Demand Response has been touted by Australia’s Energy Market Operator (AEMO) as one of the measures that can help the power grid remain stable during periods of stress caused by heatwaves, drought and other factors.
The trouble is that the system is still in its infancy and needs major expansion in order to avoid blackouts such as the ones that hit Victoria during the heatwave in late January. Energy users and consumer groups want major expansion of the system, but retailers are digging their heels in over the issue.
What is demand response and what opportunities does it create?
It also rewards those who send surplus energy from their rooftop solar panels, batteries and smart appliances back to the grid at times of peak demand.
Those extra “negawatts” help supplement supply and avoid costly construction of new power stations or interconnectors.
Demand Response schemes set up by AEMO essentially involves higher end energy consumers to voluntarily throttle back on their energy use in return for payment or credits. But the system needs to be broadened to create a much larger virtual battery.
During the January heatwave, AEMO implemented the Reliability and Emergency Reserve Trader safety measure. The measure includes demand response, but demand was so high that it was not enough.
AEMO subsequently ordered Victoria’s heaviest energy – smelter Alcoa Australia – to shut down operations in order to make up for the shortfall. The measure worked to a degree, but ultimately a blackout could not be avoided as demand continued to soar during the heatwave.
Apart from causing blackouts, such scenarios push electricity prices through the roof because in a classical economics theory – demand outstrips supply.
The Australian Financial Review recently reported that heavy energy user BlueScope Steel, energy innovators Tesla and the national competition regulator have lined up against the electricity retailers to try to push through new rules that would allow a major expansion of demand response.
Network owners such as AusNet Services, the AEMO and a range of consumer groups are also broadly backing changes to the rules to allow large consumers to profit from directly participating in demand response in the wholesale market. Consumers could also engage third parties – other than their own retailer – to participate in the market by modifying their consumption of energy in response to fluctuating prices.
What is holding back the market for Demand Response?
Demand response at present is mostly limited to the Australian Energy Market Operator’s RERT, the frequency control market or limited arrangements through network companies.
Dominant energy retailers AGL Energy, Origin Energy and EnergyAustralia, while broadly supporting the concept of demand response, all oppose the rule change, as do smaller retailers.
They argue that either there is no need for the rule, that it would drive up costs or that they themselves are best placed to carry out those functions with their customers.
Uncoupling retailers from demand response schemes
The Australia Institute, which proposed the rule change along with the Public Interest Advocacy Centre and Total Environment Centre said big retailers will make bigger profits the more energy their customers waste, so it makes business sense that they are lobbying to undermine demand response.
Australian Competition and Consumer Commission chairman Rod Sims has voiced strong support for opening up the market, noting it has the potential to constrain the pricing of generation businesses, limit the need for new power plants and lead to lower prices.
Mr Sims told the Australian Energy Market Commission, which is considering the rule change, that the ACCC’s inquiry into retail power prices last year had found that retailers “may not be employing demand response at an efficient level” and noted only “weak” incentives for them to use it with smaller customers.
AEMO also urges the unbundling of demand response services from retailing to promote competition and consumer choice and to allow all available resources to be accessed.
A study by ClimateWorks Australia in 2014 found about 3.1 gigawatts of demand-side response potential across Australian industry, equivalent to about 42 percent of total demand from industry.
Want to learn if your business can save money through Demand Response?
If you want to find out if your business can make savings through signing up to a demand response scheme, our Energy Management Consultants can help cut through the chatter.