Biggest game-changer on network spending approved – a decade late

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Infrastructure construction – including poles, wires and substations – has far outstripped peak demand. AAP Image/Dan Himbrechts

Infrastructure construction – including poles, wires and substations – has far outstripped peak demand. AAP Image/Dan Himbrechts

A demand management incentive scheme – touted as the biggest game-changer in network spending seen in Australia – has finally been approved by the country’s regulators. But it has come nearly a decade later than it should.

The scheme is designed to encourage networks to invest in things other than poles and wires – the equipment that makes up around half of Australia’s outrageously high electricity costs.

These include providing incentives to minimise air conditioning use at times of peak demand, and will now be likely used to encourage more solar, more battery storage, and the creation of mini and micro-grids rather than building or replacing poles and wires.

And while the changes unveiled on Thursday by the Australian Energy Regulator have been widely welcomed, advocates lament that they could have been introduced a decade earlier, and prevented the huge binge on network spending that caused electricity bills to double.

The fact that they weren’t introduced a decade ago is testament to the ponderous nature of regulatory change in Australia, and the power and the influence of the big “gen-tailers” who fought so hard against the rule changes because they feared a loss of potential profits.

Chris Dunstan, from the Institute of Sustainable Futures, says the need and opportunity for demand management was first identified in 2002 by the NSW-based regulator IPART.

But little happened, and what little did happen fell by the wayside in favour of other schemes.

Dunstan says if such incentives had been in place, then network spending could have been minimised, electricity bills could have stayed low, and the current political divide over energy prices that has stymied policy and action on climate and clean energy could have been avoided.

“If we had this mechanism in place (before the five-year network allowance that began in 2009), we could have saved billions of dollars in infrastructure spending and customer bills,” Dunstan says.

“And that would have meant that carbon and climate would not have become the political football that it has.”

Another opportunity was missed five years later. The Australian Energy Market Commission suggested a rule change in 2012, but it took a year for COAG to give the go-ahead and another 18 months for the AEMC to agree with itself and outline some draft rules.

By that time, the next 5-year spending spree by the networks had been locked in. The new rules finally unveiled by the AER today will come into effect from 2019, in time for the next five-year spending period, although it may encourage more effective decisions before then.

Dunstan wrote two years ago that the scheme – under the AEMC’s own estimates – could have saved between $4 billion and $12 billion, or slashed $500 from customer bills a year. But it wasn’t to be.

Another advocate, Mark Byrne from the Total Environment Centre, said “it’s been a long and winding road.  …This reform should ensure that short-term measures to reduce demand during critical peaks are complemented by longer term, systemic measures to reduce peak demand,” he said.

The AER expects $1 billion to be spent by the networks on demand management, but the savings should be significantly higher than that.
“For anyone concerned that it represents yet another handout to networks, rest assured the ‘net benefit constraint’ requires that DM can only be undertaken where it is cheaper than the capex alternative,” Byrne says.
“That should help to constrain future price rises caused by network expenditure. And it’s capped at 1 per cent of network expenditure. That’s a 100-fold increase on what the Victorian networks currently spend on DM, so I don’t think we’ll be hitting peak DM any time soon.”
But while this initiative is expected to encourage networks to find smarter ways of delivering electricity than just more poles and longer wires, there is still work to be done to encourage demand management in wholesale energy markets.

The Australian Energy Market Operator has teamed up with the Australian Renewable Energy Agency and three state governments to fund a trial of various demand response and demand management projects that will be crucial to help keep the lights on, this summer and next.

Such schemes include paying big manufacturers to turn off unneeded machinery, doing the same with smaller industrial and commercial users, pooling resources from household battery storage, and providing incentives for volunteer households to adjust temperatures on their air con.

The use of air-con was behind the wayward forecasts of a huge increase in peak demand that justified the $50 billion network binge that pushed consumer bills so high. The un-controlled use of air-con has created a cross subsidy of $700 a year from those who don’t have it.


But even as authorities roll out initiatives that could increase reliability and cut costs, conservatives – encouraged by vested interests in the energy industry – have launched absurd scare campaigns against demand management, just as they have against climate change, carbon pricing, renewable energy and battery storage. (See our story: Conservatives hit peak stupid over demand response).

AEMO says it has unlocked some 900MW of demand response as part of its summer readiness plan, but it will need to be followed by rule changes from the AEMC to be made permanent.

But at least the rule-maker has indicated some support for the change – unlike two years ago when it saw no need for additional flexible demand.

Dunstan said that although the DMIS scheme arrived late, it was very welcome.

“This is a game changer – because for first time it will be as profitable for network business to undertake cost-effective demand management as it is to invest in poles and wires. And that will benefit consumers,” he says.

