of the provinces and municipalities
developed pilot reform of marketization; From 2002 till date, reform stage of
separation of power plants with grid and bidding for power grid.
The construction of power market in China has made important progress in the
field of the reform of power investment system, restructuring of power utilities,
forming of electricity price, construction of regional power market, supervision of
power market and construction of power legal system through over 20 years
reform. The achievements being made, including the preliminary forming of
competitive situation of power generation side, steady progressing of regional
power market, continuously enlarging of trans-regional power transmission scale,
gradual deepening of power marketization reform, and the strengthening of
supervision of power market have prompted the sustained and healthy develop-
ment of power industries and made important contribution to the rapid develop-
ment of Chinese economic society. However, it shall be noticed that the
construction of power market is a huge system and it is still in the initial stage in
China, while there are still lots of problems. For instance, power market system is
incomplete, independent power transmission and distribution price mechanism has

not yet been formed, the left over problem of separation of power plants from
grid and the task of separation of secondary lines of business from core busi-
ness are still arduous, the system of power regulatory has not in place, the
supporting measures of power system reform is not perfect enough, administrative
system of market access in power generation link still needs to be improved, the
development of power grid is lagged behind and is not coordinate with the con-
struction of power source, and market competition mechanism that is favorable for
sustainable development has not been formed. Therefore, there is a grand task to
be performed and a long way to go in building an open power market system that
conforms to national conditions.
7.1.4.2 Implementation Mechanism of DSM Under the Power Market

Environment of China
DSM is a kind of electricity conservation operation mechanism and power utili-

zation management technology suitable for economic system of market. Gov-
ernments, power utilities, energy conservation service companies and power users
are the major participants of DSM. Government shall play the leading role in DSM
implementation in a better way especially during the period of reform of economic
system and create an environment that is favorable for DSM implementation in the
aspect of law and regulation, system, standard, policy and supervision, coordi-
nation and service so as to facilitate the running and operation of power utilities,
energy conservation service companies and power users. From the process of
power marketization reform and development of DSM in China and by learning
from the experience of DSM development under power market environment, the
development of DSM in China will generally experience the following three
stages: the first one is the stage of power grid enterprises as the subject of DSM
implementation; the second one is the stage of power grid enterprises and energy
conservation service companies as the joint subject of DSM implementation and
the third one is the stage of freely participating in and developing DSM under
complete market condition. These three stages conform to the condition of gradual
promotion of power reform in China and the new contents constantly appeared
with the deepening of the degree of market participation.
1. Stage of power grid enterprises as the subject of DSM implementation. It is not
only a successful international experience but only a major direction of DSM
development in a period time of future in China by incorporating energy effi-
ciency management and load management together into commercial operation
field to sell both power and efficiency, realize the integration of power supply
and power saving operation, and form the sustained power saving activity with
power grid enterprises as the main implementer and operator of DSM plan.
2. The stage of taking power grid enterprises and energy conservation service
companies as the joint subject of DSM implementation. Implement the
operation mechanism of power grid enterprises and energy conservation service

companies jointly bearing the investment risk and sharing the revenues of
energy conservation and electricity saving with power grid enterprises and
energy conservation service companies as the joint subject of DSM imple-
mentation. Power grid enterprises is mainly responsible for implementing the
dispatching of power grid of DSM projects, including carrying out techno-
logical reform of power grid equipment, improving the operation level of power
grid, load management, Orderly Power Utilization, etc. Energy conservation
service companies, through contract management based on performance, pro-
vide users with all kinds of energy conservation and power saving service,
including the one package service from energy (power utilization) auditing,
design of energy conservation and electricity saving, raising of energy con-
servation and electricity saving fund, purchasing and installation of energy
conservation and electricity saving equipment and on-the-job operation training
to revenues of energy conservation and power saving. It is also a successful
international experience.
Energy conservation service companies, including energy conservation service
companies especially engaging in power consumption and conservation, belong to
non-regulated industry. Its operation is more flexible, operation procedure is
comparatively simple, the replicability of the projects is strong and the electricity
price is not required to be changed, which make it easy to transfer high quality
high efficiency energy conservation and electricity saving products to users in a
more rapidly way. Because of the gradual deepening of marketization reform, it
becomes a more feasible way for power grid enterprises and energy conservation
service companies to jointly implement DSM plan and provide energy conserva-
tion and electricity saving service with cost-effectiveness for users during DSM
implementation in the stage of power market reform in China.
3. Stage of free participation in and development of DSM under complete market
condition. When power marketization in China is developed to a relatively
mature stage, all behaviors, including the development of DSM shall all be built
on the basis of market mechanism, and all kinds of input and output resource
elements shall be incorporated into market category as market has already
played the basic leading role in the aspect of power resource allocation.
Government is responsible for the formulation of market rules and supervision
while market operation/dispatching organization provides trade platform for the
development of DSM. Major participants of DSM projects include users,
energy conservation service companies, power grid enterprises, retailers/bro-
kers, etc. Different interest subjects select different DSM projects for imple-
mentation on market trade platform.
The mechanism of DSM implementation under complete market condition is as
shown in Fig. 7.5. Power users, retailers/brokers provide relevant DSM project
will to the market on DSM project operation platform provided by power
exchanges, and energy conservation service companies get DSM project according
Government
Market regulator
Formulate relevant policies, laws
and regulations, and market rules.
Power exchange
(operation platform of DSM projects)
Implement DSM
Get DSM Provide Provide projects that must be
projects from relevant DSM relevant DSM participated by power
market projects projects grid enterprises
Energy conservation Power grid

Power users Retailers/ brokers
service companies enterprises
Fig. 7.5 Implementation mechanism of DSM under complete market condition
to DSM project information published by market. Market regulators need mainly

to follow the whole operation process of a DSM project and maintain the fairness
and openness of market trade. The power grid enterprises is a special participant as
it not only provides some DSM projects but also participates in the implementation
of some specific DSM projects, such as Orderly Power Utilization, load man-
agement, etc. The trade model could imitate that of power market and be divided
into pool model, bilateral trade model and multilateral model. Under the pool
model, market organizer purchase relevant DSM projects from users, retailers/
brokers and power grid enterprises, and then organize energy conservation service
companies to carry out bidding of DSM projects. Under unilateral trade model,
energy conservation service companies directly carry out trade of DSM projects
with power users retailers/brokers and power grid enterprises. Multilateral trade
model could also be adopted as most DSM projects have lots of participants.
7.2 Development Potential of Clean Development

Mechanism Project of DSM
7.2.1 Introduction of Clean Development Mechanism
7.2.1.1 Definition of CDM
Clean development mechanism (CDM), one of the flexible performance mecha-

nism introduced into Kyoto Protocol (Referred to as Protocol), allows the
contracting parties (38 industrial developed countries) in attachment one of
Kyoto Protocol and the contracting parties (most are developing countries)
which does not in attachment one of Kyoto Protocol to carry out cooperation of
greenhouse gas, including the CO2 emission reduction program. Developed
countries implement CDM projects in developing countries with relatively small

marginal cost of greenhouse gas emission reduction by providing funds and
advanced technologies and equipment to get certain amount of extra emission
reductions and help them achieve the partial emission reduction obligations stip-
ulated by Kyoto Protocol. Meanwhile, they could assist hosting countries to
realize sustainable development. Therefore, CDM is a kind of Double-win
international cooperation mechanism.
7.2.1.2 The Origin and Concept of CDM
United Nations framework convention on climate change (UNFCCC) (Here-

inafter referred to as Convention) was passed on May 9th, 1992 and took effect
on March 21, 1994. As the convention has 189 contracting parties, it has uni-
versality. Convention stipulated the basic principle of common but differentiated
responsibility between developed countries and developing countries, clarified
that developed countries shall undertake historical and real responsibilities of
anthropogenic greenhouse gas emission, and shall take the lead in shouldering
emission reduction responsibility.
Kyoto Protocol was passed in the third conference of the parties (C0P3) of
convention held in Tokyo, Japan in 1997, aimed at implementation of target of
convention and promotion of emission reduction process. It stipulated greenhouse
gas emission reduction, limitation and control obligations, and quantitative indi-
cators with restraining force for developed countries in the first commitment
period (20082012). As the primary task of developing countries is the social
development and elimination of poverty, they will not shoulder emission reduction
obligation in current stage and greenhouse gas emission in developing countries is
allowed to rise along with the growth of social economy. The protocol has offi-
cially taken effect on February 16, 2005.
The coming into force of protocol is a milestone for human beings in the globe
to try to protect global environment and realize sustainable development. It
established an innovative cooperation mechanism aiming at pursuing the cost
benefit of global emission reduction. Scientifically speaking, the global homoge-
neity of greenhouse gas emission makes the effect of relieving global climate
change by realization of greenhouse gas emission in any place the same. From the
perspective of economics, the huge difference of emission reduction costs between
developed countries and developing countries becomes the economic driving force
for developed countries to seek low cost greenhouse gas emission reductions in
developing countries through CDM project. Because of this, three kinds of
cooperation mechanisms, i.e., emission trading (ET), joint implementation (JI) and
(CDM) based on market mechanism and aiming at incorporating the realization of
emission reduction target into protocol in a cost effective way. Among them, only
CDM is a project-level cooperation mechanism between developed countries and
developing countries.
7.2 Development Potential of Clean Development Mechanism Project of DSM 497
CDM interpreted in Article XII in protocol allows governments of industrial-

ized countries or private economic entities to carry out greenhouse gas emission
reduction project and thereby obtain certified emission reductions credit
(CERs). Industrialized countries could offset the obligation of greenhouse gas
emission reduction in their own countries with the obtained CERs. CDM mech-
anism dedicates to stimulate the sustainable development of developing countries
and allows developing countries to realize the target of reducing the concentration
of greenhouse gas in the atmosphere by depending on it. Therefore, CDM is a
Double-win mechanism.
It is required in protocol that CDM project must meet the following conditions
in order to realize double win target:
1. All relevant contracting partners must participate in this project on their own
initiative, but CDM project and the participants of the project must subject to
the approval of National Authorities of participants (DNA).
2. The project must produce actual, measurable, and long-term greenhouse gas
emission reduction benefits.
3. The greenhouse gas emission reduction produced by the project must have
additionality, which means the activity and the corresponding emission
reductions of this project will not happen without the support of CDM.
7.2.1.3 Purpose of Participating in CDM Cooperation
The scale of international CDM market is continuously enlarged along with the
coming into force of protocol and the constant improvement of international and
domestic rules of CDM. The attraction to parties participating in CDM coopera-
tion, whether they are participants from developed countries or from developing
countries, are the expected revenues that could bring about by CDM project.
For developed countries, CDM provides a kind of flexible performance
mechanism at low cost to ensure the realization of their legally binding control and
limitation or emission reduction obligations of greenhouse gas stipulated in the
protocol. It is of extreme importance to the success of protocol and the estab-
lishment of international emission reduction system. CDM project also provides a
wider technology transfer channel and market for developed countries. Developed
countries could make profits from the trading of obtained CERs in international
carbon trade market and prompt the optimal allocation of emission reduction
resources.
For developing countries, participate in CDM cooperation project could obtain
economic benefits from the selling of CERs and facilitate the realization of sus-
tainable development of economy, society and environment, such as improve
environment and land utilization mode, reduce emission of regional pollutants and
the negative impact brought about by climate change; increase economic benefits,
widen financing channels, obtain advanced technologies, increase employment
opportunities and incomes, prompt the development and employment, and eliminate
poverty of rural area; improve energy structure and energy efficiency, lower the
degree of dependence of developing countries to fossil fuel, propel technology
development and capacity construction of developing countries, etc. For those
developing countries that shoulder the heavy responsibility of economic and social
development, these expected benefits of CDM provide a strong motivation for the
active participation of developing countries in CDM project. China is a developing
country with the largest emission reduction potential. Some research shows that the
potential will occupy 3536 % of the total potentials of the globe. Not only greater
economic benefits and advanced environmental friendly technologies could be
brought about by fully utilizing CDM opportunity, but the sustainable development
of social economy in project located place and China could be propelled.
The double win mechanism of CDM also provides a kind of example of
international harmony for human beings in the aspect of solving international
dispute that is related to global climatic change, social development, and regional
environment in the way of peace-cooperation-mutual benefits.
7.2.2 Operation Process and Development Potential of CDM
CDM is a kind of market mechanism based on the project. From the perspective of
economics, CDM project activity creates a kind of resource commodity, i.e.,
carbon emission reductions (CERs). The hosting country in developing countries
in CDM project could transfer this kind of resource commodity with compensation
to participating developed countries of contracting parties according to interna-
tional rules and procedures that are verified and approved, while this kind of
resource commodity is produced by the implementation (commercial operation) of
specific CDM projects one by one. The carbon trade markets of various scales and
in various regions have been formed internationally regarding the credit line of
trade of CERs of the three kind cooperation mechanisms in protocol. Therefore,
the production and sale of CERs of CDM project could be operated in accordance
with the requirement of market mechanism, which could not only standardize the
trade of CDM but could also increase economic benefits and lower trade costs of
CDM project.
7.2.2.1 Development Procedures of CDM Project
According to the stipulation about the model and procedure of CDM in Mar-
rakesh Accords, CDM project need to go through the following main stages from
the preparation at the beginning to the final implementation and production of
emission reductions. The specific procedures are as shown in Fig. 7.6.
1. Project identification (preliminary work). In the stage of the concept design of
CDM project, the relevant entities will reach a consensus regarding technology
Fig. 7.6 Development

procedures of CDM project Project identification
Design and description of

project
Approval by the State Validation
Registration
Monitoring
Verification / certification
Issue of CERs
selection, scale, funds arrangement, trade costs, and emission reductions of

CDM project through negotiations.
2. Project design. After determining the potential CDM project to be developed,
the employer of the project shall submit CDM project design document (PDD)
(Chinese and English version) for international and domestic approval. As
compilation of PDD has strong technical requirement because it needs to apply
the corresponding approved base line and monitoring methodology, and be in
accordance with PDD compilation guideline and a series of guidance provided
by CDM Executive Board (EB), the employer of the project could invite CDM
development consultation company/experts to help complete PDD.
3. Approval of participating country. According to the basic condition of eligi-
bility of CDM project, the applied CDM project must be issued with an
approval letter by national CDM agency (DNA) of participating party to prove
the government of this country agrees and is willing to participate in this
project, agrees the employer of this project implements CDM project and
proves this project could help the country realize sustainable development.
4. Validation of eligibility of the project. The participants of this project invite

independent validation agency authorized by EB to validate the eligibility of
CDM project and submit validation report in accordance with CDM model,
procedure, and submitted PDD document.
5. Registration of project. Request for registration of the project will be proposed
to CDM EB if the validation report of independent validation agency regards
this CDM project as an eligibly CDM project and this project will be officially
registered as a CDM project if the review of EB is passed.
6. Implementation, monitoring, and report of the project. CDM project enters into
specific implementation stage after registration. The employer monitors the
relevant data of project activity in accordance with the monitoring plan in PDD
of registered project and submits the report of emission reduction monitoring of
the project regularly.
7. Verification and certification of emission reductions of the project. The so-
called verification refers to the invited independent validation agency makes
regular independent verification to the monitoring data of implementation of
registered CDM project and emission reductions produced thereby, and con-
firms the accuracy, integrity, and transparency of its result. The so-called
certification refers that the independent auditing agency certifies the realization
of verified emission reductions of this CDM project activity in written form.
8. Issue of CERs. The independent validation agency will submit the application
for issuing this CERs to EB on the basis of verification and certification of
emission reductions, and the CERs will be officially issued once the review of
EB is passed.
7.2.2.2 Development Field of CDM Project in China
China is not only the leading emitter of greenhouse gas but also one of the largest
possible victims of greenhouse gas emission. China keeps making unremitting
efforts (Control of population growth, afforestation, improvement of energy effi-
ciency, etc.,) although we do not possess the condition and ability of promising
emission limitation or reduction of greenhouse gas. The per capita emission in
China is very low but the annual total emissions ranks the second in the world, thus
China will actively participate in international cooperation in the field of climatic
change, implement sustainable development strategy and climatic change policy
so as to reduce the growth rate of greenhouse gas emission and prompt the har-
monious development of society.
Technological options of CDM project could be generalized as follows
according to energy structure, energy strategy, environmental policy, and energy
technical route in China.
1. High efficiency clean power generation technology and combined heat and
power generation, such as high efficiency and low loss power transmission and
distribution system of natural gas-steam combined cycle generation,
supercritical coal fired power generation, pressurized circulating fluidized bed

boiler power generation, polygeneration coal fired power generation, etc.;
2. Core-fired industry and civil boiler and furnace, including energy conservation
technology transformation of coking furnaces and blast furnaces, energy
conservation reconstruction of equipment and technical process of high power
consumption industry, iron and steel industry, petrochemical industry, build-
ing materials industry, etc.;
3. DSM: electricity saving reconstruction of industrial general-purpose equip-
ment, such as the reconstruction of frequency control high efficient motors,
high efficient fan and water pumps, green lighting, amorphous state high
efficient distribution transformers, etc.;
4. Energy conservation demonstration projects of city buildings, designs of
energy conservation buildings, optimization of energy system of buildings and
new type building materials of baking-free bricks;
5. Energy conservation demonstration projects of urban traffic, including the
application of natural gas fuel vehicles, fuel-cell vehicles, high efficient
engines of vehicles, hybrid electric vehicles, bioethanol and biodiesel;
6. Central heating of natural gas prompted in Northern cities;
7. Recycling of methane in coal bed of coal mine, power and heat generation of
gas;
8. High efficient conversion system of biomass energy: central heating, gas
supply, and power generation demonstration projects;
9. Demonstration projects of wind farms;
10. Demonstration projects of solar farms PV;
11. Power and heating generation of municipal solid waste incineration and
recovery of landfill gas methane;
12. Reconstruction of technology of CO2 emission reduction during the techno-
logical process of cement plant;
13. Technology of CO2 recovery and resource recycling;
14. Afforestation, reafforestation, etc.;
15. Emission reduction projects of other F-gases with high GWP value: Hydro-
fluorocarbon (HFCs), Perfluorocarbons (PFCs), sulfur hexafluoride (SF6), etc.
In which, the types of CDM projects encouraged by government in China is as
shown in Table 7.3.
7.2.3 Development of CDM in DSM
7.2.3.1 Priority Fields of Development of CDM in China
According to the energy structure and the energy efficiency level, as well as the
sustainable development strategy of energy and environment, the priority fields of
CDM development in China are improvement of energy efficiency or energy
Table 7.3 Types of CDM projects encouraged by Government in China

