Electric hot water is a hero of flexible demand. Where does it stand in the age of rooftop solar?

More than half of Australian households own an electric water heating system which makes up around 25GWh of daily flexible demand in our electricity network.

The majority of these electric water heating systems have been on a controlled load circuit where the electrical circuit of the water heaters is energised and de-energised by the distribution network service providers (DNSPs) based on their demand-side management strategies.

The controlled load circuit is a separate electrical connection to the general supply where most other household appliances and solar system are connected, and general supply circuit is active 24/7.

DNSPs have traditionally used controlled load to shift the electricity demand of water heating systems into late night periods to minimise their impact on network peak demand that usually occurs in the afternoon and evening periods (this type of control is also known as Controlled Load 1, Off-peak or Secondary tariff).

In return for opting in for the controlled load scheme, households have been rewarded with cheaper electricity rates offered by DNSPs and passed on by retailers and aggregators.

With increasing levels of rooftop solar installations and soaring levels of solar exports in the middle of the day, DNSPs have started introducing new controlled load schemes such as time of use-controlled load (for example in South Australia where controlled load is active 24/7). Some have extended the traditional night-time controlled load periods to cover some part of the solar generation period (for example in New South Wales and Queensland).

As the controlled load circuits get energised in the middle of the day, hot water tanks can soak-up the excess solar generation in the network and, as a result, they don’t require as much heating at other times of the day when fossil fuel generators dominate the electricity mix.

Therefore, shifting the controlled load into the middle of the day can reduce associated emissions with water heating.

There can be other benefits of heating water in the middle of the day.

When water tanks soak up excess solar in the network, they can lower network voltages and, as a result, reduce curtailment of rooftop solar systems due to high voltages. This can also potentially lower electricity bills and increase the lifecycle of appliances, which can also be impacted by high network voltages.

These are some of the promising aspects of using electric water systems as flexible demand within a network with increasing rooftop solar.

However, recent estimates show that DNSPs are losing a significant proportion of their controlled electric hot water fleet.

In South Australia, most recent analysis estimates that around 20-25% of the controlled load has become inactive or disconnected.

In NSW, most recent analysis estimates around 15-20% of the controlled load households are using zero or negligible energy on the controlled load.

In Queensland, around one in three solar installers advocate taking electric water systems off the controlled load and connect them onto the general supply.

It is no surprise why these installers advocate for such a change and some households already made up their minds on moving away from the controlled load. As more households invest in solar systems, they naturally want to maximise self-consumption of their generation, since exporting solar to grid offers less economic benefit.

Unfortunately, the current controlled load scheme and newly installed smart meters don’t allow households to self-consume their solar generation for water heating, simply because the general supply (where solar is installed) and the controlled load (where hot water system is installed) are physically separate circuits.

For this reason, many households have switched their hot water systems from the controlled load circuit to the general supply and purchased third party control devices such as timers, diverters, or home energy management systems to maximise the use of solar for water heating.

Although this seems to be a sensible step, our new research shows that optimised use of new controlled load schemes with an extended solar window can bring competitive savings for households, compared to these third-party solutions, with the additional advantage of less equipment, complexity, and no added cost for new devices.

But in order to achieve these savings, first we need to get the customer value proposition right and make the new controlled load schemes a financially attractive option for households.

During high solar periods, wholesale electricity prices are much cheaper thanks to the abundance of excess rooftop solar generation in the network. This creates a new wholesale opportunity for retailers and aggregators as the buying price of electricity for water heating becomes cheaper during these windows.

In addition, some DNSPs have already started offering $0 or negative import network charges during the day. According to the preliminary network trials, it is seen that at least 50% of daily water heating demand can be shifted into the solar generation window for a majority of households, without impacting their hot water service.

Considering this significant opportunity, we need to find the right incentives and offer cheaper rates to pass wholesale and network benefits onto households, to ensure new controlled load remains a financially attractive and competitive option for electric water heating.

Retailers and aggregators are likely to play a leading role in this transition, as the endpoint of contact for the households.

Alternative to offering cheaper rates, retailers and aggregators could work on a solution to allow the ‘virtual’ self-consumption of solar through their billing practices. While households couldn’t physically self-consume their solar for water heating, their net meter and excess generation data can be used to offset their hot water demand.

We are still in the early days of the renewable and consumer energy resource transition. Electric water heating systems have been a valuable flexible demand asset for the networks over the last decades and its importance will only increase considering the increasing levels of rooftop solar installations.

To ensure we maintain this important flexible demand asset and keep using it for financial and environmental benefits, we need to find the right incentives and make a compelling customer value proposition for the households.

Article by Dr. Baran Yildiz, Senior Research Associate, School of Photovoltaic and Renewable Energy Engineering (SPREE), UNSW.

Project team: Dr. Baran Yildiz, David Saldivia Salazar, Hossein Saberi, Assoc. Prof. Anna Bruce, and Prof. Alistair Sproul.

The research findings in this article are outputs of the SolarShift Project, funded by RACE for 2030 program with the industry partners: Endeavour Energy, Solar Analytics, Ausgrid, NSW OECC, Energy Smart Water.