Demand response has become a buzzword in the energy industry and one of its strongest advocates is Australian Energy Market Operator (AEMO) chief Audrey Zibelman, who registered success with the concept in New York.
But what is demand response? Quite simply put, demand response is the throttling back of energy consumption by energy users at times of peak demand or when the network is struggling to cope in return for financial compensation or discounts.
How can you reduce demand?
Reducing demand can be done in a number of ways, such as simply putting off an energy-intensive task to a later time or by switching to batteries or onsite diesel generators.
But the concept continues to evolve and change as smart grids, smart meters and smart gadgets become more advanced. To understand why we need demand response, we first need to understand how supply works.
Why are there shortages during peak demand time?
Electricity cannot be stored that easily, although great strides are being made in battery storage of late – take the Tesla battery in South Australia as an example.
Energy suppliers have traditionally matched demand and supply by scaling production up and down according to patterns and peak times and have been slow to take up battery storage solutions.
The problem with this lies in the fact that all forms of electricity generators take time to ‘warm up’. That is, if they have been idle or shut down because demand was low, they cannot generate energy fast enough to meet sudden spikes – this is called inertia.
The advantages of demand response
1. No extra generation capacity investment needed
The great thing about demand response is that it does not require extra generation capacity investment. All it involves is flexibility by the end user.
2. Financial compensation
Demand response, which could also be described as voluntary rationing, usually offers lower net pricing for each unit of electricity in exchange for lower energy consumption.
On the flipside, energy users who cannot scale back their demand would have to pay ‘surge prices’ which would go towards subsidising the voluntary cutbacks.
3. Smart integration
The rolling out of smart meters and smart appliances is also helping to boost the popularity and feasibility of demand response schemes. Because digital meters can exchange information in real time with the smart grid, businesses can be notified of any changes that come into play in terms of demand reduction. When hooked up to smart appliances, demand reduction action can be taken by the system to ensure that your consumption stays below the threshold.
What are the challenges?
1. Human expectation and habits
People are used to flicking on a switch and having access to power. We take it for granted and we are used to it being there when we need and want it. The astronomical increase in power bills that Australian businesses are faced with today have been something of a wakeup call. But behaviour is hard to change. Even if it is something as simple as leaving a light on, energy users find it very hard to break old habits. But if they are paid to do it, either through direct cash payments or reduced electricity rates, then they might just be willing to take it up.
2. Network infrastructure
Technology is advancing at an incredible rate, but the network is not. This could lead to a situation where we could invent every gadget under the sun to be fully compliant with smart demand response, but the network would not be compatible. This could discourage businesses from investing in technology that will save them money and allow them to be fully dynamic to respond to the demands of the grid. Until smart meters are rolled out, then businesses will have to take the old-fashioned approach: Turn off the lights, postpone a printing run or turn off air conditioning units manually. But once the smart meters are online, it will be a whole new ball game. One issue that remains to be seen is whether appliances and machinery will be universally compatible with the smart grid and meter system. We have already seen something similar play out with this with mobile phone chargers which took years to standardise at a lot of unnecessary expense for the consumer.
Where are we at?
1. We’re behind the US, Japan, Korea and others
Demand response has proven to be very effective in other parts of the world. Japan, for example, employed demand response when it was responding to the nuclear disaster at Fukushima. Some US states can already scale back demand by up to 7% in times of need. South Korea legislated to make demand response part of its laws in 2014. So where are we at?
2. Baby steps
The truth is that demand response is still in its infancy in Australia. AEMO CEO Audrey Zibelman registered success with its use in New York and immediately advocated its adoption when she took up her post over here.
3. The National Energy Guarantee and security of supply
The Federal government recently announced its National Energy Guarantee policy which will replace Chief Government Scientist Alan Finkels’ Clean Energy Target. The government has softened its stance on coal and will be removing subsidies on renewable energy sources once the Renewable Energy Target runs out in 2020. It believes that the most important issue to tackle is the security of supply, so surely, demand response must be part of the solution.
1. Victoria and New South Wales
It turns out that it is. Under a trial program announced in May, ARENA is offering $30 million over three years to support demand response demonstration projects across the national market. Another $7.5 million will be invested by the NSW Government for projects in that state.
The money will be paid to electricity users that agree to be available to cut use when called on by AEMO. Under the initial program, it is expected that electricity users would be paid up to $12.5 million a year to have 160MW capacity on standby to take offline.
Those who sign up could be large industrial operations – water companies willing to temporarily shut down some pumping, for example. They could be commercial users willing to delay or shift production for a few hours. And they could be energy retailers that would themselves sign up households to be involved.
Businesses could sign over control of some appliances, so retailers could turn them off if necessary. The payment for the shutdown time would be made by AEMO, at a market-set rate and in addition to the $37.5 million already dished out by ARENA and the NSW government.
It is understood that Victoria introduced for the first time on a very limited trial on the weekend of 2-3 December as a result of scorching temperatures. The concept is also being put into practice by energy suppliers, and users can be compensated directly from them, but things are still moving slowly in this regard.
2. Western Australia
Commercial operators are signing clients up in Western Australia to become part of their ‘virtual power stations’. When the South West Interconnected System, the region’s electric grid operator, determines that it needs more supply to meet demand, it dispatches signals to the demand response network, which is made up of local organisations that have agreed to reduce energy during times of high demand. Organisations help ease stress on the grid and earn payments year round just for being on standby, plus additional payments based on actual reductions during a dispatch.