Demand-side terminal energy efficiency Renewable energy projects
improvement projects
Air conditioner cooling efficiency, heat supply, Wind energy, solar energy, run of river
and other household appliances, hydroelectric power, biofuel, biodiesel and
refrigeration, spray and fire extinguishing geothermal projects, methane (coal-bed
agent containing fluorine chemicals (HFCS, methane projects, waste landfill gas
PFCS, SF6, etc.,) utilization, etc.), fugitive emission projects
of fuel, and land applicable, change of land
use and afforestation projects (return
farmland to forests or grassland projects in
Western area), etc.,
conservation, fuel replacement, and recycling of methane, etc. The technology

options of CDM project of power industry in China could generally be classified as
follows:
1. Supply side
High efficiency clean power generation technology and combined heat and
power generation, such as natural gas and fuel gas-steam combined cycle
generation, supercritical and ultra supercritical coal fired power generation,
pressurized circulating fluidized bed boiler power generation, polygenera-
tion coal fired power generation, etc.;
High efficiency and low loss power transmission and distribution system;
Projects of energy conservation technology transformation of current power
generation equipment;
Renewable energy power generation (Wind power, hydroelectric power,
solar power generation, geothermal power generation, renewable biomass
energy power generation, etc.);
Recycling of methane in coal bed of coal mine, fuel gas power generation;
Power generation of municipal solid waste incineration and recovery of
landfill gas methane;
Recycling and power generation of methane by using anaerobic process of
agricultural and industrial organic wastes
2. Demand-side
DSM: electricity saving technology transformation of industrial general-
purpose equipment, such as transformation of frequency control high effi-
ciency motors, rare earth permanent magnetic motors and high efficiency
fan and water pumps, optimization and transformation of high efficiency
compressor system, transformation of amorphous state high efficiency dis-
tribution transformers and electrothermal furnaces, etc.;
Recovery and power generation of waste heat, waste gases, and excess
pressure of high power consumption industry. For instance, iron and steel
complex conserve 2.66 million tce energy annually by implementing coke
dry quenching and differential pressure of top of blast furnace for power
generation, power generation transformation of blast furnace gas, and

recovery of converter gas. 30 sets/year low temperature exhaust heat power
generation assemblies of production line with daily production of 2,000 tons
cement could conserve 3 million tce energy and reduce 8 million tons CO2
emission annually;
Projects of energy conservation technology transformation of technological
process of high power consumption industry, such as electrolytic aluminum,
electrolytic copper, etc.;
DSM projects in energy conservation of city buildings, such as green
lighting, which is mainly used in public utilities, hotels, commercial
buildings, office buildings, and sports and art venues. 29 TWh electricity
that equals to emission reduction potentials of 32 million tons CO2 could be
saved by prompting high efficiency electricity saving lighting system, rare
earth three colors fluorescent lamps, energy conservation air conditioners,
refrigerators, and other electric appliances, etc.;
DSM activities (i.e., strengthen energy efficiency testing of products) aim-
ing at effectively implement mandatory national energy efficiency standard
and label of power consumption equipment (lighting and air conditioners,
etc). The new methodology of Increase Market Entry Rate of High Effi-
ciency Products of energy efficiency testing activity of air conditioners
developed by Ghana is suitable for prompting the activities of implemen-
tation projects of energy efficiency standard and label, and has wide pro-
motion and application prospects in China. At present, the energy
conservation products market in China varies greatly, which affects market
development of energy efficiency products to some extent. By developing
this kind of CDM project, the low efficiency energy conservation products
are forged and fake commodities on the market could be effectively
eliminated;
Electricity saving energy management contract. An ESCO developed a
CDM project of energy management contract in Ulan Bator, Mongolia, and
submitted a new methodology-energy efficiency improvement project of
renewing or replacing boilers of energy service company to the EB of
CDM. Although it only covers one of the major fields of energy manage-
ment contract, it is enough to show the great enlightening and demonstra-
tion significance to ESCOs in China by developing electricity saving energy
management contract project into CDM project.
The direct target of CDM project is the emission reduction of greenhouse gas,
i.e., CO2, methane, nitrous oxide (N2O), HFCs, PFCs, and SF6, while the direct
target of DSM is to reduce power consumption, and save power generation fuel
consumption and reduce the emission of corresponding pollutants when saving
electricity. Therefore, it can be seen that CDM and DSM are correlated. The users
will lose the initiative if lots of barriers in the aspect of financial indexes,
investment and financing and the relevant technologies, policies, and mechanisms
are encountered by electricity saving DSM project. However, if the way of
thinking is changed, which is to implement within the frame of CDM, then funds,
technologies, and equipment of developed countries would be attracted through
transfer of credit line of electricity saving and emission reduction to solve the
barriers met by energy conservation projects in the aspect of financial perfor-
mance, investment and financing channels and technologies, or new DSM
implementation policies and mechanisms, such as strengthening of national energy
efficiency standard and label of power consumption equipment, reinforcement of
electricity saving energy management contract, etc., will be guaranteed to be
implemented through the funds of purchasers. In this way, on the one hand, DSM
electricity saving project will be successfully implemented and emission reduc-
tions will be got; on the other hand, additionality, which is the basic requirement
for qualified CDM project, of emission reductions of CDM project will be
guaranteed.
7.2.3.2 Status Quo of the Development of CDM Project in DSM Type
The relevant researches that are jointly supported by World Bank, German tech-
nical cooperation (GTZ), and Ministry of Science and Technology show that the
power department is the field with the largest potential of CDM project. The
emission reduction potential condition of CDM simulated according to department
within the scope of emission reduction cost of USD 050/ton-C or USD 013.6/
ton-CO2 by adopting the analysis method of marginal cost reduction (MCA) is as
shown in Table 7.4.
CDM projects of DSM type have great market potential in China. The emission
reduction potential is very large only by making general analysis of the two largest
projects in the ten major energy conservation projects of Medium and Long-term
Special Plan of Energy Conservation of National Development and Reform
Commission. One is energy conservation project of motor system. Currently, the
total capacity of all kinds of motors in China has exceeded 400 GW, the actual
operation efficiency is 1030 % lower than that in the developed countries and
electricity occupies 60 % of the total electricity in the whole country. The oper-
ation efficiency could be increased by 2 % and annual power conservation could
Table 7.4 Analysis table of potential of CDM emission reduction in China [7]
Industry Share (%) Industry Share (%)
Iron and steel 10.7 Copper 0.3
Synthetic oxygen 4.4 Paper making 0.4
Ethylene 1.2 Commerce 4.4
Fertilizer 1.0 Communications and transportation 7.7
Cement 10.4 Urban civil 3.3
Brick making 6.8 Rural civil 8.1
Glass 0 Electric power 37.3
Aluminum 4.0 Others 2.9
reach 20 TWh, which equals to 22 million tons emission reduction of CO2 if high
efficiency energy conservation motors, rare earth permanent magnetic motors are
actively prompted, optimization and transformation of high efficiency energy
conservation fans, water pumps, compressor system are implemented, and fre-
quency control and automatic system control technology are expanded. The sec-
ond one is the green lighting project. Lighting electricity consumption occupies
about 13 % of the total electricity in the whole country. The efficiency ratio of high
energy conservation fluorescent lamps and general incandescent lamps is 1.0: 2.6,
and 7080 % energy could be conserved by replacing incandescent lamps with
high energy conservation fluorescent lamps. 2030 % electricity could be saved by
replacing traditional inductive ballasts with electronic ballasts and 90 % electricity
could be saved by replacing incandescent lamps with light emitting diodes (LED)
in traffic lights. 29 TWh electricity could be saved, which equals to emission
reduction of 32 million tons CO2 if high efficiency energy conservation system and
rare earth three colors fluorescent lamps are actively prompted in public utilities,
hotels, commercial buildings, large public activity areas and residential users, and
automatic transformation of production assembly line of high efficiency lighting
electrical products is carried out.
In September 2012, a CDM demonstration project applied by SGCC in wind,
solar, storage and transmission has passed review by UN CDM Executive Council
and been successfully registered in UN. So far, SGCC has eight projects registered
in UN CDM Executive Council with annual certified emission reduction of CO2 up
to 1.37 million tons. SGCC has been placing great importance on energy con-
servation and emission reduction and proactively executing CDM projects, by
developing 16 CDM projects including national wind, solar, storage and trans-
mission demonstration project, early replacement of distribution transformer and
sulfur hexafluoride gas recycling, involving energy-saving and energy efficiency,
new energy and renewable energy areas. It is predicted that annual certified
emission reduction will be up to 2.65 million tons. SGCC is still striving to further
strengthen the capability to reduce carbon emission, make good use of the role of
power grid and actively work out a way to combine electricity trade and carbon
trade.
Although the emission reduction potential of CDM in the field of DSM in China
is very large, it is seldom to see CDM projects of DSM type from the perspective
of CDM projects that are applied currently and approved by NDRC. Till April 25,
2010, there had been 2,475 CDM projects approved by NDRC, in which over 200
had been signed by EB. It is a pity that CDM project involved DSM is little.
7.2.3.3 Some Major Issues in Developing CDM Project in DSM Type
1. First, the issue of baseline and monitoring methodology. As the trade of emis-
sion reductions of CDM project is to sell a kind of nonmaterial commodity
that is not produced by the project itself, i.e., a kind of trade of emission
reduction credit/index without logistics exchange, and is impalpable and

invisible, there must be a scientific method to calculate, measure, verify and
prove the emission reductions of the project, then the methodology is produced.
CDM (EB) of UNFCCC stipulates a qualified CDM project must adopts the
methodology and the standard format approved and issued by EB for document
compilation and project implementation. By the end of April 2009, EB had
approved about 136 methodologies of CDM (in which there are 63 large-scale
methodologies, 14 integration methodologies, 43 small-scale methodologies, 9
large-scale afforestation and reafforestation methodologies, 2 integration affor-
estation and reafforestation methodologies, 5 small-scale afforestation and
reafforestation methodologies, etc. While there are few methodologies about
energy conservation and DSM, which thereby influenced the development of
CDM projects concerning DSM.
2. Second, the issue of additionality. According to the relevant stipulations in
Marrakesh Accords, a qualified CDM project must have real, measurable,
and long-term emission reduction effect and this kind of emission reductions
must be additional, i.e., the activity and corresponding emission reductions of
this kind of project will not happen without the support (revenues of emission
reductions) brought about by this CDM project. As energy conservation cost
benefits of many DSM type projects are relatively good and it is hard to prove
as the additionality of CDM projects from the perspective of index of energy
conservation investment cost benefits, the additionality of the project must be
demonstrated from the analysis of other barrier factors. Therefore, it appears to
be more complicate when comparing with other types of CDM projects and the
difficulty of developing DSM type projects into CDM projects will be
increased.
3. Third, the issue of base ine and monitoring method. For energy conservation
DSM projects, base line is basically the energy efficiency of current electric
equipment before energy conservation reconstruction, and their actual realistic
and historical emission reductions. The base line is made hard to be quantified
and determined as energy efficiency of equipment lacks historical record data or
is difficult to be measured separately, or involves 1,000 of households and has
difficulty in statistics. The monitoring plan of energy conservation and emission
reductions after the implementation of CDM project is also faced with the same
difficulty, which thereby affect the enthusiasm of potential project developers.
However, for DSM project, there is still one favorable factor in determining the
base line. Considering power supply comes from the power grid, the corre-
sponding emission reductions will be obtained by multiplying electricity saving
quantity by emission factor of OM and emission factor of BM, if the electric
energy-saving quantity or capacity saving quantity could be corrected monitored.
The authority in charge of CDM in China, NDRC promulgated the emission
factors of base line of power grid in most areas in December, 2010, which is shown
in Table 7.5.
Table 7.5 2010 baseline emission factors for regional power grids in China
Regional power grid Marginal emission factor Marginal emission factor
of OM (ton CO2/MWh) of BM (ton CO2/MWh)
Power grid of North China region 0.9914 0.7495
Power grid of North-east region 1.1109 0.7086
Power grid of East China region 0.8592 0.6789
Power grid of Central China region 1.0871 0.4543
Power grid of North-west region 0.9947 0.6878
Power grid of South China region 0.9762 0.4506
Power grid of Hainan Province 0.7972 0.7328
Note (1) The OM is the mean weight of the marginal emission factor during 2006 and 2008; (2)
The BM is the marginal emission factor by the end of 2008
If the scale of electricity saving project is relatively small and electricity saving
is less than 60 GWh/year, the project could be treated in accordance with electricity
saving energy efficiency project of small-scale CDM project, and simplified
methodology and application procedures could be used and simplified cost standard
could be adopted for payment at this time to save trading cost, and input of man-
power and time. Several small projects could also be bundled into a single small
project for treatment. The large single electricity saving technology CDM project of
DSM type could be organized into planning mode CDM project according to the
latest guidance of CDMEB. First, obtain the approval of CDM (P-CDM) by taking
this electricity saving plan as a single CDM project, then introduce the specific
electricity saving CDM project activities under this plan one by one according to
the procedure of planning mode CDM project to give approval and implementation.
There is a very flexible arrangement for the approval condition, location distribu-
tion, and time span of these specific projects, which could obviously improve
approval efficiency of CDM projects, reduce the costs, and save the time.
7.2.4 Case Analysis
7.2.4.1 Electricity Saving Management of Some Supermarkets in Sao

Paulo, Brazil
1. Overview
Companhia Brasileirade Distribuicao (CBD) region in Sao Paulo is the largest
food retail district in Brazil. This area had the total revenues of 15.3 billion Real
(equal to USD 5.1 Billion) and about 15 % market share in 2004. CBD area had
has 551 supermarkets and over 60,000 employees till December 2004. The
objectives for implementation of this project are the 13 supermarkets among them,
as shown in Table 7.6.
Table 7.6 CDM project of some supermarkets in Sao Paulo, Brazil

No Supermarkets Address Power Power
consumption consumption
before after
implementation implementation
of the project of the project
(MWh) (MWh)
1 COMPREBEM Estrada do Campo Limpo, 6,765 5,812
459-Sao Paulo-SP
2 EXTRA Rua Senador Verguetro, 4 2 8,295 5,625
8-Sao Caetano do Sul-
SP
3 PA-SP Al. Gabriel Montetro da 2,512 2,133
Silva, 1.351-Sao Paulo-
SP
4 COMPREBEM Av. Vila Ema, 1370-Vila 1,592 1,352
Prudente-Sao Paulo-SP
5 COMPREBEM R. Cons. Mo ret r a de 1,406 1,337
Batros, 2075-Sao Paulo-
SP
6 PA-SP R. Consllhetro 1,291 1,181
Furtado,1.440-Sao
Paulo-SP
7 COMPREBEM Av. Dna. Bllmtra Marin, 712 625
3917-Sao Paulo-SP
8 PA-SP A v. Santo Amaro, 3.271- 1,231 1,052
Sao Paulo-SP
9 PA-SP Av. Lavandisca, 249/263, 1,280 1,133
Moema-SZio Paulo-SP
10 SENDAS Av. Fliipe Uebe, 451/469- 1,288 1,211
Campos dos
Goytacazee-RJ
11 PA-SP Av. Santo Amaro!1001-Sao 769 684
Paulo-SP
12 PA-SP Rua Teodoro Sampaio, 3,740 2,846
1.933-Sao Paulo-SP
13 COMPREBEM Rua Pinhetros,905/19-Sao 550 518
Paulo-SP
2. Technological approaches
Establish management system in the way of special service agreed in the
contract so as to monitor power consumption.
In order to achieve a higher efficiency operation standard of supermarket, create
a supermarket operation process after setting the target of daily power consump-
tion, especially the power consumption target in peak period and carry out training
in this aspect in each supermarket.
As different brands have different consumption modes, the particularity of each

brand shall be taken into consideration in determining the energy demand level of
each supermarket through comparison of several supermarkets.
The most important one is the operation maintenance of air conditioners and
refrigeration system as this kind of load is the main part of power utilization of
supermarket. Therefore, extremely strict operation maintenance regulations are
required and the assembly performance of equipment is also needed to be invested
for improvement.
For most supermarkets, change the lighting lamps into more high efficiency
energy conservation lighting fixtures and design more suitable and effective
lighting or decoration effects according to the characteristic of each region.
For some supermarkets, replace electric baking ovens with gas ovens (54 kW),
displace refrigerating machines for frequency conversion compressors and use
self-prepared power generators (120 kVA) during peak load period of power grid.
The greenhouse gas emission reduction in this CDM project is realized through
reduction of power consumption. Although Brazil has lots of hydroelectric power,
fossil fuel power generation occupies the most part, especially in marginal power
generation, thus reducing power consumption could achieve the purpose of energy
conservation and emission reduction.
3. Base line
The baseline of power consumption in this project is the actual power con-
sumption of supermarkets before the implementation of this project.
After implementation of this project, emission reductions of CO2 are got by
multiplying electricity saving by emission factor. The measurement and calcula-
tion result is that annual emission reduction of CO2 could be 3,195 tons after 2005.
7.2.4.2 Green Lighting Project of Shijiazhuang City, Hebei Province,

China
DSM guidance center of Hebei Province was responsible for the implementation
of demonstration project in Shijiazhuang, Hebei Province jointly sponsored by
National Development and Reform Commission, United Nations Environment
Program and Global Environment Facility. This project prompted the utilization of
over 320,000 energy-saving lamps by providing subsidies to consumers,
strengthened energy conservation awareness of the whole society, and partially
relieved the shortage of power supply. However, this demonstration project had
completed in 2004. DSM guidance center of Hebei Province decided to develop
promotion plan into CDM project by further prompting the high quality energy-
saving lamps certified by ISO9001 and China Energy Conservation Certification
Center in the form of subsidy.
There are two situations for the base line of this project: One is to use incan-
descent lamps, the other is to use compact fluorescent lamps. The result of
investigation and research made in July 2005 showed the utilization rate of
compact fluorescent lamps in Hebei Province is very low due to the high cost and
unstable quality, and the installation quantity of compact fluorescent lamps only
occupies 10 % of the total installation quantity of lighting fixtures, but the pro-
portion of that in Shijiazhuang is as high as 31 %. The result of investigation and
research made in November of the same year showed about 97.1 % people being
investigated will not purchase energy-saving compact fluorescent lamps without
subsidy. Therefore, the selection of base line of this project is the incandescent
lamps. In order to ensure the additionality of this project, the old and usable
incandescent lamps shall be taken for exchange when the compact fluorescent
lamps provided with subsidy by this project are purchased. Meanwhile, purchasers
must fill in a questionnaire, which is used to judge whether the purchasers belong
to the residents who will not purchase energy-saving compact fluorescent lamps
without subsidy.
This project plans to sell 600,000 compact fluorescent lamps annually. Suppose
97 % compact fluorescent lamps meet additionality requirement, the power of
each compact fluorescent lamp is 9.95 W and the annual operation is 2,000 h, the
annual CO2 emission of this project would be 13,000 tons according to the cal-
culation of the above conditions. The power of an incandescent lamp that is of the
equivalent brightness as that of a 9.95 W compact fluorescent lamp should be
40 W. If calculated as per 2,000 h operation annually, the annual emission of CO2
of base line would be 51,000 tons. Therefore, the annual emission reduction of
CO2, SO2 and NOx of this project is 38,000 tons, 270 tons and 90 tons, respec-
tively. Generally, only emission reductions of CO2 are needed to be calculated in
CDM projects.
As this project could decrease power supply of power grid and thereby reducing
the emission of CO2 of coal fired power plants in power grid, the boundary of base
line of this project is set as power grids and the users of compact fluorescent lamps
that meet additionality requirement.
7.3 Development Outlook of White Certificate
7.3.1 Concept of White Certificate
7.3.1.1 Basic Concept
White Certificate (Also called Trade white certificate and referred to as

