Ausgrid boosts demand response as regulator warns on peak costs

Network provider Ausgrid is boosting its “demand response” mechanisms as the Australian Energy Regulator warns that peak demand remains the biggest challenge for electricity providers – with 30 per cent of electricity costs going to meet just one per cent of usage at peak times.

Ausgrid is hiring international demand response specialist EnerNoc to manage its program for demand response, where users are paid NOT to use some capacity at times of peak demand. This is considered a cheaper and more effective way of meeting peaks than simply building more poles and wires, and more generation capacity.

EnerNoc in 2011 bought Energy Response, Australia’s largest demand response specialist for $28 million, and it now considers Australia to be its second biggest market after the US.

It says its agreement with Ausgrid extens a pilot program started in 2012, and will allow commercial, institutional, and industrial customers to get payments for curtailing demand, and getting access to real time energy data.

“Although the majority of our current presence is in Western Australia, key contracts like this agreement with Ausgrid provide EnerNoc a solid foothold into the eastern states where rising electricity prices and a pressing need for grid optimization make demand response very attractive.” Tim Healy, chairman and CEO of EnerNoc, said in a statement.

Ausgrid says it is conducting the Dynamic Peak Rebate project with the aim of developing demand side options as an alternative to investing in network infrastructure. Demand response is likely to be a key part of its next five year investment plan which will go before market regulators.

The announcement comes as the AER released its most recent annual report, which noted that the biggest challenge in the coming year would be to define rule changes to address the widening gap between average and peak energy demand.

Chairman Andrew Reeves said that 20–30 per cent of network capacity is being used less than 1 per cent of the time.

The AER recently introduced measures that would provide a financial incentive for network operators to invest in “least cost” solutions to network problems, rather than the high cost which was encouraged under previous models. That’s when network operators received fixed returns on their investment, so they were encouraged to build more.

“The new measure, the network capability incentive, encourages businesses to undertake low cost projects that increase what their existing network can deliver, potentially delaying the need for expensive upgrades.,” the AER says.

Many in the industry hope that this, and other measures, will encourage the use of distributed energy solutions such as solar and/or storage to address peak demand issues, and in remote areas where infrastructure is expensive, particularly on a per-capita or usage basis.

In a recent interview with RenewEconomy, AER chairman Andrew Reeves said new legislation would ensure that the AER had more power to review capital programs and look for efficiencies. It would also enable the AER to reject inefficient and over expenditure.

“There are now strong incentives for businesses to be efficient,” he said.  “Any over expenditure incurs a penalty, any inefficient expenditure can be rejected entirely.” He said demand management was a key part of this because it requires “more intensive management” of contracts. “It’s partly a cultural issue, partly (about) managing risk,” he said.