An end to blackouts? Demand management success depends on collaboration

As the  national debate over energy supply reaches fever pitch, more attention is now being paid to the role of demand management (DM).

Demand Management (DM) is typically defined as any action taken by energy utilities to encourage consumers to reduce or shift their energy use outside of peak times as an alternative to providing new supply.

Despite demand management being recognised for many years as an important pillar of a functioning energy ecosystem, it is fair to say it has been a weapon of last resort in Australia.

According to a review by the Institute for Sustainable Futures, the lack of balanced DM incentives in the National Electricity Market (NEM) has costed consumers hundreds of millions of dollars due to excessive generation and network infrastructure spending.

Luckily, recent events suggest that is starting to change. With increasing renewable energy penetration, and rising public angst over rising network charges, the role of DM is even more critical.

The Australian Energy Regulator has recently released its draft decision on a new Demand Management Incentive Scheme and Innovation Allowance (You’ve got to love the accessible names they come up with).

According to the AER, the scheme is meant to better encourage electricity distribution businesses to more actively manage network demand and explore how DM can reduce the longer-term costs of operating their networks.

This is not all that new, variations of the scheme have existed in the past, and networks have been required to consider non-network solutions in a process known as the Regulated Investment Test – Distribution (RIT-D).

However, as the ISF review points out, there has been a regulatory bias towards network solutions over demand management.

The strengthening of regulatory mechanisms to support network businesses pursuing DM is welcome. However, there is a critical aspect to DM that is often ignored or underappreciated by networks and regulators; collaboration.

DM requires working with stakeholders that sit outside the energy sector, engaging and collaborating with households, businesses, government organisations and industry. It is not just a technical solution that a third party demand management provider can step in and solve.

Recently, the Victorian Greenhouse Alliances (regional networks of local governments working on energy and climate change issues) led a project called Future Energy Planning.

The project sought to build better links between local government and the five electricity distribution networks across Victoria and improve information sharing between local government land use planners and network planners.

Currently, electricity network planning and land-use planning currently occur in isolation, meaning long term, viable and sustainable options for integrating demand and supply side opportunities are missed.

The project sought to enable local governments and electricity distribution networks to work co-operatively on well planned integrated energy solutions by:

• fostering engagement between electricity networks and state and local government planners to co-operatively create planned, integrated energy solutions;
• sharing data and developing resources to identify cross sector planning opportunities in areas of the network that are constrained; and
• establishing a replicable process for the identification of integrated energy solutions not currently supported by the existing regulatory processes.

The Future Energy Planning project found networks often struggle to engage households, businesses and industry in areas where the network is constrained.

In contrast, local councils are often running successful energy efficiency and renewable energy projects throughout their communities and are a more trusted brand.

Similarly, local and state government are setting ESD standards for new developments and working with developers to improve sustainability outcomes.

In other words, addressing energy demand before it even gets built. What is not typical though, is for councils to target these programs in a way that can benefit networks and defer network upgrades.

Networks are not actively engaging and partnering with councils as a way to deliver more successful DM programs and avoid future peak demand increases.

Instead, networks are often brought into the discussion with developers much further down the track, and the conversation usually consists of ascertaining how many connections are needed and what level of demand is required.

Rarely are there discussions or incentives for developers to consider strengthening Ecologically Sustainable Development (ESD) measures or alternative energy options.

There are exceptions to the rule, and some emerging projects give insight into a better way forward for DM and cross-sectoral collaboration. The Community Grids – Mornington Peninsula  project and the Mooroolbark mini-grid trial are both positive examples of how strong cross-sectoral partnerships can deliver good DM outcomes.

Improved information exchange between local government and electricity networks is key.

For councils, easily understood information on where networks are constrained down to the street level will help planners know where new developments will trigger network issues and when developers should be referred earlier on to the networks.

Through the FEP networks Jemena and United Energy have developed network constraint maps that councils can download and integrate with their existing planning system. We are hopeful that other networks will soon follow suit.

The new focus on Demand Management by the regulators and networks is welcome and critical to a well functioning energy ecosystem.

However, greater focus should be given to incentivising networks to collaborate and partner with stakeholders beyond just technical DM solution providers, but ones that have trust and experience in delivering community energy programs and engagement. Similarly, working with government planners and developers early on can help to address network constraints well before they become a critical issue for networks.

Rob Law is Executive Officer of the Central Victorian Greenhouse Alliance, a network of 13 member local governments in central and northern victoria working together on climate change and energy solution.