TWC) is a kind of new energy conservation mechanism that emerges from Europe
in recent years and is a kind of certificate corresponding to the Green Certificate
in clean energy. It is both a kind of policy measure and a trading system with the
outstanding feature of integrating order-control regulation with the tradable
mechanism based on the market. It means the energy conforms to the statutory
energy conservation standard by implementing energy conservation projects and
7.3 Development Outlook of White Certificate 511
adopting energy conservation technologies during the application stage, and

energy conservation amount of nominal standard is completed within the stipu-
lated time period. This kind of White Certificate is tradable, responsible parties
could realize the energy conservation requirement either through their own efforts
or purchasing these certificates from others so as to complete their own energy
conservation tasks. The establishment of White Certificate system is aimed at
improving energy utilization efficiency of the whole society by prescribing the
advance of objective energy efficiency of energy providers such as energy sup-
pliers within certain time period. Its implementation mechanism is energy sup-
pliers shall submit certain amount of certificates to supervision department
within a limited time period. In case energy conservation task is not completed,
suppliers will accept the corresponding penalty, which will exceed the costs of
purchasing certificates of the same quantity. Therefore, those suppliers that have
difficulty in completing energy conservation tasks are willing to purchase cer-
tificates in order to avoid the penalty, while those enterprises that overfulfill the
tasks could get profits by selling certificates.
At present, the countries that have started the trail implementation of White
Certificate mainly include the United Kingdom, Italy and France. As this policy
measure have deeply influenced the role positioning of current energy efficiency
market to energy suppliers, the European Union has started to apply the experience
of above-mentioned three countries to energy efficiency improvement plan of the
whole Europe.
7.3.1.2 Objective for Implementation
As a kind of certification mechanism related to energy conservation, the main

objectives of implementation of White Certificate are energy suppliers, which
include power utilities (Mainly power generators and distributors), gas companies,
energy conservation service companies, etc. Initially, White Certificate is sold
by government to energy suppliers according to the condition of completion of
energy efficiency target, and it could be freely traded among energy suppliers. By
implementing tradable White Certificate, on the one hand, the condition of
obtaining the advance of objective energy efficiency by energy suppliers within the
stipulated time period could be measured and assessed; on the other hand, the
complete market-oriented operation is realized. Energy suppliers could carry out
transaction of certificate through bilateral trade or trade market under certain
market rule condition.
According to the design concept of White Certificate, all participants could
benefit from White Certificate system.
1. For government supervision department, White Certificate provides a mea-
surable method that is consistent with the target of government.
2. For obligation institutions (OB) with energy conservation target, White Cer-
tificate provides a method for realizing target with the minimum cost and also
provides a kind of flexibility as OB could either realize through their own

efforts or by signing White Certificate supply contract with other OB or
market participants.
3. For those market participants that could get and sell White Certificate,
White Certificate provides an additional source of revenue. The holding and
risk management benefits of White Certificate is also provided expect the
direct commercial profits being obtained.
7.3.1.3 Reasons for Selection
The reasons for current countries to adopt White Certificate are varied, but the
followings are the main aspects by summing up.
1. To meet the requirement of Tokyo Protocol.
2. White Certificate could provide lots of practical benefits for all participants.
3. Establish supply and demand relation that could facilitates adjustment of
energy efficiency through the implementation and trade of a series of certifi-
cates such as White Certificate.
4. The support from general public is got as energy conservation and environ-
mental issues are involved.
5. European directives require all member countries to realize the gradual
increase of annual target of energy conservation through energy service and
other energy efficiency improvement measures, and point out the mechanism
of White Certificate trade is an appropriate tool for prompting the imple-
mentation of relevant projects and providing attraction.
7.3.1.4 Comparison of Energy Conservation Policies that are Based

on the Market
At present, the major policies of energy efficiency improvement and emission

reduction formulated on the basis of market in energy field include [8]:
1. White certificate. Trade scheme of energy efficiency energy efficiency scheme
that is finally used;
2. Black certificate. Carbon trading schemescheme of reducing CO2 emission;
3. Green certificate. Renewable energy commitment trading scheme-increase the
renewable energy that is utilized during power generation process.
In which, Green Certificate and White Certificate are the ones with rel-
atively wider coving scope and the characteristics are as follows: (1) As the two
certificates have different targets, they could not be exchanged; (2) For certificate
(only include electricity), green energy could be easily measured; (3) The evalu-
ation of energy conservation of White Certificate would absolutely more
difficult and wider kinds of energy could be covered; (4) Green and white cer-
tificate has interaction in emission trading: Green Certificate and White Cer-
tificate all have the same CO2 emission target. CO2 emission reductions realized
through energy efficiency project could be sold in trade market; (5) The effec-
tiveness of trading mechanism of White Certificate in prompting energy effi-
ciency projects is worth to be explored i.e., when prompting energy utilization
efficiency with the certificate trade instead of renewable energy or reduction of
CO2 emission, the efficiency of energy conservation and emission reduction might
be different.
7.3.2 Operation Mechanism of White Certificate
7.3.2.1 Basic Framework
The implementation of White Certificate is usually to cooperate with national

energy conservation policies and energy conservation activities of terminal utili-
zation of energy are also included. Its operation could be realized in many ways.
Generally speaking, the operation of white certificate is usually completed in three
steps.
1. Step one. Public authorities (i.e., government and local government) stipulate
the basic principle and operation specification of white certificate through
hearing. The following main contents are included:
National energy conservation target (task). The general target of national
energy conservation and the energy conservation objective expressed with
annual conservation of primary or terminal energy.
OB. Units that need to assume energy conservation obligation of govern-
ment according to the stipulation of law.
Appropriate energy conservation projects. The projects that could produce
actual, remarkable, and identifiable energy conservation quantity that is
officially recognized by the authority.
Eligible implementers of energy efficiency projects (EI). Authorized orga-
nizations that could effectively implement energy efficiency projects.
Decomposition of energy efficiency target. Allocate general national target
among institutions that assume obligation.
2. Step two. Establish the corresponding relationship of energy conservation and
white certificate in quantity:
According to the definition of terminal energy efficiency and energy service
guidance method in European Parliament, White Certificate is a certificate
issued by an independent certification authority for confirming energy conserva-
tion produced by adopting energy conservation measures and applied by market
participants. In other words, it is to change energy conservation obligation into
Conversion
Conserved Target of White
energy quantity Certificate
Fig. 7.7 Schematic diagram of relationship between target of white certificate and conserved
energy quantity
White Certificate. The appearance of White Certificate makes a recognized

connection mechanism established between an objective physical quantity (such as
ownership of a certain quantity of energy efficiency) and a fluctuating physical
quantity that is hard to be measured (such as energy conservation quantity), as
shown in Fig. 7.7.
White Certificate adopts the bottom-up measurement system, which means
energy conservation (or emission reduction) obtained from the implementation
process of energy efficiency measures shall all be expressed with relative quantity
and universal unit(or emission reduction), and be combined with the results from
other energy conservation policies and measures. When units assuming energy
conservation obligation need to prove the quantitative relation of energy conser-
vation quantity with their energy conservation targets, the White Certificate
issued could be depended on and be taken as the condition for negotiation. It is a
necessity under the market environment.
What need to be noticed is that if energy suppliers select White Certificate,
the target of each supplier (delivered energy efficiency quantity) shall be set as
the percentage of energy (electric power/natural gas, etc.,) quantity distributed by
them instead of the absolute value. First, as the latter greatly reduces the profits of
energy suppliers because they could not transfer the cost of certificate to users, this
kind of certificate trade system will produce rather serious risks. Besides, the
single target set by separating from market evolution seems unfair. Secondly, this
system risk may form a very big rebound effect, i.e., it will cause the massive
increase of energy service consumption. At last, the target of expressing White
Certificate system with percentage of sale of energy is especially suitable for
prompting the individual that assumes energy conservation obligation to reach
energy conservation standard in a certain level. It could stimulate and tap energy
conservation potential than traditional incentive policies better.
3. Step three. Supply and demand market of White Certificate appeared under
above-mentioned mechanism
Institutions assuming obligation must abide by the obligation of realizing
White Certificate and they are the Demand-side of White Certificate (they
could also become the supply side by obtaining certificate). Qualified imple-
menters of energy conservation projects could get and own the recognized White
Certificate, and be as the supply side of White Certificate. Meanwhile, qual-
ified implementers of energy conservation projects could also be the institutions
assuming energy conservation obligation.
The supply and demand market of White Certificate is established to this
extent. On the one hand, participants with obligations could purchase white
certificate in corresponding quantity according to the requirement when they could

not complete energy conservation task through technology transformation. On the
other hand, extra certificates could be sold by institutions without energy con-
servation obligations but getting the white certificate, or institutions with energy
conservation obligations (obligation energy conservation institutions) who
obtained white certificate that exceeding the energy conservation target.
7.3.2.2 Trading Mechanism
White Certificate is issued by the government agency (or certification authority)

for certification of the quantity of energy that has already been conserved.
Therefore, a baseline scenario is required for comparison when the actual con-
served energy quantity is calculated, as shown in Fig. 7.8. Baseline scenario refers
to energy demand under the condition without any energy conservation measures.
The relevant parties participating in White Certificate trade include electric
power and fuel gas dealers, distributors, and energy conservation service com-
panies, etc. Financial Intermediaries and spontaneous purchasers could also par-
ticipate in except these social institutions. The roles of each participant in the trade
market are shown in Fig. 7.9.
Generally speaking, the price of White Certificate trade depends on the
following items:
1. The urgency of the requirement for the realization of general energy conser-
vation target.
2. Price of energy carriers.
3. Shape of energy conservation marginal cost curve (including all parts).
4. Market transparency of White Certificate.
5. Other changes of the policy (For example, emission trading system, tax poli-
cies, etc.,) that might influence White Certificate market.
Base line
Power consumption
Energy
conservation
Actual power consumption
Fig. 7.8 Schematic diagram of white certificate

Distributors
Electric power
and fuel gas Market Terminal users
dealers
Energy conservation
service companies
Fig. 7.9 The roles of each participant in the trade market according to white certificate
The trading mechanism of White Certificate is shown in Fig. 7.10.

Theoretically, White Certificate trade make White Certificate mechanism
become a kind of pure selective scheme that is beyond energy conservation duty
and based on market. For institutions with energy conservation obligations, trade
of certificate could facilitate them to perform energy conservation duty with the
least costs in a more flexible way. For energy suppliers, trade of certificate requires
them to select the scheme that could reduce the costs of project and recover costs
from competitive market. By ingenious combination of all kinds of measures, this
target could be realized, and optimum state among costs, energy conservation, and
meeting demand of terminal users could be found.
In view of current situation, all the existing White Certificate plans involve
certain kind of trade. For instance, Italy establishes trade market and stipulates
rules of electronic market through system; France carries out bilateral trading
mechanism of direct trade between eligible parties and responsible parties. Trade
of certificate could be regarded as an effective means to combine the guarantee of
result of rules and regulations with economic benefits that take the market as the
basic tool.
7.3.3 Selection of the Implementation Scheme of White

Certificate
At present, energy conservation plan based on trade of certificate is getting more

and more support from decision makers. Its combination of social benefits with
economic efficiency of tools that are based on market is in consistency with the
framework of liberalized market. Besides, regardless of the issue of trade, the
Mandatory energy efficiency improvement target White Certificate
Target 1 Target 2 Target n
Obligator 1 Obligator 2 Obligator N
Market trade platform
Implementer 1 Implementer M
Extra White Certificate Obtained White Certificate
Fig. 7.10 Trading mechanism of white certificate
implementation scheme of White Certificate itself is an effective mechanism for

authority to quantify, recognize/determine the formalization of energy
conservation.
1. Obligation energy conservation institutions must own white certificate that
conforms to their own obligations. They could have the following options:
Energy (electric power and heating power) generators;
Energy (electric power, heating power, and natural gas) distributing parties;
Energy or fuel gas suppliers;
Retailers;
Consumers;
Agents (Depending on the actual condition);
2. Eligible implementers of energy conservation projects (Getting white
certificate):
Obligation energy conservation institutions themselves;
Institutions without obligation;
Energy conservation service companies and implementers of other com-
mercial energy efficiency projects;
Users (Most are large users);
Market intermediary organizations (For example, brokers or other
participants);
Any other economic entities;
3. Decomposition principle of energy conservation target:

Number of clients being served (or total market share);
Distributed energy quantity;
Business turnover.
4. Suitable energy conservation projects (with white certificate):
Industry;
Scale;
Evaluation of energy conservation effect (quantity of white certificate);
Continuity of energy conservation effect;
Evaluation principle of additional energy conservation (Projects being put
into production have realized or will realize energy conservation in the
future); Other alternative schemes, such as (1) Increase of capital/turnover;
(2) Innovation; (3) Existing market; (4) Average performance of each
component part; (5) Standards or stipulations that have already existed.
Monitoring mechanism: (1) Continuity; (2) Responsibility.
5. Non-performance mechanism
Penalty;
Grace period;
6. Trading mechanism (Stipulation of White Certificate trade):
Market participants;
Validity of certificate;
Organizations of market trade (i.e., real-time market and registration
management that exists);
Cycle of trade;
Security principle of electronic trade;
Banking business (Keep the white certificates that have exceeded energy
conservation target for future use.)
Leasing business (Issue a certain amount of White Certificate before
implementation of the project);
Inheriting business (Typical emission trading mechanism, the certificate
could be obtained according to past value);
7. Possible cost recovery mechanism: Obligation energy conservation institu-
tions recover part of the costs for implementation of energy conservation
projects while implementing them.
8. Expanding market opportunities:
In industrialized countries;
Countries based on energy conservation and energy service in European
Union;
Need to coordinate in evaluation of energy conservation projects.
9. Play the function together with other policy tools:

Incentive policies;
Tax collection and exemption policies;
Volunteer Agreement;
Core standard;
Subsidy of energy efficiency auditing.
10. Interaction with other trading mechanisms:
Commitment mechanism of renewable energy (Green certificate);
CO2 trading mechanism (Black mechanism) (Tokyo Protocol, interna-
tional emission reduction trading mechanism of greenhouse and trading
system of European greenhouse gas emission credit).
11. Risk of White Certificate implementation:
The production of White Certificate brings uncertainty for trading
opportunities as the demand can only be speculated, especially in the initial
stage;
In the initial stage, owners of certificates might only apply a small part of
energy conservation measures that have been established without consid-
eration of other more effective measures. This may be caused by the
characteristics of their over innovation or the insufficient market
communication;
The statistical calculation standard of White Certificate is usually
established on statistical level instead of independent level and is easy to be
misled;
White Certificate will be a meaning policy instrument for prompting
energy conservation through proper target design of certificate system.
However, if the target being set is too weak, there will be an actual risk, i.e.,
White Certificate system may almost not produce the expected influence
and thereby delay the implementation of policy instruments with higher
efficiency.
12. Evaluation of energy conservation effect:
Utilization rate of energy;
Establishing a set of standardized method to make an overall evaluation of
energy conservation to each behavior;
Adjustment could be carried out from following several aspects regarding
the evaluation result in order to avoid the abnormal encouragement or
impediment of some special behaviors by the measurement criteria: (1)
Special type equipment or goods; (2) Process of energy conservation (such
as convert to the renewable energy, etc.); (3) Market situation.
Duration of energy conservation. Energy conservation shall last to the end
of service life of equipment if the annual energy conservation is realized as
4 % discount.
13. Suggestions:
Most countries have not got long-term practical experience as the implemen-
tation of White Certificate is being carried out recently. In general, White
Certificate trade represents a kind of method to solve energy conservation issue
on the basis of market, but the inappropriate expectation and targets need to be
lowered as this kind of policy instrument cannot solve the problem of low energy
efficiency and the barriers related to energy efficiency on the whole. Therefore,
White Certificate plan shall not replace other current policies, but the imple-
mentation of these policies shall be strengthened.
Monitoring and verification method of energy conservation is still a chal-
lenging factor in ensuring the theoretical efficiency of White Certificate
plan in a better way.
The vigorous participation by industry of high efficiency equipment and high
quality buildings shall be taken into consideration from the initial implemen-
tation of White Certificate trade plan and evaluation procedure of standard.
The participation of manufacturers shall be especially ensured as they are the
most important operators in prompting high efficiency energy technology.
As energy efficiency is a constantly changing target, a database related to
technological characteristics of high efficiency equipment and costs shall be
established in a lasting way.
The executive force and efficiency of legal standard is needed to be improved.
Energy suppliers shall be encouraged to undertake the long-term energy
efficiency projects.
The regions implementing White Certificate shall be corresponding with
the territorial scope of energy market. In other words, White Certificate
represents policy instrument must be implemented within energy market.
7.3.4 Implementation Situation of White Certificate

in Each Country
Currently, White Certificate plan is trail implemented in Italy, France, the

