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A successful energy transition requires managing power use

So how do we make demand more flexible? Chris Briggs

Energy security concerns are mounting as renewable projects and transmission lines are delayed.
In New South Wales, for instance, the government has flagged it may defer the closure of Eraring coal power station beyond 2025.

NSW has other new policies to “get the energy transition back on track”. These include expanding “customer energy resources”, such as solar panels and batteries, and increasing “demand flexibility” (broadly, using smart technology to shift the times when businesses and homes use power).

With more variable supply from solar and wind energy, demand flexibility is a cheaper and cleaner way to keep the electricity grid stable.

There are cheaper and cleaner ways to keep the power on than paying coal power stations like Eraring to stay open. Source: [1], by Nick Pitsas, CSIRO/Wikimedia Commons.
Modelling for the Australian Renewable Energy Agency (ARENA) shows this approach could save consumers up to A$18 billion to 2040. Shifting demand can avoid:
(a) higher-priced power use at the end of the day,
(b) building new poles and wires to increase network capacity to meet peak demand,
(c) paying coal plants to stay open.

What does flexible demand involve?
Examples of flexible demand include:
(a) shifting water heating from nighttime (mostly coal-powered) to daytime (using solar),
(b) reducing temperatures in commercial cool-rooms using solar power in the middle of the day, then switching chillers off in the late afternoon until they return to standard refrigeration
(c) remotely controlling air conditioners to turn them down when the grid is under stress. Households get paid and don’t notice if the aircon is briefly turned down, but across many homes it can make a big difference.

Another way of covering that capacity shortfall is more flexible demand. The state of Queensland already has almost 150MW of remote-controlled air conditioning. Other types of demand management that Queensland grid operators can call on total about 900MW.

In Western Australia, a newly signed contract will provide 120MW of demand flexibility.

Commercial refrigeration can be managed to reduce power use at peak demand times. “Refrigerators in supermarket” by Open Grid Scheduler is licenced by CC0 1.0 DEED

Obstacles to more flexible demand
ARENA commissioned the Institute for Sustainable Futures to review the pilot demand flexibility projects it has funded. Many didn’t deliver as much as hoped.

Sometimes, this was because businesses were too busy with day-to-day operations or payments for households were too low to catch their interest. But often it’s a matter of putting policies, technical standards and regulations in place to make demand management seamless and efficient.

ARENA has spent about $180 million on 55 projects with at least some focus on flexible demand. They include air conditioning, pool pumps and hot water systems in homes, commercial building air conditioning and electric vehicle charging.

Ways to increase demand flexibility
What do these projects tell us about how to increase demand flexibility?
1. Better technical standards
The technical standards required of manufacturers often don’t ensure devices can be used to shape demand. Many air-conditioners couldn’t be controlled in ARENA pilots.

There is also no technical standard for “interoperability” of devices within homes. Batteries, hot water systems and other devices with different companies’ technologies don’t always work well together.

Vehicle-to-grid charging for electric vehicles will be the largest opportunity for demand flexibility, but there is no common technical standard. It’s vital to have one before the mass uptake of electric vehicles.

Outside Victoria, smart meters that provide real-time information on home energy use are rare. The Australian Energy Market Commission has recommended governments accelerate roll-out of smart meters to 100 percent by 2030.

2. Simpler measurement systems
The measurement systems to calculate payments for demand flexibility are a barrier to expansion. It’s tricky as you need to measure how much electricity was used relative to what would otherwise have occurred.

ARENA pilots that tried to precisely measure residential demand flexibility found it was financially unviable at the smaller scale.

The system used for AEMO’s Wholesale Demand Response Mechanism (WDRM) effectively limits participation to businesses with predictable, flat consumption profiles. This excludes as much as 80–90% of sites. International sites. International measurement models could be trialled here to open up participation.

3. More certainty about payments
Earnings from providing demand flexibility depend on the weather, market prices and so on. This uncertainty makes it hard to get businesses to sign up.

Overseas, some energy markets guarantee payment for making demand flexibility available. These have the highest participation.

The federal government is consulting on a capacity investment scheme. Because it will have the same measurement system as the current mechanism, participation is likely to be limited.

4. Fresh policy approaches
Businesses that sign up under the Wholesale Demand Response Mechanism make bids in the National Electricity Market to be paid for reducing their power use when demand and prices are high. This should reduce prices for all consumers and improve energy security when the grid is under stress. However, it has attracted only one participant – mainly due to the complex measurement system – and isn’t open to households.

Another incentive scheme for electricity networks to invest in demand management is chronically underused.
There are simpler alternatives that have worked before. The national Renewable Energy Target and state energy efficiency certificate schemes fund rooftop solar or energy retrofits based on average output or energy savings from past experience. These simple calculations offer a relatively stable incentive, which could work for demand flexibility.

NSW’s Peak Demand Reduction Scheme, launched in 2022, could provide a model for using certificate schemes to boost demand flexibility.

Getting serious about demand flexibility
The focus of NSW’s development of a customer energy resources policy appears to be “virtual power plants”. These coordinate household solar and battery systems to store solar power and export to the grid when it’s most needed.
Batteries are part of the solution, but cheaper options exist. For example, an electric water heater with a 300-litre tank can store as much energy as a second-generation Tesla battery at much less cost.

Modelling for ARENA finds hot water systems could store as much energy as more than 2 million household batteries. Retrofitting these systems will spread savings more widely to include low-income households as well as those that can afford a battery.

1. Source: The Conversation, 12 Oct 2023
Chris Briggs is Research Director, Institute for Sustainable Futures, UTS Sydney

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