Taking the pressure off: the role of utilities in demand response

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by Andrew Perry, NextGen Executive, EnergyAustralia

It might seem counterintuitive that a large energy business like EnergyAustralia would make energy efficiency and demand management a priority. But EnergyAustralia believes that utilities should be at the forefront of helping customers reduce their energy use – and that doing so will not only benefit customers, it will benefit energy utilities as well.

So why would a large retailer want customers to use less energy? It’s a good question.

Demand response is another example of how the energy industry has been turned upside down in the past few years. Customers participating in a demand response program agree to moderate their energy consumption for short periods to offset extreme demand or during emergencies. It’s a way of securing reserve capacity, easing the strain on the electricity system and avoiding involuntary load shedding.

For example, a particularly high-demand summer day might trigger an agreement for a business to reduce its load by running its equipment less. Or it might mean tapping into the solar energy stored – but not being used – on a customer’s rooftop.

So, demand response is good for system security. It also makes sense for customers, who typically receive a financial incentive in exchange for participating in the energy market supply and demand balance, by reducing their demand or making excess energy available to the market.

But there are benefits for the energy company, too.

Energy is a service. An energy company that helps customers use energy more efficiently is a valued long-term partner – the energy expert.

Customers are looking for more than help with the energy they consume. Today, they also want advice about the energy they produce and how that can be used to support the grid.

Encouraging customers to reduce their energy use on peak demand days is just one step utilities can take to help reduce the load on the system

They want control of their energy, so they can keep costs down. The second benefit has to do with optimising the assets we already have – the cheapest generation is the generation you don’t have
to build.

Energy distribution networks are designed to cope with peak demand. But it costs a lot of money to have a system that has capacity for those limited situations. Demand management flattens the peaks, meaning we avoid having to invest millions of dollars in expanding the system for those small number of peak periods.

In other words, we no longer need a “nine-lane freeway” to cater for just one or two extreme days of heavy traffic each year.

As a community, that is money we save. In Queensland – to illustrate what is at stake – 50 cents of every dollar spent by the State Government on energy infrastructure goes to providing capacity for just eight hours per year.

Australia’s energy system is in the midst of a ten to 20 year transition, moving from large, centralised power generation based on coal, to a new, modern energy system underpinned by a cost-effective mix of technologies dominated by renewables.

Building new, cleaner generation capacity is just one side of the equation; demand response – reducing strain on the system at peak times – is the other.

EnergyAustralia is part of a pilot program to deliver around 200MW overall of demand response reserve capacity across New South Wales, Victoria and South Australia.

Over three years, the trial by the Australian Renewable Energy Agency (ARENA) and the Australian Energy Market Operator (AEMO) will free up temporary supply during unplanned outages and extreme weather, such as prolonged summer heatwaves.

Last summer, EnergyAustralia proved 43MW of demand response, equivalent to keeping the lights on for 7000 homes. This is capacity which can be called upon at short notice should availability in the national electricity market fall to critical levels.

This is an important part of our strategy as we start to use more and more of the distributed energy resources which sit in consumer residences and start to integrate that into a more reliable system.

EnergyAustralia has been awarded up to $9.8 million under the ARENA and AEMO collaboration to test proof of concept projects aimed at supporting grid security and stability.

This supports a range of initiatives from basic notifications to customers to reduce their energy demand, through to high-tech monitoring devices, battery storage and converting some industrial processes to run on biofuel.

It can also involve recruiting so-called “lazy” assets – under-utilised power generation, for example, in the form of backup generators at airports and factories – in times of need.

This is about managing usage in those peak periods to ensure reliable, affordable supply.

Here is why that is so critical: the only way to ramp up in peak usage periods is through fast start generation. Unfortunately, coal-fired plants – cheap energy – does not solve for this problem. These sites physically cannot start fast enough.

The only technologies to contend in rapid response are batteries, hydro or gas, all fast start generation. But these are more expensive technologies.

As consumers, we also pay for poles and wires at their maximum potential capacity, all year round, just so they can deliver the energy that is required in those very few peak times.

By flattening out some of those Himalayan peaks in demand, we optimise our assets and we lower costs. The changing energy market offers opportunities for businesses and customers to uncover new revenue streams.

From dialling down consumption as a step towards reducing higher network charges, to earning revenue through reduced usage or exporting generation during peak demand periods, effective energy use helps optimise everyone’s bottom line.

At EnergyAustralia, we are building programs that encourage “mindful energy use”. We are developing and expanding the use of multiple technologies that hand control back to the customer, we are trialling devices that remotely control appliances in the home, and we are rewarding customer responses to high demand events.

By making demand response a consumer product and by giving the customer fair value in exchange for their participation, we aim to make energy efficiency and demand response sustainable. In its absence, electricity prices will continue to spike on days of extreme weather and high demand.

Offering these services helps our customers through compensation for their contribution to energy supply and demand balance, optimises our infrastructure investments and ultimately drives down costs for all of us.

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