United Kingdom, etc. Meanwhile, other countries (Belgium, Holland, Sweden, and
Norway) are also actively paying attention to and learning the experience of these
countries [9, 10]. Although the design of White Certificate of each country
conforms to the generally similar principle, the individual characteristic also exists
in specific implementation due to their different conditions.
7.3.4.1 Italy
The selection of White Certificate system in Italy is totally based on policy

drive. At first, Italy promised to reduce CO2 emission from 2008 to 2012 in the
signed Tokyo Protocol, in which, about 26 % emission reduction target will be

achieved by improving energy conservation efficiency on Demand-side of energy
market. Second, implement the directive of European Union regarding electric
power and gas liberation (96/92/CE and 98/30/CE). It is required in the laws and
decrees promulgated by Italian government that improvement of terminal utili-
zation shall be incorporated into energy conservation projects. Furthermore, Italian
government uses incentive methods based on the market to gradually replace
traditional policy measures in order to improve the transparency of the market.
On the day of increasingly liberalization of energy market, Italian government
believes new policy instruments are needed except insistence on traditional policy
instruments in order to realize the predetermined energy conservation target.
Italian government issued the system of Tradable White Certificate in the form
of Ministerial Decree in July 2004. Italian administration of electric power and gas
(AEEG) is responsible for the design, implementation, and supervision of the
system. Two standards shall be insisted on during the design process of new policy
instruments, i.e., costs advantage and contestability. The outstanding features of
new policy instruments are integration of order-control type regulation with
tradable mechanism based on the market, and clarification of quantitative objective
of White Certificate trading mechanism.
The implementation objectives of Italian White Certificate are mainly
electric power and gas companies (10 electric power dealers and 24 natural gas
dealers) with more than 10,000 users in 2001. The method is to assign individual
target of energy efficiency improvement according to the market share of energy
supply quantity of last year of each company in total energy market and assess the
implementation condition of target for once in each year. Italy measures the
implementation condition of energy efficiency improvement target mainly
according to the quantity of White Certificate being obtained by energy sup-
pliers. At first, White Certificate was sold to energy suppliers by the government
according to the completion condition of energy efficiency target and energy
suppliers could purchase White Certificate from each other by signing bilateral
agreement or directly from the market so as to complete the task. They shall accept
penalty if the task could not be completed.
Soon after, Italy also introduced new policies to improve the financial support
to energy efficiency projects and stimulate the activities of energy conservation
companies. Government issued two directives and established a set of imple-
mentation plan with both market incentives and regulation function. One is mar-
ket-based means. The tradable White Certificate could either be sold to power
grid enterprises or to energy conservation service companies. The other is the
stipulation of taxes policies. Energy suppliers are allowed to recover investment
cost through appropriate electric power and fuel gas taxes. If energy conservation
service companies could get White Certificate, energy suppliers will consider
purchasing certificate from them under this policy drive. This practice of Italy will
certainly stimulate the vigorous development of domestic energy conservation
activities.
Table 7.7 Type pf energy efficiency certificate and the replacement level of each other
Type of Practicability/Tradability/Replaceability
certificate
Electric power directive Natural gas directive
Realization of Realization of target Realization of Realization of target
target is related to is related to the target is related to is related to the
the reduction of reduction of primary the reduction of reduction of primary
power energy consumption coal gas energy consumption
consumption consumption
Certificate Yes Yes No Yes
of the
first
type
Certificate No Yes Yes Yes
of the
second
type
Certificate No Yes No Yes
of the
third
type
Government designed three types certificate according to the framework

planned by double directive. The characteristic of the certificate is the difference of
replacement level between each two. Please see Table 7.7.
1. Certificate of the first type. It certifies the achievement made in primary energy
conservation by reduction of energy consumption;
2. Certificate of the second type. It certifies the achievement made in primary
energy conservation by reduction of the natural gas consumption;
3. Certificate of the third type. It certifies the achievement made in primary energy
conservation by reduction of consumption of other mineral fuels.
The validity period of these certificates must be strictly in accordance with the
implementation period (5 or 8 years) of relevant energy conservation measures.
According to trading rules, White Certificate will be issued once the
authority approved the relevant energy conservation projects (Energy reserves to
be reached within designated period). The quantity of certificate being issued
reflects the amount of energy conservation that is universally acknowledged (One
certificate equals to one ton oil equivalent) according to trading rules. At this time,
White Certificate is regarded as the only effective document for authoritative
executing agency to evaluate the consistency of their energy conservation targets.
They could negotiate it through bilateral contract and the market organized by
market operators, and in accordance with the trading principles (Trading periods/
times, security rules of sellers and purchasers) jointly stipulated by authorities. The
contents of negotiation generally include continuous trading, energy efficiency
certificate (Electric power, coal gas and primary energy) of each type, detailed
rules of trading manual, paying insurance money to purchasers, etc).
On the whole, the White Certificate implemented by Italy reflects two
functions: (1) It is a calculation device for certificating the corresponding quan-
tities of primary energy conservation. In order to achieve this purpose, dealers
must submit White Certificate in corresponding quantity to authority within the
stipulated time period and use energy value (ton of oil equivalent) to express the
task that is required to be fulfilled by them in that stage; (2) Bilateral trade could
be made to these certificates or these certificates could be traded in White
Certificate market.
7.3.4.2 France
France did not pay enough attention to policies of energy efficiency and conser-
vation in 1990. A discussion about energy issue was triggered in France in early
2003 and demand of energy conservation got the wide support of political con-
sensus. Considering the security of energy supply in future and the implementation
target of Tokyo Protocol, the government has to formulate the appropriate
policies so as to put energy issues in the priority position of the agenda. However,
a set of mechanism that contains more stimulating factors regarding different fields
(capital, energy supply, dissemination of information that helps users to conserve
energy) shall be established as public institutions always lack the capital and
human resources that are directly related to domestic consumers in the issue of
energy efficiency improvement.
Although energy conservation work of household and the third industry in
France is relatively dispersed, major breakthrough is made in the aspect of energy
utilization efficiency. This background provides an opportunity for the establish-
ment of national policy based on White Certificate trade.
France promulgated Loi POPE decree in 2005 and determined the general
principles of adjusting future energy policy of France, in which primary rules of
demand of White Certificate plan are involved. Another three decrees (about
energy conservation responsibility n82006600, about energy conservation cer-
tificate n82006603 and about registration management n82006604) were issued
in May 2006. The mandatory indexes for the first 3 years formulated by consid-
ering long-term energy conservation target are determined as follows: accumulate
and realize 54 TWh energy conservation from July 2006 to June 2009, and 4 %
discount rate (depending on different measures) of the validity of energy behaviors
has been calculated in it. The verification of indexes will be implemented at the
end of this period. General index will be completed jointly by participants
involving different energy and calculating according to their own market shares.
The specific allocation is as follows: 5064 % power supply, 1925 % gas supply,
35 % heat supply, and 1420 % supply of other domestic fuels. Accurate real-
location shall be carried out after suppliers made energy sale statement. The
specific allocation standard is to determine the proportion according to the sales

volume that is assessed to suppliers and the adjustment of change of market share
by using annual adjustment system shall also be taken into consideration at the
same time.
Later, France officially promulgated Energy White Certificate, which
determined the following contents: (1) Stipulation of energy performance of
houses; (2) Support the activities of renewable energy exploitation; (3) Financial
regulation; (4) Implement mandatory energy conservation.
The last Article of the document stipulates energy conservation target, which is
to conserve 2 % energy per year by 2015 and conserve 3 % energy per year by
2030.
France stipulates the participants of white certificate trade include: (1)
Responsible partyall energy suppliers; (2) Eligible implementers.
Although all participants could carry out energy conservation plan and get the
certificate theoretically, two conditions must be met to get certificate by consid-
ering some different conditions: First, it must be proved that energy conservation
measures adopted could create at least 1 GWh energy conservation; Second, for
non-responsible dealers, they could get some certificates if the implemented
behavior has no relationship with their main activities and couldnt produce direct
business income.
According to the relevant stipulations of certificate trade, industry department
shall be responsible for creating plan scheme, managing the main part of plan
scheme, allocating energy conservation target, publishing list of potential clients of
white certificate, and releasing annual report, describing operation condition of
scheme and market condition in the three-year application period. French
Administration of Environment and Energy Management and auxiliary industry
department is responsible for explanation and evaluation of standardized behaviors
(i.e., methodology of conservation calculation), but these methods shall be con-
firmed by industry department for validity and industry department has the final
decision making power. National Industry and Environment Management
Authority is responsible for the releasing of White Certificate.
Responsible party shall return White Certificate to transmission organiza-
tion-National Industry and Environment Management Authority at the ending
period of implementation stage, then settlement could be carried out for this kind
of authorization. Before it, market could relieve the insufficient authorization and
over authorization that might exist through gradual and continuous bilateral trade.
The price of certificate trade shall be determined by market, but the maximum
shall not exceed the amount of penalty for behaviors that violate the stipulation.
The fine for noncompliance behaviors shall be collected according to the stipu-
lation. National Certificate Registration registry will be responsible for releasing
the average annual trade price used for certificate.
On the whole, White Certificate policy implemented by France is regarded as
a supplement to other existing means, such as rules and regulations, tax credits that
are in implementation, etc. Encourage participants to pull their demand/supply
under the condition of having no allowance. Although, the measures for improving
implementation quality and their products (i.e., bonus, etc.,) are still under
consideration.
7.3.4.3 The United Kingdom
The inspiration for the initial formulation of this policy comes from the minimum
resource cost plan of the United States and some European countries during power
monopoly period. The United Kingdom has made improvement and perfection by
combining with energy efficiency market on its basis. In 1994, 12 energy suppliers
in England and Wales were required to participate in the work of energy efficiency
improvement of residential users in the form of assessment of energy efficiency
standard. This is the predecessor of the so-called White Certificate. The
implementation scope of this responsibility was expanded to the two power sup-
pliers in Scotland in 1995. Northern Ireland established a set of similar indepen-
dent energy efficiency implementation plans on its monopoly energy supply side in
1997. Great progress was made in this aspect in 2000: Energy regulator was
divided into power and gas regulator, and energy efficiency plan was expanded to
the whole British Commonwealth and gas suppliers were included. Whats more,
the government was entitled to formulate corresponding energy efficiency target to
restrict the behaviors of energy suppliers for energy efficiency improvement. In
2002, this plan started the first stage implementation in the name of Energy
Efficiency Agreement. In the first stage, the United Kingdom required energy
suppliers to conserve 62 TWh electricity during the 3 years period of April 1,
2002March 31, 2005. The latest obtained data showed they had realized 70 TWh
electricity conservation till December, 2004 and the general target had been
realized in advance. Among them, 55 % was from improvement of heat insulation,
over 20 % was from high efficiency lighting, 12 % was from the adoption of high
efficiency equipment and about 10 % was from improvement of heating system.
The implementation time of the second stage starts from April 2005. Energy
efficiency committee of the United Kingdom planned to increase the target by two
times, which is about 130 TWh in the coming 3 years. It can be seen from the
above data that the implementation of Energy Efficiency Agreement plan of the
United Kingdom is very successful. In order to ensure the realization of the target
of the second stage, the United Kingdom applies the form of White Certificate
to Energy Efficiency Agreement for trade and allows energy suppliers to carry
out trading of White Certificate with each other in the form of bilateral contract.
Some energy suppliers whose indexes are not completed will consider purchasing
White Certificate from those who overfulfilled the target so as to avoid the
penalty from government. The price of certificate will be decided by the supply
and demand relation of market in order to stimulate the flourishing of the whole
energy efficiency market. This practice of the United Kingdom deeply influenced
the role positioning current European energy efficiency market to energy suppliers.
7.3.5 Enlightenment Given by White Certificate to Energy

Efficiency Market of China
Generally, policy instrument under market condition is highly valued in the field of
energy and environmental protection policy. This shall be attributed to the two
standards of cost advantage and contestability insisted on by these policy instru-
ments during the design process, which make it have economic efficiency and
benefits in market competition, conform to the requirement of operation of energy
market, and have active guidance and incentive function to cost reduction. These
policy instruments will be especially suitable when some countries require target
with mandatory energy conservation quantity to be reached within a specific
period. On the days of increasingly liberalization of energy market, new policy
instruments are more needed in realizing predetermined energy conservation target
besides the insistence on traditional policy instruments.
Although European countries are still exploring and practicing White Certifi-
cate mode as an emerging energy conservation policy mode, and methods are
differed during the implementation process of it by each country, what can be sure is
that white certificate is a kind of advanced energy conservation policy mode, which
is not only superior to traditional energy conservation mode in implementation
effect, but more importantly it could better solve the problem of role positioning of
energy suppliers such as power generating enterprises in energy efficiency market
and well mobilize the enthusiasm of energy suppliers in energy efficiency market.
Although the potential of energy efficiency market in China is huge and eco-
nomic and social benefits are very considerable, there are still some urgent prob-
lems needed to be solved immediately. At first, energy suppliers could not
participate in energy efficiency market in an effective way and their positioning in
energy efficiency market is unclear. Second, market mechanism and administrative
measure lack the organic combination, and the operation mechanism is not stan-
dardized. Third, other effective marketization operation methods are lacked except
for the formulation of energy efficiency standard, regularly publishing of catalog of
elimination products and utilization of economic measures such as price and taxes.
The major enlightenment given by White Certificate mode to the energy
efficiency market is as follows by summarizing the accumulated practical expe-
rience of each country and combining with the current domestic status of energy
efficiency market [10].
First, White Certificate mode strengthens energy efficiency management by
adopting the method of combination of administrative and market means, and
simultaneous development of two means, which is consistent with the thought of
taking market-oriented mean as the principal one and administrative mean as
supplementation. As the system of combination of market in China and admin-
istrative mean is still imperfect, White Certificate mode will have good refer-
ence function for the development of energy efficiency work in China.
Second, energy management contract is a very important market-oriented
operation measure in energy conservation work and energy conservation service
companies play a vital role in it. However, the development space of energy con-
servation service companies is limited as energy management contract is still in
initial stage in China. If white certificate mode could be referred to let energy
conservation service companies participate in the market trade of certificate, not
only energy conservation target of the whole society will be effectively realized, but
the development space of energy conservation service companies will be greatly
expanded to prompt the development of energy conservation service companies.
Third, as the obtaining of energy efficiency is a long-term process, a lot of
meaningless energy consumption could be reduced if the obtaining speed of energy
efficiency potential could be speeded up. White Certificate mode has strong
operability as it limits the improvement amount and realization time of energy
efficiency, and accelerates the obtaining speed of the energy efficiency potential.
Four, the function of energy suppliers such as power generation enterprises has
not been fully played. White Certificate mode could motivate energy suppliers
to actively participate in energy efficiency market and help users to carry out
energy efficiency work. Energy suppliers with better implementation effect could
also obtain profits from the energy efficiency market.
Five, led by government, participated by multiple parties and market-oriented
operation is one of the major characteristic of White Certificate. The imple-
mentation experience of this mode will provide beneficial reference to the mark-
etization reform of energy efficiency work in China.
China could use White Certificate mode as a reference to carry out certifi-
cation to energy conservation work of relevant enterprises and issue the corre-
sponding White Certificate according to the quantity of energy conservation of
enterprises. Enterprises need to purchase White Certificate or pay penalty if the
stipulated energy conservation standard could not be reached, and enterprises could
sell extra White Certificate or hold them for future use if the stipulated energy
conservation standard is exceeded. Energy efficiency management activity of
enterprises could be supervised and urged to be actively carried out through the
certification and trading of White Certificate so as to achieve the purpose of
energy conservation and consumption reduction. What need to be noticed is the
transparency, clearness and simpleness of rules of White Certificate plan,
especially the decision makers, who should try to rely on the consensus of stake-
holders as it will be favorable for the successful implementation of this policy.
References
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side management under power market. Power Grid Technol 29(5):611
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industry. Price Theor Pract 5:3334
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Chapter 8
Introduction to a Demand-Side
Management Laboratory
8.1 Basic Concept of Demand-Side Management

Laboratory
8.1.1 Functions of Demand-Side Management Laboratory
Demand-side management (DSM) work which is a kind of system engineering is

involved with not only many participators like governments, power grid enter-
prises, power generation enterprises, energy conservation service companies,
power users, and others but also many links like the DSM project planning,
establishment, design, implementation, post evaluation, etc. Different participators
have respective objects and interests; the specialization of every link is compar-
atively strong and knowledge about multiple aspects such as electric power sys-
tem, technical economy, environmental protection, law, etc. These lead to the
existence of a lot of difficulties and challenges to DSM work development and a
lot of work like data query, processing, analysis and calculation, and others in
DSM work; if the work is finished manually, a lot of time, strength, and money
shall be cost. With the development of information technology, computer hard-
ware and software have been widely applied in fields such as data query, trans-
mission, storage, analysis, and processing, and provided with advantages such as
extension of human brain and extension of human power, etc. If computer tech-
nology is applied to DSM work to establish a DSM application platform and solve
tedious issues like data processing and information sharing and others in DSM
work, powerful support shall be provided for developing DSM work.
Except tedious data processing, computer support is also required for evaluation
on various DSM polices and measures. In order to develop DSM work scientifically
and effectively, it is required to estimate the effects possibly generated after the
implementation of these DSM policies and measures in advance. It is often difficult
for us to refer to historical polices and measures because these policies and measures
which are required to be issued might be completely new and there is no example for
reference; it is better not to evaluate these polices and measures a period of time later

530 8 Introduction to a Demand-Side Management Laboratory
they are implemented, because a great loss might be caused to the economy and
society due to the implementation of improper polices and measures. We need to
make various experiments to observe different results like physical scientists and
chemists; in this way, we can find problems in time and avoid losses. However, DSM
work is a social and economic issue which is different from a physical or chemical
one. How to make experiments on this kind of issue? Marx thought that we cannot use
a knife or chemical test tube to research a social and economic issue; the only method
is to model with mans abstract ability to and carry out various simulation experi-
ments through the support of computer software and hardware.
Therefore, it is valuable to establish a demand-side management laboratory
which can not only improve the working efficiency in developing DSM but also is
good for the scientific process of establishing DSM policies and measures.
8.1.2 Definition of Demand-Side Management Laboratory
The demand-side management laboratory is an integrated system that consists of

computer information network, software, hardware, industry experts, and spe-
cialized technical personnel, taking DSM information platform as the basis and
developing relevant research, promotion, and application work in the DSM field
toward governments, power grid enterprises, power generation enterprises, energy
conservation service companies, power users, etc.
Through the demand-side management laboratory, the power consumption
conditions of power users, demand-side management information, relevant infor-
mation of institutions like governments, power grid power utilities and energy
conservation service companies, prices sale and application conditions of various
DSM products, information of various DSM project implemented and relevant
policies, laws and regulations, and others can be queried at any time; feasibility
evaluation of various DSM projects can be carried out to implement project design
and the implementation and development of DSM projects can be tracked at any time
to carry out post evaluation of the projects and others; simulation analysis can be
carried out to the implementation effect of DSM policies and measures at any time.
8.2 Overall Structure of Demand-Side Management

Laboratory
8.2.1 Software Function Structure of Demand-Side

Figure 8.1 shows the software function structure of demand-side management

laboratory. The general function includes two layers: the support layer and the
8.2 Overall Structure of Demand-Side Management Laboratory 531
Comprehensive Application
Load analysis and DSM cost-benefit DSM policy
Project analysis evaluation of
prediction evaluation simulation Layer
DSM
Central control system
Data acquisition DM and OLAP Inference engine

Support
Layer
Data warehouse Model base Knowledge base
management system management system management system
Data Model Knowledge

warehouse base base
Fig. 8.1 Software function structure of demand-side management laboratory
application layer. Thereinto, the support layer is the basic function which is
necessary for the system to develop specific application and is made up of ten
components that are a data warehouse (DW) and its management system, a model
base and its management system, a knowledge base and its management system,
data acquisition, an inference engine, data mining (DM), and online analytical
processing (OLAP) and a central control system; the application system refers to
DSM application analysis and experiment which can be developed by the system,
including project analysis, load analysis and prediction, DSM cost-benefit evalu-
ation, DSM policy simulation, and comprehensive evaluation of DSM, etc.
8.2.1.1 Introduction of Main Component Functions of Software