“It’s been a long time coming, but the AER deserve credit for establishing a very good mechanism for demand management.

“It provides incentives for customers to undertake load management with air conditioners – the single biggest contributor to peak demand – and it encourages networks to spend on hardware to help customers control that demand, and incentives for people to change behaviour.”

Energy Networks Australia CEO Andrew Dillon said these regulatory changes would encourage networks to use new technologies as an alternative to poles and wires.

This would be used to manage not only peak demand but also voltage and power quality issues as growing numbers of household solar and batteries connect to the grid.

“The Finkel Review highlighted an urgent need to ensure market rules and frameworks enable the introduction of emerging technologies and the ability to test them, and this is a welcome step in the right direction,” he said.


  • Rod

    Good news,
    Circa 1995 the part of ETSA that morphed into SAPN had their own dedicated Demand Response Unit.
    I’m guessing the new owner didn’t continue with it.

  • Cooma Doug

    The peaks in 2007 2009 2011 were about the same as now. There were just a few of us talking about the stupid idea of forcing energy onto the grid with no idea what was actually needed. We were talking about load side options being integrated into the fcas market in a more complete overview.
    They thought we were nuts.

    • Peter G

      Too right, I had the same experience it was as it the policy discussion was simplified to fit a laypersons understanding of bulk energy – even in discussion of RE.

  • Cooma Doug

    The average home owner going solar in a couple of years will also have a battery. This will be because of the falling cost and the increased value of the battery given the innovation that will come with this inevitable shift by the retailers. The battery will be there I believe and if not by the owner the retailer will have it installed in the contractual arrangements with the owner.

    The average owner today thinks of a battery in a very narrow view of discharge and charge. Thats about it. However, the way this cycle is managed across the system and co ordinated with all the load shifting and fcas options will be rather complex.
    For example, the battery may be reaching optimum full charge just moments before the peak. But this could be the peak relative to the local area. It could be the peak relative to a different calculation depending on the different circumstances and
    translated into a price signal.

    Coming off charge will be in response to a complex price signal. Moving to discharge the same. Indeed it will sometimes seem a bit wierd. Believe me the market comes up with some wierd price signals even now when we dont even look beyond the meter.

    • PaulC

      I’d like to see that future eventuate. But I struggle to see how we’ll get there?

      Technology is probably not a problem though this does start to look a lot like IoT to control charge/discharge/network feed. My question is more on incentive. We’ll need the death spiral of home generation to bite a lot more before the gentailers have any incentive.

      They’ll likely just shift more of their charging to service fees (daily charge) and it will be a political problem as to what to do about it. Businesses have proved remarkably adept and adapting to changing circumstances and usually find a way to take advantage – just look at industries like gambling and credit (payday loans etc.) which deal with constant changes to rules and conditions. Robbery usually finds a way.

      Government might try to do something, but if the NBN is our archetype, I’m not optimistic there. Of course, with appropriate reengineering of rules and markets it could happen, but I don’t see our political elite as competent to achieve it. So whilst I’d like to be an optimist, I have trouble seeing it.

  • MaxG

    I worked for Ergon when they became a (gov-owned) corporation in 2002. You should have seen these clowns promoting A/C systems with a discounts to their customers, just to crank up consumption and thus revenue.
    The ‘network binge’ was just another aim at squeezing the public for their money…
    don’t waste your time on missed opportunities; there are heaps of those… do what is best for your own pocket; install and/or increase solar and add a battery…. for me it has been worth every penny, and consumption went up without having to pay the leeches for it. I actually have the freedom to use my energy as I please without any demand management and special ‘screw you’ tariff when the juice is needed most.

    • Phil

      I predict time of contribution (TOU) solar is the next way to ripoff consumers with solar.

      You will be paid whatever the energy market decides to pay you in 30 minute blocks

  • itdoesntaddup

    The case for trucking out loads of diesel to support solar in the outback, possibly with a relatively small battery as a smoothing device, rather than have poles and wires is clear cut. Trying to estimate how much grid build out has been in support of dispersed wind and solar farms, with the need to route to demand or from more distant alternative generation according to the weather is a more difficult proposition.

    Demand management may not prove quite so popular as its proponents like to assume. I am not aware of grids where it contributes more than marginally.

    • Mike Westerman

      Irrelevant and inaccurate contribution as usual nameless. Horizon and Ergon are doing their sums and consumers are glad for cheaper, more reliable microgrid power.

      • itdoesntaddup

        Wow – that’s really refuted my points. /sarc

        • Mike Westerman

          I’m not going to make up for your lazy ill-informed throwaways – if you want to see if it adds up, read the factual articles by people who are building and using microgrids. Read expert articles on DSM, what it could save and the resistance of rent seekers to it. When you post intelligent and informed comments they will be responded to accordingly. Anon garbage will likewise receive what it deserves.

