AEMO looks at smarter ways to deal with extreme peaks and heatwaves

The new direction of a rejuvenated Australian Energy Market Operator is starting to take shape, with the organisation announcing plans to have 100MW of demand response capacity in the Victorian and South Australian markets in time for the summer peaks and heatwaves.

The program, being run jointly with the Australian Renewable Energy Agency, signals a tangible change in focus for AEMO, and the market in general, in finding smarter ways to manage supply and demand rather than simply building more fossil fuel plants and poles and wires.

AEMO’s new CEO Audrey Zibelman is already a champion of demand response and it was one of the major levers that she pulled when running New York’s Reforming the Energy Vision program that aims for more decentralised power, and 50 per cent renewable energy by 2030.

In the PJM market, one of the biggest in the US, demand response accounts for 10 per cent of total capacity, and Zibelman sees no reason why it cannot grow to be at least 30 per cent of the Australian market.

That’s because Australia has a ready-made investment in the technologies that are needed. More than 1.6 million homes and businesses have installed rooftop solar, and many of these will install battery storage as well.

“If you have solar on your roof and you are putting in storage, it is saying that during certain hours of the day you use solar to charge up the battery, and then, rather than relying on grid, you reduce demand on the grid. For us (the grid operator) that’s the same as increasing generation.”

Zibelman says it is an obvious solution to provide a price signal to use these resources, as well as rewarding others – such as manufacturers and large businesses – for cutting back on their power usage at critical moments, rather than spending more money on new plant.

“If we can reduce the amount of demand, that has the same benefit as the grid, and is a lot less expensive than building a new power plant that is only used for a few hours a year,” she says.

ARENA will inject $22.5 million to fund the pilot program, and the two organisations were running an all-day workshop with industry stakeholders in Melbourne on Friday to consult on the program.

The money provided by ARENA will be used to actually make the “reward payments” to consumers who deliver the smart response. It is needed because, unlike other countries, Australia’s main energy market does not have a broad-based mechanism to encourage the service.

The main rule maker, the Australian Energy Market Commission, has been resisting such changes – as it has many other initiatives – under pressure from the fossil fuel industry.

“This is a breakthrough moment,” said Luke Menzel, CEO of the Energy Efficiency Council, the peak body for energy efficiency and demand response experts, many of whom were at the AEMO/ARENA workshop.

“The technology now exists for sophisticated and substantial demand response, enabled by aggregators that combine many different sites together into ‘portfolios’ that provide flexible, secure and stable demand response.”

“This approach is common in energy markets around the world, but has long been underutilised in Australia’s National Energy Market (NEM), because the right structures and incentives for aggregators to do this work haven’t been put in place.”

The timing of the initiative is telling, given the issues about blackouts and load-shedding, and several near misses that occurred last year across the eastern states, but particularly in South Australia and NSW.

The retirement of Hazelwood has raised fears of shortfalls in energy, but a major concern for AEMO is the performance of the plant that are still in operation, given the failure of key coal and gas generators at critical times during the heatwaves earlier this year in South Australia, NSW and Queensland.

AEMO is also under scrutiny over its handling of some of those events. But since Zibelman’s arrival in late March, the focus has very much switched to smarter solutions rather than traditional technologies.

“This is about the future of the grid,” Zibelman says, noting the new technologies such as software, smart thermostats, smart appliances, as well as solar and storage beyond the meter and on the grid. She said this technology can be used to avoid outages.

“If we can reduce the amount of demand, that has the same benefit as the grid, and is a lot less expensive than building a new power plant that is only used for a few hours a year. Some call this the democratisation of energy …. but it is essentially about the ability for people to use their own resources, and to get reward for it.”

A trial run by United Energy revealed that peak demand could be reduced by up to 30 per cent, and in its Future Grid report, the CSIRO and Energy Networks Australia openly canvassed the option of paying households with solar and storage to effectively “leave the grid” during periods of peak demand when supply was struggling to provide enough power.