Support Layer
DW. A DW which is used to store great quantity of DSM data is an aggregation of

relevant data that are organized together according to a certain structure [13].
Generally speaking, the capacity of a DW is very large; the data are oriented to
certain subjects and stored according to a certain organizational structure for the
convenience of query and utilization.
DW management system. It is a set of program systems that can accomplish DW
description, management, and maintenance and have functions such as DW
establishment, deletion, modification, and maintenance as well as data storage,
retrieval, sorting, index, statistics, etc.
Data acquisition. Relevant information of DSM, including information of

economy, electric power, climate, energy-saving products, DSM measures, is
sorted and collected through multiple ways which is pretreated and stored in the
database in different sorts so that it is possible to carry out accurate quantitative
analysis on problems.
DM and OLAP. They are data analysis and processing methods based on the
DW. Thereinto, DM mainly focuses on abstracting useful information from the
existing DSM data, such as rules, knowledge, experiences, and so on; OLAP
mainly focuses on making different kinds of combined and multi-dimensional
analysis on the existing data, such as analysis DSM data from different sides like
time, region, industry, etc.
Model base. It is an aggregation that stores multiple models according to a
certain organizational structure in a computer, such as analysis and statistic, pre-
diction, planning, and comprehensive evaluation models; these models can be
recombined to new models so as to solve more complicated problems.
Model base management system. It is a program system that controls model
establishment, modification, deletion, transfer, query, and evaluation in a cen-
tralized way.
Knowledge base. It is a DSM knowledge aggregation that is made up of a series
of rules, experts experience and knowledge, and so on, transferred by the infer-
ence engine and mainly used for solve semi-structured and unstructured problems
in the DSM research.
Knowledge base management system. It is a program system that controls
knowledge establishment, maintenance, transfer, query and evaluation, and others
in a centralized way.
Inference engine. It is a small-sized expert system that is connected with the
knowledge base and has inference function.
Central control system. It is a central module of demand-side management
laboratory and a bridge that connects the application layer and support layer and
mainly is used for coordinating and transferring all components of the support
layer in order to accomplish specified DSM application and reflect the result to the
application layer.
8.2.1.2 Brief Introduction of Software Application Layer Functions
Project analysis. The sorting statistics of DSM projects finished and carried out at
present and the analysis on the conditions of DSM development by various users,
DSM product conditions, DSM technology application conditions, as well as
power consumption auditing and energy conservation, and electricity saving
potential of users are performed to provide a basis for DSM project design.
Load analysis and prediction. The power and load characteristic conditions of
users are analyzed and the future load demand and power consumption load of
users are predicted.
DSM cost-benefit evaluation. In the DSM , the cost and benefit of different
participators are analyzed and various DSM measures and projects are evaluated
according to this.
DSM policy simulation. The implementation effects of relevant DSM policies
are simulated and the influences which might be generated from these DSM
policies on each participator are researched.
Comprehensive evaluation of DSM. Power generation enterprises, power grid
enterprises, power users and social development, and others are considered
comprehensively and relevant methods are used to evaluate DSM projects com-
pletely to confirm the advantages and disadvantages as well as feasibility of the
projects.
8.2.2 Software System Structure of Demand-Side

The traditional system which is based on client/server (C/S) mode operates in the
local area network environment and has comparatively strong data manipulation
and transaction processing performances. However, its characteristics of being
closed make it difficult for people to establish a complete information network; at
the same time, it has comparatively high development cost, bad compatibility and
expansibility, and it is difficult to maintain that its application is limited.
The browser/server (B/S) mode changes the fat client/thin server structure of
C/S to thin client/fat server structure and the client software is simplified to the
condition that only uniform browser software is installed; at the same time,
because it is based on TCP/IP protocol and HTTP protocol, the platform crossing
is solved very well that different computer types and operation systems can be
compatible. The system under B/S structure not only is easy for maintenance but
also has low development and training costs, good expansibility and portability. It
can also accomplish resource sharing fullest. However, it has disadvantages like
having low transmission efficiency, a high requirement to network bandwidth, and
information encryption difficulty.
If the advantages of the two can be integrated, the openness and universality of
the system can be realized and the closeness and specificity of the internal system
can be kept. Therefore, the multi-layer distributed system structure based on C/S
and B/S mixing mode is used in the demand-side management laboratory, which is
shown as Fig. 8.2, including 4 layers: presentation layer (including browser and
special client program), Web service layer, application service layer, and data
service layer.
1. Presentation layer. It is mainly the manmachine interface which is responsible
for information input and display.
2. Web service layer. It is mainly responsible for receiving and replying the
requests sent by the users through browsers.
Web Application Data

Browser
service layer service layer service layer
Receiving and
Browsers such as Data analysis Data warehouse,
replying the
Microsoft IE and model knowledge base
requests of
FireFox, etc. management and model base
browser users
Client Web Application Database

computer server group server group server group
Special client
program
Client
computer
Fig. 8.2 Software system structure of demand-side management laboratory
3. Application service layer. It is mainly responsible for transaction processing

and logic operation processing, including different kinds of analysis, model
calculation, inference and coordination, and communication between functional
modules.
4. Data service layer. It is mainly responsible for storage, organization, and dif-
ferent kinds of management of DSM data, knowledge, and models.
8.2.3 Hardware Structure of Demand-Side Management

Laboratory
From Fig. 8.3, we can see that the main devices of the hardware platform of
demand-side management laboratory include client computers, display equipment,
various servers, a switch and various connection cables, etc. The users in the local
area network can directly access various application programs of the laboratory
through the switch while the users in the wide area network can access the
application programs through Internet in Web mode.
Servers which are the core parts in the hardware platform of demand-side
management laboratory mainly include the database server, file server, multimedia
serve, backup server, application program server, and Web serve. The database
serve mainly stores all data information about DSM work; the file server stores a
large quantity files about DSM work; the multimedia server mainly stores multi-
media information about DSM work; the backup server is responsible for the
backup of different kinds of data and information; the application program server
is mainly responsible for storing various application programs of DSM laboratory
Local area network
Internet
Switch
Firewall
Some kinds of servers
Fig. 8.3 Hardware structure of demand-side management laboratory
and the users can access them through C/S and B/S modes; the Web server mainly
stores Web programs of DSM laboratory and the users can access them through
Web mode.
8.3 Key Technology of Demand-Side Management

Laboratory
8.3.1 Experimental Economics
The research means of experimental economics are economic experiments [15].

The so-called economic experiment is a kind of experimental form that is applied
to economics research. To be specific, what an economic experiment does mainly
is to change experimental environment or rules by controlling some conditions
(hypotheses), observe the behavior of the experimental object, analyze the
experimental result to inspect, compare and complete the economic theory, and
provide policy and decision basis by aiming at a certain economic phenomenon in
the controllable experimental environment. The theoretical basis of an economic
experiment is a micro-economic system theory which reflects the view that a
micro-economic system includes two parts: Environment and System. The
Environment is used to describe the economic system characteristics of the
economic subject, generally including the attributes of the economic agent, such as
the preference, technology, knowledge, and initial endowment, etc. The System
which has comparatively complicated composition describes a series of codes of

conduct of the economic agent in the economic system defined by the Envi-
ronment, mainly including language rules, distribution rules, cost rules, and
correction rules, etc.
Through the method of experimental economics, five kinds of work can be
implemented: (1) Theoretical verification: by comparing the information sent out
by the experimental object observed in an experiment and the result, we can verify
a theory. If the degree that the observed value is consistent with the theoretical
expected value is higher and it can be ensured that this kind of consistence is not
caused randomly, then we can say that the verified theory is better. (2) Searching
the cause for theory ineffectiveness: once the result observed in the experiment is
different from the theory and if the experiment design does not breach the theo-
retical hypothesis, it can be considered that the theory has a problem; furthermore,
the specific cause for theory ineffectiveness can be found by designing relevant
experiments. (3) Establishing experimental rules as the basis for a new theory: in
an economic experiment, the theoreticians can research those rather complicated
conditions easily and observe the experiment result so as to obtain experimental
rules to guide the establishment of a new theory. (4) Environmental comparison:
under a same system, the results before and after the change are observed by
changing the experimental environment to compare the influences of different
environments (such as demand and supply structure) on the result. System
comparison: under a same experimental environment, the influences of different
systems on the result are compared by changing the experimental system (such as
information structure and transaction rule, etc.).
8.3.2 Intelligent Engineering
In the twentieth century, due to the great development of productivity, many large-
sized and complicated engineering technology problems appeared, and the system
engineering based on operational research, cybernetics, information theory, and
management science emerged as the times required [1, 6]. Its description and
solution of the actual problems mostly are abstract mathematical models. How-
ever, a great number of causalities that cannot be expressed by mathematical
equations or mapping relationships of which the meaning and form are required to
be expanded exist in the complicated actual society.
The generalized model, f: X ? Y, which describes the mapping relationships, is
applied into intelligent engineering (IE). It not only contains the general function
mapping relationship but also extends netural network form, logic rule form, fuzzy
form, and relation diagram form, etc. It is the extension and development of the
system engineering. It not only inherits the problem analysis and solution thoughts
of the system engineering but also integrates the advantages of artificial intelli-
gence, intelligent computation technology (neural network, fuzzy logic and genetic
algorithm, and others), uncertainty theory and multi-agent technology. It provides
8.3 Key Technology of Demand-Side Management Laboratory 537
a kind of method for researching huge complex system evolution in the intelligent
space.
Under the concept of generalized model, the IE uses the triple of initial state set
S0 ; target state set Sn and intelligent route set PB to describe the huge complex
system evolution: SS0 ; Sn ; PB.
Figure 8.4 reflects the differences between system engineering and intelligent
engineering. The scientific research method consists of simple mathematical
model-system engineering-intelligent engineering. This kind of simple-complex-
simple development track is also the embodiment of Negation of Negation Spiral
Rise of the scientific methodology.
8.3.3 Agent Technology
An agent means representation originally and sometimes is called the subject

[79]. It is a physical or abstract entity that can act on itself and environment and
make reactions to the environmental changes. The agent has knowledge, target and
ability. The so called knowledge refers to the description of the environment in
which the agent stays or the problem which is to be solved by the agent; the target
means all actions taken by the agent are oriented to the target; the ability means the
agent has inference, decision making, planning, and control ability.
Generally speaking, an agent has four basic characteristics: autonomy, reac-
tivity, pro-activeness, and sociality. The autonomy means an agent has control
System Intelligent
Engineering Engineering
Mathematical equation Generalized model

(differential equation and (f: XY mapping
CGE model, etc.) relationship)
State space Intelligent space
x& = Ax + Bu S : (S 0 , S n , PB )
State transition
Intelligent route
matrix
Fig. 8.4 Differences between system engineering and intelligent engineering

power to its own behaviors or actions and accomplish its target independently; the
reactivity means an agent can perceive the environment in which it stays and
makes responses to the environmental changes in time; the pro-activeness means
an agent can initiate an action actively in order to accomplish its target; the
sociality means an agent can interact with other agents to accomplish the target
jointly. In a broader sense, behavior entities which have the characteristics above,
such as social institution, organism, software, robot, and so on, all can be taken as
agents. Multiple agents form a multi-agent system (MAS). A uniform and coor-
dinated integral is formed through the cooperation and cooperative communication
among the agents. Each agent in the system solves problems independently or in a
cooperation mode. At present, after the establishment of most agent systems or
MAS, the external world shall not intervene but let them evolve completely in the
spontaneous interaction between agents. The agent in the demand-side manage-
ment laboratory shall be open; that is to say, it shall be an open agent that can be
adjusted and intervened by the experts. The main aspects intervened by the experts
mainly include agent evolution course, inference rule, operation time, and main
parameters of the agent, etc.
Since John McCarthy raised agent through in the 1950s, agent technology has
been an important research content in the artificial intelligence field. In the eco-
nomic and power market simulation analysis, agent technology also has been
widely researched and applied.
8.3.4 Data Warehouse and Data Mining
DW is a subject-oriented, integrated and relatively stable data set that reflects

historical changes and used to support management decision [10]. The concept of
data warehouse can be understood from two aspects: (1) DW which is used to
support decision and is oriented to analytical data processing is different from the
present operational database; (2) DW is the effective integration of multiple het-
erogeneous data sources which are recombined after integration according to the
subject and the historical data also are included, and the data stored in the data
warehouse generally are not modified. The construction of data warehouse is based
on the present business system and a lot of business data accumulation. DW is not
a static concept, instead, data are collected, concluded and recombined, and cor-
responding decision reference information is provided in time.
DM refers to the process that information and knowledge which are not known
by people in advance but potential and useful are abstracted from a lot of,
incomplete, noisy, fuzzy, and random data in which the information and knowl-
edge are contained. The raw data can be either structured, such as data in the
relational database, or semi-structured, such as text, graph, and image data; it even
can be heterogeneous data distributed in the network. The method for finding
knowledge can be either a mathematical method or a nonmathematical method; it
can be either a deductive method or an inductive method. The knowledge found
8.3 Key Technology of Demand-Side Management Laboratory 539
can be used for information management, query optimization, decision support and
process control, and others and also for maintenance of data themselves. There-
fore, data mining is a generalized interdisciplinary field, which collects researchers
in different fields, especially scholars and engineering technical personnel in the
aspects like database, artificial intelligence, mathematical statistics, visualization,
and parallel computation, etc. It improves the data application by people from low-
level query operation to the level of providing support for management decision.
8.4 Introduction of Some Modules in Demand-Side

8.4.1 Data Acquisition Module
As shown in Fig. 8.5, the data acquisition module is mainly used to accomplish
multi-path acquisition and preprocessing of raw data like economic data, power
data and, weather and air temperature data, etc. Data acquisition provides two
modes, manual input and automatic import in Excel sheet, for users. It also can
maintain the data collected, including adding, modification and deletion and
others, and can automatically backup the data regularly. The data collected
through this function mainly include the following ones:
1. Economic and social development data. Including the regional GDP and its
growth, population, and its growth, incomer per capita of every area and its
growth, economic development condition of each industry, future develop-
ment and investment planning of each industry, and so on.
Data Acquisition Module

Economic and social development type data
Various energy-saving equipment data
Relevant policy and regulation data

Weather and air temperature data
Demand-side management data
Load characteristic data
Electricity price data

Load prediction data
Power supply data
DSM project data

Enterprise data
Fig. 8.5 Data acquisition module

2. Power supply data. Including installed capacity, power generation capacity,

power purchase capacity, power supply capacity and power sale capacity, and
so on.
3. DSM data. Including annual and monthly power consumption based on dif-
ferent industries, power consumption based on different areas and power
consumption of typical users, and so on.
4. Weather and air temperature data. Daily humidity, the highest temperature,
the lowest temperature and data of the main river water sources in every area
and, so on.
5. Load characteristic data. Including the 24-point daily load data, maximum
daily load, minimum daily load, average daily load factor, daily peak-valley
difference, daily peak-valley ratio, maximum monthly load, minimum
monthly load, average monthly load, monthly average daily maximum peak-
valley difference, monthly average daily peak-valley difference, monthly
average daily peak-valley ratio, minimum annual load, annual average daily
load factor, maximum annual peak-valley difference, annual average daily
peak-valley difference and annual average daily peak-valley ratio, and others
based on different industries, different areas, and typical users.
6. Load prediction data. Referring to the load prediction data received from the
load analysis and prediction module, including annual, quarterly, monthly
maximum load, minimum load and power consumption data, and others based
on different areas, different industries, and typical users.
7. Electricity price data. Including tariff list, the classification electricity price is of
various terminal users, time-of-use price, seasonal electricity price, and so on.
8. Various energy-saving equipment data. Including equipment parameters, such
as capacity, prices and manufacturers of energy storage equipment, green
lights, motors, transformers, high-efficiency air conditioners, water pumps and
fans and others, total power consumption equipment capacity, quantity and
capacity data of different kinds of equipment based on different areas, total
power consumption equipment capacity, quantity and capacity data of dif-
ferent kinds of equipment based on different industries and total power con-
sumption equipment capacity, quantity and capacity data of different kinds of
equipment based on typical users, and so on.
9. Enterprise data. Including the information related to DSM work of power grid
enterprises, power generation enterprises, energy conservation service com-
panies, typical users and equipment suppliers, such as the credit, scale, profit
and condition of DSM projects implemented of an enterprise and so on.
10. DSM project data. Including data of DSM projects accomplished, such as
project application effect, cost, benefit, implementation condition of DSM
projects under way, DSM project information got from the DSM cost-benefit
module, DSM policy analog module, and so on.
11. Relevant policies and regulation data. Including relevant DSM policies and
regulations issued by governments and relevant regulations issued by indus-
tries and enterprises, and so on.
8.4 Introduction of Some Modules in Demand-Side Management Laboratory 541
8.4.2 Project Analysis Module
As shown in Fig. 8.6, this module is composed of product statistics, project sta-
tistics, and electricity saving potential analysis.
8.4.2.1 Product Statistics
1. Sales condition analysis of power-saving products. Analyzing power saving

product suppliers, product prices, and distribution areas as well as sales
quantities based on different industries.
2. Comparison between power-saving products and common products. Including
comparison and analysis in aspects like the price, lifetime and power, and
others between power-saving products and common products.
3. Application condition analysis of new power-saving technologies. Mainly
analyzing the application conditions, functions, application ranges, and effects
of various new energy-saving technologies in different places in the present
market
Project analysis module
Product Project Power saving

statistics statistics potential analysis
Application condition analysis of new power-
Comparison between power-saving products
Statistical analysis of DSM project finished
Power saving potential analysis of motors

Sales condition analysis of power-saving
Statistical analysis of DSM project to be
Power saving potential analysis of green
Power saving potential analysis of high-
Peak load shifting potential analysis
Interruptible load potential analysis

Statistical analysis of DSM project
implemented under way
efficiency transformers
and common products
saving technologies
implemented
products
lights
Fig. 8.6 Project analysis module

