Business energy users in South Australia and Victoria will be paid to cut their usage during peak demand times as part of a pilot project aimed at securing 100 megawatts of power.
The $22.5 million trial is set to be unveiled by the Australian Energy Market Operator and the Australian Renewable Energy Agency later on today.
New AEMO CEO Audrey Zibelman had already made her support for demand reduction known, but this is the first concrete measure to be announced by the new chief. It is also the first time Australia will formally implement a demand response system.
She said the pilot programme would help grid deal with periods of high demand in real time without having to resort to using fossil fuel generation to fill the gap in supply.
“Demand response has proven to be a cost-effective way to manage demand at peak times and acts as contingency to avoid disruptive power outages,” Ms Zibelman said.
Moving away from traditional energy peak time response
Traditionally, network companies have spent billions of dollars building more capacity into the network to deal with heatwaves over summer when the grid struggles to cope.
The move to demand response shows that the market operator believes that the traditional approach is not sustainable and it would be more efficient to reward consumers for cutting their power usage during times of peak demand.
The Australian Renewable Energy Agency has committed $22.5 million over three years to fund the pilot, based on an assessment of the current market. AEMO and ARENA will hold a workshop with industry stakeholders on today to consult on the proposed scheme.
The program is expected to be open to demand response aggregators, large industrial and commercial users, battery storage and smart thermostat companies. It will also involve both commercial and residential consumers.
If companies are approved for the scheme, they will be contacted by AEMO when they are needed to cut back their power usage. They would then be paid compensation under existing short notice procedures.
Compensation rates not established yet
AEMO is yet to work out the details of how much a business or consumers would get paid to cut their power usage.
ARENA chief executive Ivor Frischknecht said demand response would help to facilitate Australia’s transition to renewable energy.
“We need to find new, smarter ways of coping with spikes in demand and volatility as we move towards an electricity system with more variable renewable energy supply,” he said.
“Instead of building a power plant that is only switched on a few hours a day a year, demand response will allow us to reduce energy consumption during peak demand while also reducing energy costs and emissions for consumers. It’s a win-win.”
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