          • itdoesntaddup

            Some of the readership here are intelligent enough to distinguish between solutions that work and make economic sense, and solutions that might work theoretically, but are extremely expensive, and likely to remain so, and “solutions” that simply don’t work at all or only if you assume we regress to 19th century standards of living. When you are able to make those distinctions, I will treat your comments more seriously.

          • Mike Westerman

            Yes more snide ineuendo but nothing of value. Whereas my clients pay for and accept my professional analysis in this field. I don’t expect those with political positions to polish to either present or accept evidence. I don’t expect those so scared of taking a public position that they hide behind sarcastic nom de plumes to contribute much of value.

          • itdoesntaddup

            So far as Australia is concerned, I am merely an interested observer. I am not Australian, nor do I live there. No political axe to grind at all. I have spent almost my entire career in a variety of different branches of the energy industry, with a good deal of international experience across 5 continents, and in countries with widely differing political systems. You, on the other hand, seem unable to divorce truth from fantasy – all in the best possible interests of your clients (or at least your pocketbook), no doubt.

          • Mike Westerman

            You don’t have to live in Australia to contribute negatively or positively to our political discourse. You seem to very pointedly push a belligerent conservatism – aligned unfortunately with the directionless luddites in government.

            I have also spent almost 40y in the power industry, having lived and worked in many countries from Ghana to Fiji, so I dismiss your unfounded jibe.

          • itdoesntaddup

            I have no truck with people who make assumptions and claims that fly in the face of basic physics and engineering, making promises to politicians that simply can’t be kept, and wilfully ignoring common sense solutions that work in the real world, or pretending that the world is somehow different. All over Europe you can see the consequences of that in rising power costs, and the same is true in Australia.

            Examples of people pretending that the world is somehow different:

            In Austria, they pretend that their power is no way sourced from nuclear stations, but instead imports are generated in Norway (from whom they buy green certificates). They have a major power line that runs from Vienna into the Czech Republic that connects to a very large nuclear power station. Whenever that is not shut down there is no way that there is any other source for the power delivered. Their connections into Germany also lead more or less directly to German nuclear stations. although there is also a small amount of run of river hydro, and plenty of solar on sunny days.

            The ACT government has gaily claimed that the Hornsdale wind farm – 1,200 km away across two states and via power lines that spend much of their time supplying power into South Australia – is providing power to tens of thousands of homes in Canberra.

            These are simply lies.

    • Mike Shackleton

      So far, solar and wind farms have been geographically located near existing transmission infrastructure. For example,

      -Wind power near Portland in Victoria where there is an Aluminium smelter and along the associated transmission corridor from the west of Melbourne.

      – Solar farms being built in Western NSW where there is existing network infrastructure to support the mining industry.

      – Kidston Solar Farm and Pumped Hydro is on an old mine with a good interconnect

      – More wind farms and solar being built around Whyalla and the old Northern Power station in South Australia.

      Even the proposed offshore wind farm in Victoria is being located to take advantage of the existing offshore Oil and Gas infrastructure and the associated large grid interconnects there.

      A huge amount of investment in transmission infrastructure has already been made to cater for remote heavy electricity users. We haven’t even scratched the surface of the available sites where renewables potential and existing transmission infrastructure overlap.

      • Mike Westerman

        Mike Kidston transmission is only sufficient for the initial 50MW solar – the next phase and the PHES rely on a new Powerlink line

  • Ray Miller

    Far to little far too late! I want my money back on the billions of overspend on the networks! To correct the books the whole network should be forced to considerably write down the value as it was gained without the best interests of the users.

    I think the AER and AEMC should feel some considerable pain by being incompetent or at least a raft of individuals should be criminally charged with corruption! Either way their ranks should be cleaned out and appoint competent people approved only by the energy users with no ties to industry or any political party (or especially the Liberal Party).

    As MaxG also points out Ergon and many other distribution companies have been implicated in gaming consumers, with State owned entities like Ergon and Energex this is inexcusable.
    Unless the balance of power shifts in the citizen’s favour we will continue to see more of the same problems.
    As I’ve just learn in the Solar Insiders Podcast the Queensland “cost” to individuals of the digital energy metering going from $22 per connection to about $100 per year. This further adds considerable bureaucracy, red tape and in effect eroding the equity between the low energy users and high users.
    The up-side, it makes moving off the grid even more attractive and cheaper.

    And while I’m raving, if I hear or read “game changing” one more time! What a useless nondescript, misleading (fill in the blank ……..) term.