8.4.2.2 Project Statistics
1. Statistical analysis of DSM projects finished. Including project classification,

design and complete introduction of implementation process, project cost-
benefit condition and present project application effect, etc.
2. Statistical analysis of DSM projects implemented under way. Including project
classification, design and implementation condition, cost composition, relevant
results in cost-benefit evaluation and policy simulation modules, etc.
3. Statistical analysis of DSM projects to be implemented. Including project
classification, design and relevant results in cost-benefit evaluation, and policy
simulation modules, etc.
8.4.2.3 Power Saving Potential Analysis
1. Power saving potential analysis of green lights. The power saving potential of
replacing undeveloped lighting technologies with advanced lighting technolo-
gies is calculated on the basis of analyzing the utilization condition of various
lighting devices of users, such as replacing incandescent lamps with compact
fluorescent lamps, replacing thick tubular fluorescent lamps with thin tubular
fluorescent lamps, and replacing high pressure sodium lamps with high pressure
mercury lamps; the power saving potential of the substitution technologies
added so as to get the total power saving potential of an industry or an area.
2. Power saving potential analysis of motors. The utilization conditions of various
motors of the users are analyzed, including motor type, quantity, power,
average number of utilization hours, and the proportion of motor power con-
sumption in the total power consumption; the growth condition of all power
consumption is used to calculate motor power saving potential and peak
eliminating potential; the power saving potential and peak eliminating potential
in the future years are further calculated according to the market share of motor
reconstruction projects in the future years.
3. Power saving potential analysis of high-efficiency transformers. The utilization
conditions of present various transformers are analyzed, including motor type,
quantity, capacity, the number of annual operating hours, and the proportion of
transformer power consumption in the total power consumption; the growth
condition of all power consumption is used to calculate high-efficiency trans-
former power saving potential and peak eliminating potential.
4. Peak load shifting potential analysis. The main causes to high peak load are
found out and the important load types of load regulation are confirmed on the
basis of analyzing power consumption equipment, power consumption condi-
tion and typical daily load curves of various users so as to calculate the peak
load shifting potential.
5. Interruptible load potential analysis. Which load can be reduced in the peak
period is confirmed and the interruptible load capacity of interruptible users is
calculated by aiming at the power consumption equipment and power saving
conditions of large users.
6. Other types of power saving potential analysis. Also can be developed, such as
line, new appliance, etc.
8.4.3 Load Analysis and Predication Module
As shown in Fig. 8.7, this module consists of four parts: power consumption
analysis, load characteristic analysis, power consumption prediction, and load
characteristic prediction.
1. Power consumption analysis. The power consumption information is analyzed
according to places, industries, large users, typical terminal power consumption
devices, and so on, including current monthly power consumption, accumula-
tive power consumption month by month and annual power consumption, and
the year-on-year and period-on-period rising speed of power consumption can
be analyzed.
2. Load characteristic analysis. The load characteristics are analyzed according to
places, industries, large users, typical terminal power consumption devices, and
others and the corresponding load characteristic curves are drawn, including
indexes like the maximum load, the minimum load, load factor, peak-valley
Load analysis and prediction module
Power consumption Load characteristic Power consumption Load characteristic

analysis analysis prediction prediction
Regional annual load

characteristic, monthly Regional maximum
Regional power Regional power
load characteristic or load prediction ;
consumption analysis; consumption prediction;
typical daily load Important industries
Industry power Industry power
characteristic analysis; maximum load, minimum
consumption analysis; consumption prediction;
Important industries load, load factor, peak-
Typical user power Typical user power
annual maximum load, valley difference or peak-
consumption analysis consumption prediction
daily load characteristic valley ratio prediction
analysis
Fig. 8.7 Load analysis and prediction module

difference and peak-valley ratio, and others, and parallel comparison and lon-
gitudinal comparison can be carried out.
3. Power consumption prediction. Single-variable trend extrapolation model,
random time series model, multivariable regression model, neural network
model, grey model, genetic algorithm model and combination prediction, and
others are used to predict the regional power consumption, industry power
consumption, and typical user power consumption.
4. Load characteristic prediction. Single-variable trend extrapolation model,
random time series model, multivariable regression model, neural network
model, grey model, genetic algorithm model and combination prediction, and
others are used to predict load characteristic indexes like annual maximum
load, minimum load, peak-valley difference, and the number of maximum load
utilization hour, etc.
8.4.4 DSM Cost-Benefit Evaluation Module
As shown in Fig. 8.8, this module includes five parts: cost-benefit evaluation of
power user, cost-benefit evaluation of power grid enterprise, cost-benefit evalua-
tion of energy service company (ESCO), cost-benefit evaluation of the whole
society, and sensitivity analysis.
DSM cost-benefit evaluation module
Cost-benefit Cost-benefit Cost-benefit Cost-benefit

evaluation of power evaluation of energy evaluation of power evaluation of the
grid enterprise service company user whole society
Reduced electricity Total cost of the whole

charge income; society;
Direct cost of a DSM Total income of the
Direct cost of DSM Expenditure cost;
project development and whole society;
project development; Reduced electricity
energy saving efficiency Reduced energy
Reduced electricity charge;
share; consumption;
cost Obtained subsidy
Reduced electricity Reduced emission of
cost; pollutants such as CO2,
Obtained subsidy SO2 and NOx, etc.
Electricity price;
Equipment investment;
Sensitivity analysis
Equipment lifetime;
DSM subsidy
Fig. 8.8 DSM project cost-benefit evaluation module

1. Cost-benefit evaluation of power grid enterprise. The main cost of a power grid
enterprise in DSM work is in that the electricity charge income of the power
grid enterprise is reduced because power consumption of users is reduced due
to DSM work. At the same time, as the power grid enterprise is the imple-
mentation subject of DSM work, it shall have some direct expenses inevitably
during developing DSM work, such as the promotion cost and the management
cost, and so on. However, the benefits of the power grid enterprise mainly come
from the government subsidy and avoidable electricity cost. Therefore, this
function includes calculating the reduced electricity charge income of power
grid enterprise, direct cost of developing DSM work, obtained subsidy, and
avoidable electricity cost, etc.
2. Cost-benefit evaluation of energy service company (ESCO). The main cost of
an ESCO in DSM work is providing expenditure cost in links like energy
auditing, financing loan, energy conservation design, equipment purchase,
equipment installation and operation training, and so on. However, its income
mainly comes from benefit share based on user power saving. Therefore, this
function includes calculating the cost composition of ESCO in the DSM project
and DSM benefit share from users.
3. Cost-benefit evaluation of power user. The main cost of a power user in DSM
work is divided into two conditions. If the power user develops a project inde-
pendently, the cost is the investment on using high-efficiency energy saving
equipment and future maintenance cost and the main income is electricity cost
expenditure reduced by it and subsidy from power grid enterprises and the
government. If the power user can cooperate with the ESCO, the cost is almost
zero and the main income comes from the electricity cost expenditure reduced by
it and subsidy from power grid enterprises and the government, however, partial
payment needs to be paid to the ESCO. Therefore, this function includes calcu-
lating initial investment, annual maintenance cost, reduced electricity charges
and obtained subsidies, and energy benefit shares with the ESCO of the user, etc.
4. Cost-benefit evaluation of the whole society. From the overall resource aspect,
government supervision institutions establish relevant administrative rules,
regulations, and standards to ensure DSM implementation and ensure the most
rational resource distribution, the minimum environmental pollution and the
optimized government investment cost. The cost and benefit are the total cost
sum and total benefit sum, respectively. In addition to the economic benefit, the
benefit of the whole society also includes environmental benefit, namely,
reducing pollutant emission. Therefore, this function also includes calculating
total cost sum, total income sum, energy conservation quantity, emission
reduction of pollutants like CO2, SO2, and NOx, etc.
5. Sensitivity analysis. During calculating DSM project cost and benefit, the cal-
culation is mostly based on electricity price, equipment investment, equipment
lifetime and government subsidy, and so on, but these kinds of information are
uncertain. Therefore, this function is to analyze their sensitivity and mainly the
influences resulting from the variation of one or multiple ones of them on the
cost and benefit result.
DSM policy simulation module
Simulation of Time-
Simulation of DSM Simulation of other
of-use (TOU) Tariff
compensation mechanism DSM policy
policy
Simulating influences of
Simulating time-of-use government price regulation;
pricing strategies; Simulating influences of financial
Simulating users' compensation;
responses Simulating influences of tax
preference influence
Fig. 8.9 DSM policy simulation module
8.4.5 DSM Policy Simulation Module
As shown in Fig. 8.9, this module includes three parts: time-of-use price policy
simulation, DSM compensation mechanism establishment simulation, and other
DSM policy simulation.
1. Time-of-use price policy simulation. It refers to simulating the influences of
time-of-use price established by a government, specifically including calcu-
lating the electricity price elasticity (including self elasticity and cross elas-
ticity) of load demand of users, simulating power users response to different
time-of-use prices, and confirming the best time-of-use price strategy.
2. DSM compensation mechanism establishment simulation. It refers to simulating
the effects of establishing DSM compensation mechanism in different modes on
power saving and emission reduction, specifically including simulating the
influences of electricity price adjusted by the government, the influences of
financial compensation implemented by the government, and the influences of
tax preference implemented by the government.
3. Other DSM policy simulation. It refers to using methods like fuzzy mathematics
and artificial intelligence and others to simulate relevant polices in developing
DSM work and calculating the effect produced by implementing these policies.
8.4.6 Comprehensive DSM Evaluation Module
As shown in Fig. 8.10, the comprehensive DSM evaluation module includes three
parts: evaluation index setting, index weight calculation, and DSM project
evaluation.
Comprehensive DSM evaluation module
Evaluation index Index weight DSM project

setting calculation evaluation
Evaluation index weight calculation of power
Evaluation index weight calculation of power

Evaluation index setting of power generation
energy conservation service companies and
calculation of power generation enterprises

conservation service companies and power
calculation of energy conservation service
Social benefit index membership degree

Social benefit index weight calculation
Evaluation index weight calculation of
Evaluation index setting of power grid
Evaluation index membership degree

calculation of power grid enterprises
Evaluation index setting of energy
Comprehensive membership
companies and power users
Social benefit evaluation
generation enterprises
Degree calculation
grid enterprises
Index setting
power users
calculation
enterprises
enterprises
users
Fig. 8.10 Comprehensive evaluation module of DSM
1. Evaluation index setting

It mainly refers to establishing a comprehensive DSM evaluation index system,
including four types in total that are power generation enterprise evaluation
indexes, power grid enterprise evaluation indexes, energy service company
(ESCO), and power user evaluation indexes and social benefit evaluation indexes;
these evaluation indexes can be extended and completed continuously in practice.
The power generation enterprise evaluation indexes mainly include avoidable
peak load capacity, avoidable fuel cost, avoidable abnormal unit startup and
shutdown cost, avoidable unit operation and maintenance cost, and avoidable
compensation expense for environmental pollution, etc.
The power grid enterprise evaluation indexes mainly include reduced power
sale income, input promotion cost, avoidable power grid investment cost, power
supply reliability, user satisfaction rate, and load factor improvement, etc.
The ESCO and power user evaluation indexes mainly include the total
investment cost of initial equipment, increased operation and maintenance cost,
average investment recovery period, compensation obtained from implementing
DSM projects, and reduced electricity cost expenditure, etc.
The social benefit evaluation indexes mainly include reduced coal consumption
for power generation, reduced CO2 emission, reduced SO2 emission, and reduced
NOX emission, etc.
2. Index weight calculation
Index weight calculation is an important part of comprehensive evaluation. The
so called index weight refers to the important degree of an evaluation index in
relation to the evaluation target. There are many methods for index weight cal-
culation. The weight of each evaluation index shall be confirmed by means of
analytic hierarchy process (AHP) layer by layer in this chapter. The process related
to index weight calculation by means of AHP is shown in Sect. 8.6.
3. DSM project evaluation
It means that fuzzy comprehensive evaluation method is used to evaluate a
DSM project. First, the membership degree of each index(membership degree
refers to the degree to which the evaluation index belongs to an evaluation set,
such as very good, good, comparatively bad and others) in the DSM project is
confirmed according to the experts or investigation conditions; second, the com-
prehensive membership degree of the DSM project is calculated by combining the
weight of each index, and whether the DSM project is feasible, and others can be
judged through the comprehensive membership degree. The calculation process
related to the fuzzy comprehensive evaluation method is shown in Sect. 8.6.
8.5 Important Module Function Design
8.5.1 Cost-Benefit Evaluation Module of Power Saving

Projects
8.5.1.1 Introduction of the General Function
The function of this module is mainly standing on the enterprise to make con-
sideration comprehensively by analyzing the benefit conditions of different power
saving schemes and selecting the best one from multiple power saving schemes for
implementation [3, 11]. Besides, this module also can analyze how to develop a
DSM project rationally and dig the maximum power saving potential under a
limited fund condition (General function structure of cost-benefit evaluation of
enterprise power saving projects is shown as Fig. 8.11).
8.5.1.2 Subfunction Introduction
1. To frame the power saving scheme. There are many forms to make power
saving schemes. The forms can be classified according to equipment, which
include partial scheme and overall scheme. As shown in Fig. 8.12, in the
process of making power saving schemes, generally, an equipment scheme can
be formed first and then other comprehensive schemes can be formed based on
the equipment scheme.
2. Analysis on economic benefits of schemes. After schemes are established, it is
required to analyze the economic benefit of each scheme. As shown in
Fig. 8.13, the analysis on economic benefit of each scheme mainly includes
8.5 Important Module Function Design 549
Cost-benefit evaluation of enterprise power

saving projects
Making power saving Analysis on economic

Scheme comparison Fund Planning
schemes benefits of schemes
Fig. 8.11 General function structure of cost-benefit evaluation
Making power saving schemes
Lighting Transformer Motor Cooling Heating Electric furnace Line

schemes schemes schemes schemes schemes schemes schemes
Scheme 1 Scheme 1 Scheme 1 Scheme 1 Scheme 1 Scheme 1 Scheme 1

Scheme 2 Scheme 2 Scheme 2 Scheme 2 Scheme 2 Scheme 2 Scheme 2

Fig. 8.12 Power saving scheme establishment flow
Analysis on Economic Benefits of Schemes

Analysis on
Load Power Initial Electricity cost Avoidable Avoidable emission of
Maintenance
characteristic consumption investment expenditure electricity capacity pollutants such
cost analysis
analysis analysis analysis analysis analysis analysis as CO2, SO2 and
NOx, etc.
Fig. 8.13 Flow of analysis on economic benefits of schemes
load characteristic analysis, power consumption analysis, initial investment

analysis, maintenance cost analysis, electricity cost expenditure analysis,
analysis on avoidable capacity and avoidable electricity of the scheme, analysis
on emission of pollutants like CO2, SO2, and NOx, etc. The specific calculation
method can be referred to the relevant contents in Sect. 2.5.
3. Scheme comparison. After analyzing the economic benefits of schemes, it is
required to calculate the scheme indexes like the static investment recovery
period, dynamic investment recovery period, internal rate of return, net present
value and benefit-cost ratio and others and analyze the sensitivity of these
Scheme comparison

Static Dynamic
Internal rate of Net present Benefit-cost Sensitivity
investment investment
return value ratio analysis
recovery period recovery period
Fig. 8.14 Scheme comparison flow
Fund planning
Enterprise fund Multi-objective

constraint optimization
Quantity of
replaced devices
Fig. 8.15 Fund planning flow
indexes to electricity price, equipment lifetime, investment and others, and

finally make comprehensive consideration and select the best satisfactory
scheme. Figure 8.14 reflects the scheme comparison flow.
4. Fund planning. Various devices which need to be replaced are included in the
best scheme selected. If the enterprise fund is sufficient, all these devices can be
replaced. However, if the enterprise fund is limited, it is required to use existing
fund to replace part of devices and the other devices can be replaced in the
future. As shown in Fig. 8.15, this function applies an optimization model to
confirm devices which need to be replaced and the quantity.
8.5.1.3 Model Introduction
This module is involved in many mathematical models, such as fund time value
model, sensitivity analysis model, optimization model, etc. Thereinto, there is
relevant introduction of the former two in the previous sections and chapters of this
book. Here, the introduction mainly focuses on the fund optimization model.
The purpose of establishing the fund optimization model is to be able to get the
maximum power saving benefit under limited fund constraint. The model mainly
consists of two parts which are the objective function and the constraint condition.
Objective Function
1. Maximum comprehensive cost-benefit ratio R:

PN Pn
Bt Ct
maxR max t1PN i1Pn 8:1
t1 i1 Ct
2. Minimum investment recovery period T:

( )
XN X n
maxT max Bt Ct 0 8:2
t1 i1
In Formula (8.1) and Formula (8.2): Bt f xi t indicates the income

brought from equipment replacement in the tth year, xi t indicates the quantity of
the ith kind of equipment for replacement in the tth year and f indicates the income
and is the function of xi t; Ct gxi t indicates the cost caused by equipment
replacement in the tth year, g indicates the cost and is the function of xi t and
indicates the project lifetime or contract period.
Constraint Condition
( P P
Capital constraint: Nt1 ni1 Ct C0
8:3
Equipment quantity constraint: li t xi t ui t
In Formula (8.3): C0 indicates the amount of funds which can be used by an

enterprise; li t and ui t indicate the lower limit and upper limit of the quantity of
equipment for replacement, respectively; fund constraint indicates that the total
cost of this power saving project cannot exceed the amount of funds that can be
used by the enterprise; equipment quantity constraint indicates that the quantity of
equipment for replacement should be.
8.5.2 DSM Compensation Mechanism Simulation Module
As shown in Fig. 8.16, this module includes three subfunctions, including the
government price regulation simulation, financial compensation simulation, and
tax preference simulation. Each subfunction needs to simulate the influences on
power saving and emission reduction. As the government price regulation may
directly influence the price level, the subfunction needs to simulate the influences
on price.
Government Price Regulation Simulation
1. Simulation of influences on price from government price regulation. The pur-

pose of the government is to raise sufficient DSM funds in the precondition of
not causing high social price fluctuation. If this purpose is not achieved, the
government will improve the electricity charge addition level further. As shown
in Fig. 8.17, the simulation of influences on price from government price
regulation includes two parts which are confirming price regulation rules and
DSM compensation mechanism establishment

simulation
Government price Financial compensation Tax preference

regulation simulation simulation Simulation
Simulation of influences on power saving

Simulation of influences on emission

Simulation of influences on price
reduction
reduction
reduction
Fig. 8.16 Function structure of DSM compensation mechanism simulation

Product price change of
agriculture
mine exploitation industry
food manufacture industry
textile, sewing and leather product

manufacture industry
Confirming
Simulation of influences on price
price coking, coal gas and petroleum

regulation processing industry
rules
chemical industry
building material and other nonmetallic

Calculating mineral manufacture industry
CPI change
price change
metal product manufacture industry
of industry
mechanical equipment manufacture
industry
other manufacture industries
building industry
Transportation , post and

Business, food and drink industry
other service industries
electric and thermal production and

supply industry
Fig. 8.17 Simulation flow of influences on price from government price regulation
calculating price change of each industry. The consumer price index (CPI)
change can be calculated through industry price change.
2. Simulation of influences on power saving from government price regulation.
The industry power saving comes from two aspects: first, due to electricity
price rise, load demand of each industry will be reduced properly, which mainly
depends on the price elasticity of the industry load demand; second, the gov-
ernment uses the DSM funds levied to DSM compensation and these com-
pensation funds are used to energy conservation reconstruction for each
industry so as to get power saving effect. Therefore, as shown in Fig. 8.18, the
simulation of influences on power saving includes the simulation of DSM fund
levy power saving and simulation of DSM fund compensation power saving.
3. Simulation of influences on emission reduction from government price regu-
lation. Due to the industry power consumption decrease, the consumption of
fossil fuel such as coal and others will be reduced so that the emission of
Electricity consumption change of
agriculture
mine exploitation industry
food manufacture industry
textile, sewing and leather product

manufacture industry
coking, coal gas and petroleum

processing industry
Simulation of
electricity saving chemical industry
of collection of
building material and other nonmetallic
DSM fund
mineral manufacture industry
metal product manufacture industry

Simulation of
electricity saving mechanical equipment manufacture
of compensation industry
of DSM fund
other manufacture industries
building industry
Transportation, post and

Business, food and drink industry
other service industries
electric and thermal production and

supply industry
Fig. 8.18 Simulation flow of influences on power saving from government price regulation
Simulation of influences on emission reduction
Energy consumption Emission reduction

simulation simulation
Energy
consumption of CO2 emission SO2 emission NOx emission
Fossil energy
ten thousand reduction reduction reduction
output value
Fig. 8.19 Simulation flow of influences on emission reduction from government price regulation
pollutants like CO2, SO2, and NOX and others will be reduced. Shown as
Fig. 8.19, emission effect model includes two functions of energy consumption
and emission simulations.
Government Compensation Simulation
1. Simulation of influences on power saving from government compensation.

