The Energy Economics of the Demand-Side


A typical power system comprises of a supply-side, a conduit medium and a demand-side. Power systems are similar to water systems and in fact, often times, the flow of water is commonly used as an analogy in teaching concepts of the flow of electricity. However, one major contrast between these two systems is that, the demand-side of a power system is essential for the flow of electricity from the supply side (i.e. electricity can not and will not flow if there is no demand for it) – as opposed to a water system that has an inherent medium (water pipes) to hold the liquid whenever there is no demand for it.

Taking a look at the Nigerian power system, we can simply compute the total grid supply by adding up the individual generating capacities of all generators in power plants across the system. According to grid reports, this aggregation results in a potential maximum supply of about 7,000 MW. There are other popular knowledge and analyses regarding the supply-side that stakeholders are privy to. In the same way, the transmission and distribution potentials can also be well understood. In this case the capacities of the system at these two levels can also be determined by simply estimating transformer and feeder capacities across the network.

But how about the demand-side? Easy too yeah? As usual, we’d simply take stock of the capacities of all electrical appliances, equipment and machines utilized at the consuming end, right?

Well, not quite… it’s a whole different story from here.

The observability of the demand-side is critical knowledge for efficient power systems because, after all, electricity consumers are the main reason why the power system exists. The demand-side consists of all consumers including industries, businesses and households. Simply put, any building that has or is designed to have appliances/equipment and is connected to the grid network infrastructure (i.e. NEPA/PHCN) is a potential consumer. The national grid operational data estimates grid system demand (at about 14GW) based on connected and suppressed loads. While this is plausible data, this only means that the projection was determined based on the capacities of distribution equipment at the lowest level and is not a true reflection of a demand-side with maximized utility (customer satisfaction).

A simple illustration is this… ok there is no simple illustration to this but let’s look at it this way… Electricity is a commodity that is typically consumed by electric appliances/equipment. And electricity consumption happens just as instantly as it is generated. This implies that when 100 consumers, at the same time, turn on their 1kW microwave ovens to warm their food, the system is expected to immediately generate additional 100kW power to accommodate that demand. In the same way, when the warming process is complete and the microwave ovens stop running, if there is no similar demand for that 100kW anywhere on the grid, the system adjusts to generate less electricity.

However, it should be noted that the system generation (supply) has its limits and can only respond to demand to the best of its capacity. So in essence (and in theory), a system, that is available to generate up to 5000MW of power and currently responding to a demand of 3500MW, can adjust upwards to meet demands up to 5000MW. In cases where demand attempts to exceed the system’s availability, its inherent mechanisms will be forced to prioritize supply (aka load-shed). In economics, situations like this where supply can not accommodate demand, we’d term this as a scarcity scenario – hence we can say that frequent unplanned outages experienced at the demand-side are as a result of electricity scarcity. Ordinarily (and again in theory), boosting supply to accommodate demand should sort out scarcity and this option is what most grid stakeholders seem to naturally go for…

The electricity market/system is quite very sensitive and is quick to adjust to the forces of demand and supply. In more extreme conditions (although not very rare in Nigeria) where the disparity between demand and supply goes beyond certain tolerance limits, the system could collapse, either partially or totally, and this is what the demand-side sees as power outages. At this point, this might tell us that as much as we are able to observe the available supply, we should also be able to observe the demand-side, and most especially highlight the predictable patterns.

Observing the demand-side is a complex problem. It involves statistics, forecasting methods and other problem-solving techniques typical of any type of market. The distinguishing factor is that the computing tools for an efficient electricity market need to be as responsive and reliable as possible.

Demand-side management is one of the very important topics under the broad issue of Energy Management –  it is most effective when the demand-side is observable. I think it is safe to say that grid stakeholders in Nigeria understand this concept but I am not sure how importantly it is being prioritized. One well-known challenge faced by Discos is the difficulty in metering (measuring) most of the demand-side. It is understood that efforts are constrained by fiscal limitations (weak procurement funding and undesirable set tariffs), as well as non-compliant consumers that will rather tap electricity illegally than pay for it. Using this current approach and the ensuing constraints, understanding the demand-side could take quite some time ranging from months to years… Meanwhile, I know a guy at Levelocity that knows a quicker and cost-effective solution.

One recommendation from Levelocity to any Nigerian that has a heavy reliance on grid supply (NEPA), is to diversify local economy; to shift energy dependence to cost-effective off-grid solutions that will accommodate all essential needs. Energy needs differ widely, but through proper consultation with Energy Management professionals, one can determine what exactly their needs really are and go for affordable solutions that can meet them effectively.

Levelocity Inc is Nigeria’s leading Energy Management Services provider… We freely offer general information through our blog posts. For specific information about our services including demand-side management projects, emerging tech solutions such as renewable energy options, energy audits… or whatever energy concerns you have, no matter how simple or complex it might seem … you can contact and we will be happy to respond in a very timely manner.

2 thoughts on “The Energy Economics of the Demand-Side

  1. Thanks for this very relevant info shared. Never looked at the whole electricity system on an economic point of view( d supply-side and demand-side). We hope for more insights for a better Nigeria. Thanks again

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