Government compensation refers to the government withdraw a part of fund
from the budget to use it for DSM project implementation compensation. This
part of function is similar to the function of previous DSM fund compensation
simulation, so it is not i introduced in detail here.
2. Simulation of influences on emission reduction from government compensation.
The energy consumption and emission reduction can be calculated through the
power consumption reduced by various users. This is similar to the function of
previous simulation of influences on emission reduction from government
price regulation, so it is not introduced in detail here.
Tax Preference Simulation
1. Simulation of influences on power saving from tax preference. Tax preference

mainly refers to providing certain remission in aspects like value-added tax and
income tax and others for enterprises which produce energy-saving products
and users who use energy-saving products. Aiming at different object and
different tax, the power saving effect generated from tax remission shall be
different. On the basis of detailed investigation, combining experts experience
and establishing knowledge base between tax preference policy and power
saving effect can hereby simulate power saving effect generated from different
tax preference policy.
2. Simulation of influences on emission reduction from tax preference. The energy
consumption and emission reduction can be calculated through power con-
sumption reduced by users. This is similar to the function of previous simu-
lation on influences on emission reduction from government price regulation,
so it will not be introduced in detail here.
We can establish the mathematical model of government price regulation simu-

lation by using multi-agent technology. The introduction shall focus on the multi-
agent frame, agent design and simulation flow related to this model below.
Multi-Agent Frame of Government Price Regulation Simulation
The government price regulation simulation mainly is involved with two kinds of
agents: government agent and industry agent. Besides, based on the thought of
open agent, experts also should participate in it. Figure 8.20 shows multi-agent
frame of government price regulation simulation. Thereinto, there are 15 industry
agents. The industries represented by the industry agents are listed in Table 8.1.
The relation between government agent and industry agent mainly is shown in
three aspects: the former required to increase the electricity price of the latter, the
increased electricity charge subsidy used for energy conservation reconstruction of
the latter and the latters response; the relation between industry agents mainly is
shown in the following aspects: industry production cost caused by power con-
sumption cost rise and linkage rise of product price; the relation among govern-
ment agent, industry agent, and experts is mainly shown in experts intervention
and agents responses to it.
Agent Design
1. Government agent
Target of government agent
In order to establish a DSM compensation mechanism and effectively promote
DSM work development, the government hopes to raise more special DSM funds
as far as possible under the precondition of not influencing normal economic
operation in China. Its target can be shown as follow:
Open agent 15 industry agents

system Multi-agent
Regulation system
Agent
Agent 15
Experts
1
Response
Regulation
.
.
Response
Agent Else
.
2 Agents
Improving .
. .
electricity price
Agent
and investment
3
Government
agent
Response
Fig. 8.20 Multi-agent frame of government price regulation simulation
Table 8.1 Specific names of 15 industry agents

Agent no. Represented industry
Agent 1 Agriculture
Agent 2 Mine exploitation industry
Agent 3 Food manufacture industry
Agent 4 Textile, sewing and leather product manufacture industry
Agent 5 Other manufacture industries
Agent 6 Electric and thermal production and supply industry
Agent 7 Coking, coal gas and petroleum processing industry
Agent 8 Chemical industry
Agent 9 Building and other nonmetallic mineral manufacture industry
Agent 10 Metal product manufacture industry
Agent 11 Mechanical equipment manufacture industry
Agent 12 Building industry
Agent 13 Transportation and post and telecommunication industry
Agent 14 Business and food and drink industry
Agent 15 Other service industries
max Y maxffg
8:4
s:t DCPI DCPImax
In Formula (8.4), Y stands for the amount of special demand-side management
funds levied by the government. It is the function of additional proportion of
electricity chargeDr: The constraint condition is the consumer price index
change DCPI cannot be more than its permissible upper limit DCPImax .
Behavior of government agent

The structure of government agent is shown as Fig. 8.21, including six parts:
target, inference engine, rule base, perceptron, effector, and database.
First, the electricity price is improved according to a certain proportion to have
direct effect on the external environment through the effector; second, the industry
agent product price change information is got from the external environment
through the perceptron; third, the inference engine performs calculation according
to this information and confirms the electricity price regulation strategies
according to the rules in the rule base; fourth, the effect is acted on the external
environment through the effector and electricity price regulation strategies of a
new round is confirmed according to the new responses of the industry agents;
finally, the target is satisfied.
The formula for the inference engine to calculate DCPI is as follow:
X
n
DCPI Dpi wi 8:5
i1
In Formula (8.5), DPi indicates the product price change range of the ith
industry and wi indicates the proportion of the ith industry product in the total
social consumption.
The overcharged electricity cost all shall be taken as special DSM fund which
shall be distributed by the government agent to the industry agents, respectively, to
be used for technical innovation. Many factors need to be considered for the fund
distribution issue and a simple processing method is used in this book to suppose
that the government applies fairness principle to distribute funds to all the
industries in average.
Government
Agent
Target Effector
Inference
Experts engine
Perception
Rule base Database
External environment
Fig. 8.21 Structure of government agent

The government agent is an open agent, so experts from the external world can
intervene and adjust electricity price regulation and fund distribution strategies of
government agent completely.
Electricity price regulation strategy of government agent
The rules for the government agent to confirm electricity price regulation
strategy can be simply shown as follows:
If DCPImax DCPI 0:00001; the value of electricity price regulation range Dr
shall be increased according to proper step length.
If DCPI DCPImax ; the value of electricity price regulation range Dr shall be
decreased according to proper step length.
If 0\DCPImax DCPI 0:00001; the electricity price regulation range Dr at
that time shall be the choice of the government agent.
2. Industry agent
Target of industry agent
To an income-producing enterprise, the long-term target of an industry agent is
the profit maximization all the time. To electricity price improvement by the
government, the short-term target of the industry agent shall be that its profit will
not change before and after electricity price rise, which is shown as Bi Bi0 :
Thereinto, Bi indicates the profit of the industry agent i after the electricity price
regulation and Bi0 indicates the profit of the industry agent i before the electricity
price regulation.
Behavior of industry agent
The structure of industry agent is shown as Fig. 8.22, which is basically similar
to that of government agent. The difference is that the government agent uses an
expert rule for inference while the industry agent uses a quantitative model for
inference.
Power is the basic industry of national economy and intermediate input of every
industry at the same time, so the electricity price will directly influence the pro-
duction cost of every industry which will influence the respective sales price and
the sales price change will influence production cost of the industry which takes
these products as the intermediate input and thereby result in the sales price
change; the cross influences are repeated continuously, in this way till the product
prices of the industries are all in equivalent states at last. Thus, the behavior of
every industry agent should be like this (taking industry agent I as an example):
first, the electricity price and the product price change information of other
industries are obtained from the external environment through the perceptron;
next, the inference engine uses the models in the model base to perform inference
according to this information, confirm the product rise range DPi and have direct
effect on the external environment through the effector; other industry agents
regulate their own product sales prices according to this price change information
DPi ; the industry agent i reconfirms its own price regulation strategies according
Industry
Agent
Target Effector
Inference
Experts engine
Perception
Rule base Database
External environment
Fig. 8.22 Structure of industry agent
to the external environment at that time till the product prices of all the industry
agents stay in equivalent states.
Due to the electricity price rise, the second behavior of an industry agent is
reducing the power consumption, which can be described by the load demand
price elasticity of this agent. The load demand price elasticity of an industry agent
is the relative power consumption change caused by relative electricity price
change, which is equal to the ratio of the power consumption change rate and
corresponding electricity price change rate based on numerical value. Its calcu-
lation formula is as follows:
oedi =edi
ei 8:6
oPe =Pe
In Formula (8.6), ei stands for the load demand price elasticity of agent i; edi
stands for the load demand of agent i; Pe stands for the electricity price; the
numerator at the right side of the formula indicates the power consumption change
rate and the denominator indicates the electricity price change rate. From this
formula, it can be seen that the price elasticity values calculated based on different
electricity price levels will be different. Generally speaking, the higher the price
level, the lower the absolute value of the elasticity price; the lower the price level,
the higher the absolute value of the elasticity price. The confirmation of power
demand price elasticity of an industry agent needs a lot of empirical data.
As the special DSM fund raised by the government is input to energy con-
servation reconstruction of every industry, the third behavior of an industry agent
will be applying this fund to develop energy conservation reconstruction work and
certain energy conservation effect generated hereby. A different fund mode applied
by the agent will bring different energy conservation effect. To this, the expert
judgment method is used in this book to confirm the energy conservation effect of
fund utilization by every industry.
Product price regulation strategy of industry agent

According to the price formation theory of inputoutput theory [12], the total
output value of an industry agent is composed of intermediate input value and
added value:
X
n
Xij Dj Xj 8:7
i1
In Formula (8.7), Xj stands for the total output value of agent j; Xij stands for the
intermediate input of agent i to agent j; Dj stands for the added value of agent
j. Formula (8.7) can be converted to be as follow:
X
n
Pi xij Dj Pj xj 8:8
i1
In Formula (8.8), Pi indicates the product price of agent i; Pj indicates the

product price of agent j; xj indicates the total output of agent j; indicates the
intermediate consumption of agent j to agent i.
The following formula can be got by dividing the parts at the two sides of
Formula (8.8):
X
n
Pi aij dj Pj 8:9
i1
There into, aij indicates direct consumption coefficient; dj indicates added value
rate. Suppose the product price of agent n (referred to power in this book) has been
changed by DPn ; the product price changes of other agents shall be
DP1 ; DP2 ; . . .; DPn1 : Moreover, suppose that the price interaction is transferred
through cost change, the added value rate of each agent shall not be influenced by
price change. According to Formula (8.9), the following formula can be got:
8
> a11 Dp1 p1 a21 Dp2 p2 an1 Dpn pn d1 Dp1 p1
>
>
>
< a12 Dp1 p1 a22 Dp2 p2 an2 Dpn pn d2 2 p2
> ..
>
> .
>
:
a1;n1 1 p1 a2;n1 Dp2 p2 an;n1 Dpn pn dn1 Dpn1 pn1
8:10
The product price regulation strategy of industry agent can be deduced through
the change of Formula (8.10):
2 3 2 31 2 3
Dp1 1 a11 a21 an1;1 an1
6 Dp2 7 6 a12 1 a22 an1;2 7 6 7
6 7 6 7 6 an2 7
6 .. 7 6 .. .. .. .. 7 6 .. 7Dpn 8:11
4 . 5 4 . . . . 5 4 . 5
Dpn1 a1;n1 a2;n1 1 an1;n1 an;n1
The formula above analyzes the absolute amount of price change on the basis of
material type inputoutput table, however, if it is based on value type inputoutput
table, all the price changes in Formula (8.11) shall be relative amount, namely,
change range relative to the original price.
Simulation Flow
According to the behavior of each agent, Fig. 8.23 shows the simulation flow of
government price regulation simulation. When necessary, experts can intervene of
the simulation process.
Step one. The government agent confirms the original up-regulation range of
electricity price.
The government agent :

confirms the up-regulation range
of the original electricity price .
The industry agent makes

a response and improves
product price.
The government agent
regulates electricity price rise
range.
The government agent

calculates CPI Experts
No
0 < CPI max - CPI < 0.00001
Yes
The industry agent confirms

The government agent invests
its own reduced power
in the industry agent.
consumption.
Confirm the Effect of

the Energy Conservation and
Power Saving.
Fig. 8.23 Simulation flow

Step two. According to the price regulation information of the government

agent, each industry agent improves product price in accordance with the price
regulation strategy.
Step three. As the product prices of all industry agents rise, the government
agent will calculate the overall price index change and observe whether the CPI
change is within the permissible range. If the permissible range is exceeded, it
shows that the electricity price rise range is too big, the government agent will
reduce the up-regulation range properly and the interaction of a new round will be
begun between the agents; if the permissible range is not exceeded, it shows the
price regulation range gets to the limit and the raised DSM fund at that time is the
most.
Step four. The government agent compensates the raised DSM fund to each
industry agent for energy conservation reconstruction; the industry agent reduces
its own power consumption due to electricity price rise.
Step five. The domain experts confirm power saving effect according to the
amount of compensation fund got by each industry agent.
8.5.3 Time-of-Use Price Simulation Module
This module refers to simulating a government to make rational time-of-use price

strategy according to the power consumption characteristics of users. As shown in
Fig. 8.24, it mainly includes three subfunctions, i.e., peak and valley period
management, user response matrix management, and the best time-of-use price
simulation.
Peak and Valley Period Management
Peak, valley, and off-peak periods are divided according to the power consumption
characteristics of various users, including period division of agricultural users,
industrial users, commercial users, and typical users. Thereinto, the typical users
Time-of-use price simulation
Peak and valley period User response matrix The best time-of-use
management management price simulation
Fig. 8.24 Structure of time-of-use (TOU) price simulation functions

Peak and valley period

management
Peak and valley period Peak and valley period Peak and valley period
Peak and valley period
division of agricultural division of industrial division of commercial
division of typical users
users users users
Typical user 1
Typical user 2
Typical user n
Fig. 8.25 Peak and valley period management
User response matrix

management
Commercial user
Agricultural user response Industrial user response Typical user response
response matrix
matrix management matrix management Matrix management
management
Typical user 1
Typical user 2
Typical user n
Fig. 8.26 User Response Matrix Management
can be various enterprises and industries, etc. Figure 8.25 reflects the contents of
peak and valley period management.
User Response Matrix Management
The user response matrix is confirmed on the basis of a lot of investigation. This
matrix includes self-elasticity coefficient and cross-elasticity coefficient of each
period (detailed explanation in the model introduction later). Figure 8.26 reflects
the contents of user response matrix management. With the completion of
investigate data, the data of this response matrix can be updated.
The best time-of-use price

simulation
The best time-of-use price The best time-of-use price The best time-of-use price The best time-of-use price
simulation of agricultural simulation of industrial simulation of commercial simulation of typical
users users users users
Typical user 1
Typical user 2
Typical user n
Fig. 8.27 The best time-of-use (TOU) price simulation
The Best Time-of-Use Price Simulation
The proper time-of-use price is confirmed according to the power consumption

characteristics of a user; the maximum load and peak-valley difference of this user
can be reduced and the system load factor can be improved to the maximum extent
on the basis of satisfying the users load demand and desire. Figure 8.27 reflects
the contents of the best time-of-use price simulation.
Time-of-Use Price User Response Matrix
The response behavior of users is shown in regulating the internal power con-
sumption period of an enterprise and changing power consumption mode
according to different period of time [3, 13]. In order to quantize the uses response
to time-of-use price, the electricity price elasticity matrix is used to show the price
demand elasticity of user. The time-of-use price elasticity refers to the electric
energy change resulting from the price change in peak, valley or off-peak period,
namely, the ratio of power consumption change percentage and corresponding
electricity price change percentage within a certain period.
Users response to electricity price is shown as the single-period response and
the multi-period response. The single-period response refers to a user decides that
the power consumption of a certain period is only related to the electricity price
change of this period. It usually happens in the nonessential power consumption
condition of changeable electricity of the user in this period. The multi-period
response refers to a user decides that the power consumption of a certain period is
influenced by the electricity prices of other periods and the original power
consumption is redistributed in the all the periods to transfer the electricity from
comparatively high electricity price period to comparatively low electricity price
period. This kind of response of user usually is related to production type and
production shift system of user.
The self-elasticity coefficient of electricity price qii is defined to show to the
single-period response of user to time-of-use price:
DQi =Qi
qii 8:12
DPi =Pi
Z

DQi fTOU;t Pp ; Ps ; Pv ft Pt dt 8:13
i
DPi PTOU;i Pi 8:14

In the three formulae above: DQi is the electricity change before and after time-
of-use price implemented to the user in the ith period; DPi is the electricity price
change value before and after time-of-use price implemented to the user in the ith
period; PTOU;i is the time-of-use price in the ith period; Pi is the electricity price
before the implementation of time-of-use price in the ith period; PP ; Ps and Pv are
electricity prices of peak, off-peak and valley periods, respectively;
fTOU;t PP ; Ps ; Pv is the user load at the time t after the implementation of time-of-
use price and it is the function of electricity prices of peak, off-peak and valley
periods; ft Pt is the user load at the time t before the implementation of time-of-
use price and it is the function of electricity price Pt at the time t.
If DPi 0; the self-elasticity coefficient of user in the ith period is 0.
The cross-elasticity coefficient qii is defined to show the multi-period response
of user to time-of-use price:
DQi =Qi
qii 8:15
DPj Pj
Thereinto, i and j stand for different time periods.
If DPj 0; the cross-elasticity coefficient of user in the ith is 0.
Through the definitions above, the electricity price elasticity matrix E as below
can be got:
2 3
q11 q12 q1n
6 q21 q22 q2n 7
6 7
E6 . .. .. .. 7 8:16
4 .. . . . 5
qn1 qn2 qnn
Thereinto, n is the number of time periods.
Time-of-Use Price User Response Model
According to Formula (8.16), the change rate column vector of power consump-
tion of user after the implementation of time-of-use price can be worked out;
2 3 2 3
DQ1 =Q1 DP1 =P1
6 DQ2 =Q2 7 1 6 DP2 =P2 7
6 7 6 7
6 .. 7 E6 .. 7 8:17
4 . 5 n 4 . 5
DQn =Qn DPn =Pn
Furthermore, the power consumption after the implementation of time-of-use
price is calculated as follows:
2 03 2 3 2 3 2 3
Q1 Q1 0 DP1 =P1 Q1
6 Q2 7 1 6
0
Q2 7 6 DP2 =P2 7 6 Q2 7
6 7 6 7 6 7 6 7
6 .. 7 6 .. 7E 6 .. 7 6 .. 7 8:18
4 . 5 n4 . 5 4 . 5 4 . 5
Q0n 0 Qn DPn =Pn Qn
Thereinto, Q0i is the power consumption in the ith period after the implemen-
tation of time-of-use price.
Formula (8.18) is namely the user response model. The user response model got
through Formula (8.18) can comparatively get close to the actual condition, but the
actual constraint that the user load cannot be adjusted freely all the time in a
certain period of time and a certain fixed load factor exists is not taken into account
and the load upper limit also exists due to the limit of equipment running capa-
bility, so Q0i calculated through Formula (8.18) might be more than the maximum
load in this period or less than the fixed load in this period; in this way, the formula
should be corrected:
8
< QFi Q0i lt QFi
0
Qi Q0i QFi Q0i lt; Q0maxi 8:19
: 0
Qmaxi Qmaxi i0
Thereinto, Q0i is the correction value of power consumption in the ith period
after the implementation of time-of-use price; QFi is the fixed load in the ith
period; Q0maxi is the maximum load in the ith period.
User Satisfaction Degree Function
User satisfaction degree is a concept of power marketing, so user satisfaction

degree to the establishment of time-of-use price should be fully considered during
establishing time-of-use price. The comparatively great change of user production
mode caused due to too big time-of-use price difference will cause users to have
resistant emotion to the implementation of time-of-use price and their satisfaction
degree will decrease, and the social image of the power grid enterprises will be
hereby influenced. Therefore, the user satisfaction degree shall be fully considered
during establishing time-of-use price. The user satisfaction degree defined in this
book takes two aspects which are user satisfaction degree to power utilization
mode and to electricity cost expenditure into account for evaluation. The satis-
faction degree to power utilization mode is an index for evaluating power utili-
zation mode variation of user; the satisfaction degree to electricity cost
expenditure is an index for evaluating electricity cost expenditure variation of user.
1. User satisfaction degree to power utilization mode. Before the implementation
of time-of-use price, a user arrange power utilization mode according to the
production mode which is most proper to him, and the user satisfaction degree
to power utilization mode at that time is the greatest. After the implementation
of time-of-use price, the user makes response and changes power utilization
mode to pursue comparatively low electricity cost increase. At that time, the
power consumption is recombined at the time axis and a new user load curve is
formed. The user satisfaction degree to power utilization mode defined in this
book is established on the basis of adjusting the difference between electric
energy and original load curve, which is specifically shown as follows:
R 23
0 fTOU;t Pp ; Ps ; Pv ft Pt jdt
e1 R 23 8:20
0 ft Pt dt
Thereinto, e is the user satisfaction degree to power utilization mode;

R 23

0 fTOU;t Pp ; Ps ; Pv ft Pt dt is the power consumption change value in each
period of user to whom the time-of-use price is implemented.
Formula (8.20) shows the power utilization mode change of users and power
consumption change of users. After the implementation of time-of-use price, when
the great change (doubled growth) of power consumption of a user is not taken into
account, the user satisfaction degree to the implementation of time-of-use price is
e 2 0; 1: When the user does not change power consumption in each period, the
user satisfaction degree will be the highest and its value is 1; the greater the change
of power utilization mode of user is, namely, the power consumption change in
each period, the lower the satisfaction degree will be; in the extreme condition that
the user does not use power at all, the user satisfaction degree will be 0.
It is notable that the cost generated due to power utilization mode change is not
considered in the function of user satisfaction degree to power utilization mode
mentioned above, such as other cost increase due to production process regulation
and energy storage equipment purchase cost, etc. To users of different industries
and different users of a same industry, there is a great difference in the aspect that
whether this part of cost occurs or what its amount is and it is difficult to quantify
it, but it shows the subjective will of users in participating in time-of-use price and
can be shown in the user price response matrix. The occurrence of this part of cost
directly leads to the power utilization mode change of users to make e deviate from
1. Therefore, the cost shall not be considered in this part.
2. User satisfaction degree to electricity cost expenditure. One of the principles
for time-of-use price establishment is unchanged overall electricity price level
after implementing time-of-use price to users. Taking the ratio of peak, off-peak
and valley electricity prices as 3:2:1 as an example, if the goal of unchanged
overall electricity price level is to be accomplished, the change of electric
energy in peak period must be equal to that of electricity change in valley
period. When the peak electricity at peak load is more than that at valley, the
overall electricity price level will rise and exceed the original electricity price
level; when the electricity at valley load is more than that at peak, the overall
electricity price level will decrease and be lower than the original electricity
price level. In actual work, it is very difficult to get to the condition that the
electricity at peak load is equal to that at valley, but the electricity at peak load
is not equal to that at valley and the electricity at peak load is more than that at
valley in most conditions. Thus, if a user does not arrange power consumption
according to the time-of-use price ratio, his electricity cost expenditure will
suffer great impact. The user satisfaction degree to electricity cost expenditure
defined in this book is an index for evaluating the electricity cost expenditure
variation in unit production cost of user, which is specifically shown as follows:

C Pp ; P s ; Pv C P o
h1 8:21
C Po
Thereinto, h is user satisfaction degree to electricity cost expenditure; CP0 is

the electricity cost expenditure of user before the implementation of time-of-use
price and it is the function of the original electricity price; CPp ; Ps ; Pv is the
electricity cost expenditure of user after the implementation of time-of-use price
and it is the function of the electricity prices in peak, off-peak, and valley periods.
3. Measurement of comprehensive user satisfaction degree. According to the
summary of the analysis above, the comprehensive user satisfaction degree is
the weighted average of satisfaction degree to power utilization mode and
satisfaction degree to electricity price cost. The comprehensive satisfaction
degree model given in this book is as follows:
< c1e c2h 8:22
c1 c2 1 8:23
In Formula (8.22) and Formula (8.23): < is the comprehensive satisfaction

degree of user; c1 is the weight value of user satisfaction degree to power utili-
zation mode; c2 is the weight value of user satisfaction degree to electricity cost
expenditure.
Different values of c1 and c2 are set to different users so as to show the different
attention paid by different users to power utilization mode change and electricity
cost expenditure. For example, a user who has a very great proportion of electricity
cost in the enterprise production cost has a great weight value of satisfaction
degree to electricity cost expenditure; a user who is strict to production time has a
great weight value of satisfaction degree to power utilization mode.
As the description of attention degree itself is a fuzzy judgment that contains
many subjective factors; during specific calculation, the two can be assigned
according to the subjective description by the user himself to them. The assign-
ment method in this book is shown in Table 8.2; thereinto, A and B stand for e and
h; respectively.
4. Time-of-use price decision model based on user response and satisfaction
degree. The multi-objective planning model is used and the electricity prices in
peak, valley, and off-peak period are taken as the variables to accomplish the
goal of peak load shifting and user satisfaction degree maximization in equi-
librium. That is to say, not only the goal of minimizing the maximum peak load
and peak-valley difference of daily load curve is accomplished but also the
purpose of maximizing user satisfaction degree is achieved. The objective
functions are shown as follows:
minmaxQ0 8:24
minmaxQ0 minQ0 8:25
max< 8:26
The constraint condition is shown as below:

Pmin PTOU Pmax 8:27
Formula (8.24) indicates the minimized maximum system load. Formula (8.25)
indicates the minimized system peak-valley load difference. Formula (8.26)
Table 8.2 Assignment method of fuzzy description

Fuzzy description Assignment [A, B]
A is as important as B [0.5, 0.5]
A is a little more important than B [0.6, 0.4]
A is obviously more important than B [0.7, 0.3]
A is much more important than B [0.8, 0.2]
A is extremely more important than B [0.9, 0.1]
indicates the maximized user satisfaction degree. Formula (8.27) sets the change
range of time-of user price.
As the several objectives of the objective functions conflict with each other, we
will take Pareto solution to calculate them. Pareto solution is an effective solution,
which refers to any objective function is not able to be improved in the pre-
condition of not sacrificing other objective functions. During getting the solution,
the minimization method, weight value setting method and objective function
method and others can be used. We shall use weight value setting method to
convert Formula (8.24), Formula (8.25) and Formula (8.26) to single-objective
planning:

maxQ0 maxQ0 minQ0
min k1 k2 k3 < 8:28
maxQ maxQ minQ
k1 k2 k3 1 8:29
In Formula (8.28) and Formula (8.29), max Q and max Q - min Q stand for the
maximum load and peak-valley difference before the implementation of time-of-
use price, respectively; the purpose of using max Q0 max Q0 minQ0
max Q and max QminQ for cal-
culation is to set the value range as around 1 so as to be compared with < at the
same level and avoid influences due to too big numerical value difference. k1 ; k2
and k3 stand for the weight values of Formula (8.24),Formula ( 8.25) and Formula
(8.26), respectively.
During specific calculation, as both Formula (8.24) and Formula (8.25) show
the contribution of user to system peak load shifting, they can be set with same
weight values. That is to say, the single-objective planning mentioned above can
be converted to the form as below:

maxQ0 maxQ0 minQ0
min x1 x2 < 8:30
maxQ maxQ minQ
x1 x2 1 8:31
x1 and x2 stand for the contribution of user to system peak load shifting and
weight of satisfaction degree of user himself. Their values will have certain
influences on the optimization result of Formula (8.30) and be different to different
industries. For example, to a user with comparatively big peak-valley difference or
a user with comparatively high power consumption proportion in the system, the
value of x1 might be high; to a user who is sensitive to electricity price and whose
power utilization satisfaction degree decrease may arouse a comparatively strong
social response, such as a residential user, the value of x2 shall be comparatively
high. It can be seen that x1 and x2 still are fuzzy judgments which contain many
subjective factors, and they can be assigned according to the experience
description by the power grid enterprise to them during specific calculation.
8.6 Analysis Method Introduction
8.6.1 Calculation Index Weight of Analytic Hierarchy

Process
Suppose the evaluation index system is an independent hierarchical structure

[14, 15]. As shown in Fig. 8.28, the number of indexes (or attributes) of each layer
generally does not exceed 9.
The main steps of using the AHP to confirm index weight are divided into
establishing hierarchical structure, forming pairwise comparison judgment matrix,
calculating relative weight of each index, inspecting judgment matrix consistency
and comprehensive weight calculation.
1. Forming pairwise comparison judgment matrix. According to experts expe-
rience, referring to the standards in Table 8.3 and comparing paired evaluation
indexes, judgment matrix A [referring to Formula (8.32)] is formed, among
which, aij indicates the assignment of subindex ui i 1; 2; . . .; n in relation to
the important degree of the subindex under a same father index.
2 3
a11 a12 a1m
6 a21 a22 a2m 7
6 7
A 6 .. .. .. .. 7 8:32
4 . . . . 5
am1 am2 amm
2. Calculation of weight vector W. The calculation of weight vector W is namely
the importance ordering of the evaluation indexes. The calculation rule is
shown as Table 8.4.
Evaluation index
Index x1 Index x2 Index x3
Subindex 1 Subindex 1 Subindex 1
Subindex 2 Subindex 2 Subindex 2
Subindex n1 Subindex n2 Subindex n3
Fig. 8.28 Index structure in AHP

8.6 Analysis Method Introduction 573
Table 8.3 Reference table of the grading proportion scale

Assignment ui =uj Description
1 According to the comparison between two indexes, they are at
same important degree
3 According to the comparison between two indexes, the former is a
little more important than the latter
5 According to the comparison between two indexes, the former is
obviously more important than the latter
strongly more important than the latter
extremely more important than the latter
2, 4, 6 and 8 The condition between the two adjacent judgments
Reciprocal The latter is more important than the former. The skillful
comparison scale of index xi and xj and the comparison scale of
xi and xj are reciprocal each other
Table 8.4 Weight vector calculation process

Judgment matrix A Continued [roduct The mth root of wi Got by carrying out
elements in each row element normalization processing
row product to wi
2 3 p
a11 a12 a1m Qm
i m Mi
x xi P
m
i
x
6 a21 a22 a2m 7 Mi j1 aij i
x
6 7 i1
6 .. .. .. .. 7
4 . . . . 5
am1 am2 amm
Remark m is the number of order of judgment matrix; aij is the element of
judgment matrix; wi is the ith element of weight vector W
3. Inspection of judgment matrix consistency. According to the steps as the

following:
Step one. Calculate the maximum characteristic root of judgment matrix.
X
m
A W i
kmax 8:33
i1
nxi
In Formula (8.33), A is judgment matrix; W is the weight vector; (AW)i indi-

cates the ith element of the compound matrix AW after multiplying matrix A by
W; m is the number of order of judgment matrix; wi is the ith element of weight
vector W.
Step two. Calculate the deviation consistency index (CI) of judgment matrix.
kmax m
CI 8:34
m1
Table 8.5 Mean random consistency index (RI)

The number of order of judgment matrix 1 2 3 4 5 6 7 8 9
(m)
Random consistency index (RI) 0.00 0.00 0.58 0.90 1.12 1.24 1.32 1.41 1.45
The mean random consistency index (RI) is confirmed through the known
number of matrix order m. To 19 order judgment matrix, the relation between
m and RI is shown as Table 8.5.
Step three. Calculate random consistency ratio.
CI
CR 8:35
RI
If the random consistency ratio is less than 0.10 CR\0:10; it is considered

that the satisfactory consistency requirement is met and the result got through the
judgment matrix is correct; if the random consistency ratio is not less than 0.10
CR 0:10; it is required to adjust the judgment matrix till the satisfactory
requirement is met.
4. Comprehensive weight calculation. After calculating the weights of indexes of
each layer with the judgment matrix, it is required to calculate the compre-
hensive weight of bottom layer index. The comprehensive weight of a bottom
layer index is equal to the product of the weight of this index and the weight of
the father index. For example, suppose that the subindex is a bottom layer index
and the weight to father index xj is wi ; and the weight of father index xj to the
objective is w0j ; then the comprehensive weight of bottom layer index ui is
yi w0j wi : The vector formed by the comprehensive weights of all bottom layer
indexes is shown as below:
Y y1 ; y2 ; y3 ; . . .; yn 8:36
8.6.2 Calculation Process of Fuzzy Comprehensive

Evaluation Method
Fuzzy comprehensive evaluation method is one kind of the comprehensive eval-

uation methods, which mainly includes five contents: establishing evaluation
index, confirming index weight, confirming evaluation grade, confirming fuzzy
judgment matrix and calculating comprehensive membership degree [14, 15].
Thereinto, the index weight confirmation method is the same as AHP. The latter 3
contents will be mainly introduced below.
8.6 Analysis Method Introduction 575
1. Confirming evaluation set

Evaluation set V fv1 ; v2 ; v3 ; . . .; vk g indicates the evaluation grade of evalu-
ation index. Generally, five grades are used: V fv1 excellent; v2 good;
v3 general; v4 poorer; . . .; vk poorg.
2. Confirming fuzzy judgment matrix
Suppose that the ith index of the bottom layer is ui ; the membership degree of
DSM projects to selection grade vj j 1; 2; . . .; 5j 1; 2; . . . ; 5 by focusing on
ui is rij ; in this way, the single-factor evaluation set of ui can be worked out:
ri ri1 ; ri2 ; ri3 ; ri4 ; ri5 8:37

In this way, the evaluation set of m indexes will form an overall evaluation
matrix R. That is to say, every evaluated object confirms the fuzzy relation R from
U to U. It is a matrix:
2 3
r11 r12 r15
6 r21 r22 r25 7
6 7
R rij m5 6 .. .. .. .. 7 8:38
4 . . . . 5
rm1 rm2 rm5
3. Calculating comprehensive membership degree

The comprehensive membership degree B of a DSM project can be calculated
by combining the comprehensive weight vector Y of AHP, which also can be
called the comprehensive evaluation set of the DSM project.
B Y R b1 ; b2 ; b3 ; b4 ; b5 8:39
In Formula (8.39), b1 indicates that the DSM project is at excellence degree; b2
indicates that the DSM project is at good degree; b3 indicates that the DSM project
is at general degree; b4 indicates that the DSM project is at comparatively bad
degree; b5 indicates that the DSM project is at bad degree. Through these kinds of
information, we can judge whether the DSM project is feasible.
References
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science laboratory based on the intelligent engineering. China Electric Power Press, Beijing
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assistant decision-making on demand-side management (DSM)
4. Ding W, Li M (2007) The research on experimental economics and its application in

electricity market. Mod Electr Power 24(1):019
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2007(2):2528
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evaluation of the orderly usage of electricity and demand-side response dispatch mechanism

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Power Systems

For further volumes:

Quan Wen et al.

ISSN 1612-1287 ISSN 1860-4676 (electronic)

Jointly published with China Electric Power Press

Library of Congress Control Number: 2013933577

China Electric Power Press and Springer-Verlag Berlin Heidelberg 2013

Printed on acid-free paper

Springer is part of Springer Science+Business Media (www.springer.com)

demand, thus maximizing corporate profits. If the concept of IRP is extended to a

Various Chapter 4 Chapter 5

Beijing, Peoples Republic of China, April 2013 Authors

1 Basic Theory of Integrated Resource Strategic Planning . . . . . . . . 1

2 Basic Theory of Demand-Side Management . . . ... ...... . . . . . 63

2.1.3 DSM Technologies and Methods . . . . . . . . . . . . . . . . 68

3 The Promoter of Demand-Side Management: Government . . . . .. 135

3.4 Measures for Continuously Prompting the Effective

4 The Implementers of Demand-Side Management:

4.4.3 Various Measures Taken by Power Utilities

5 The Backbone of DSM Implementation:

5.2.5 Operation Mode of ESCO . . . . . . . . . . . . . . . . . . ... 293

5.10.3 The Decision Support System of DSM

6 The Important Participants in Demand-Side Management:

6.7.2 Modification Process of Reactive

7 The Prospects of Demand-Side Management. . . . . . . . . . . . . .... 471

8 Introduction to a Demand-Side Management Laboratory . . . . . .. 529

8.3 Key Technology of Demand-Side Management Laboratory. . . . 535

1.1 Basic Concept of Integrated Resource Planning

1.1.1 Concept of Integrated Resource Planning

1.1.1.1 Traditional Resource Planning

The initial method of traditional resource planning is relatively simple, which is to

Z. Hu et al., Integrated Resource Strategic Planning and Power Demand-Side 1

Confirm the planning Confirm the planning

Forecast electricity demand Forecast electricity demand

Develop some programs Assess the supply-side

Compare and choose the Optimize the

Implement the planning Implement the planning

Monitor and Monitor and

Initial Traditional Resource Improved Traditional

Fig. 1.1 The process of traditional resource planning

initial generator expansion planning was based on the experience of experts

1.1.1.2 Integrated Resource Planning

Confirm the planning

Forecast load demand

Evaluate the demand-side Evaluate the supply-side

Implement the planning

Fig. 1.2 The process of integrated resource planning

Unit output and amount of

Investment cost and

Fig. 1.3 Model of integrated resource planning

1.1.1.3 Demand-Side Management

The demand-side managemen (DSM) refers to conducting the load management

To save and shift 6 TWh

40 electricity consumption in the

1.1.2 The Features and Advantages of IRP

1.2 The Application of Integrated Resource Planning

by;m Ey;m Xy;m 1:8

Ey;1 Oy;1 Ey;2 Oy;2 Oy;max 1:9

Ey;1 Sy;1 Ey;2 Sy;2 Sy;max 1:10

Ey;1 Ny;1 Ey;2 Ny;2 Ny;max 1:11