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“Shameless”: Cheap energy option for consumers still being buried

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For all the talk about the National Energy Guarantee and how it is supposedly addressing the energy “trilemma” of cost, emissions and reliability, it seems they are still making hard work of some of the obvious and cheapest solutions.

The discussion paper released by the Energy Security Board cheered up some quarters by noting the importance of demand response, or demand management – the idea that providing a signal to switch off unneeded power is smarter, cleaner and cheaper than switching on an extra power plant.

But there is some way to go. Demand response may be recognised as important to the NEG, but its rollout will likely depend on the development of separate market mechanisms, and/or a permanent strategic reserve, and on those fronts the signs are not so encouraging.

Bruce Mountain, from CME, notes some of the extraordinary complexity in how the NEG might operate, but it’s not the only critical piece of regulation and rule-making on the table.

The Australian Energy Markets Commission’s Reliability Frameworks Review – an increasingly important annexe to the growing complexity of the NEG – has alarmed many because of its failure to embrace these mechanisms.

And it has provoked an excoriating response from the Energy Efficiency Council, and criticism from others.

Demand response measures have been recommended since at least 2002, when COAG’s first major review of the NEM (the Parer report) was released. However, they have been resisted, and still are, by major utilities who have grown rich by profiting from scarcity.

(To understand how, please read this piece from last year by former EnergyAustralia boss Richard McIndoe in response to Snowy Hydro CEO Paul Broad’s claim that demand response was akin to “blackouts”).

In its latest report, the AEMC says it has looked at the issue and considers that there are enough signals for demand response to occur. And its position is supported by the country’s biggest gentailers.

The EEC, however, issued a withering rebuke, saying the lack of demand response incentives have cost consumers “hundreds of millions of dollars”. (It is probably much, much more).

And the EEC warns the AEMC to be wary of “shameless rent-seeking” by generators who pocket huge profits when they can switch on expensive peaking plants.

“We fully expect that some generators will object to reducing barriers to demand-response in the wholesale energy market, as these changes will reduce their market power and ability to gain extraordinary returns at the expense of consumers,” the EEC said. (And they were right).

“In previous inquiries into demand response, we saw risible objections to demand response, such as the claim that it would cost over $100 million to upgrade retailers’ billing systems to facilitate demand response,” the EEC continued.

“At their heart, these objections are really concerns about increasing competition in the wholesale energy market, and we urge the AEMC to dismiss such claims as shameless rent seeking.”

The EEC says the benefits of demand response have been obvious ever since that 2002 Parer report.

But while other markets around the world have embraced it, it has been barely developed in Australia, which has been so focused on “supply side” solutions (build bigger networks, and install more coal and gas generators) that energy efficiency has also been ignored.

In its submission to the AEMC, the EEC says the absence of a Strategic Reserve, which could be largely met through demand response initiatives, is causing far greater distortions to the wholesale electricity market than a Strategic Reserve ever would.

“Several governments perceive that there are risks of capacity shortfalls and, combined with their declining faith in governance of the NEM, this led them to take independent actions to improve energy security,” it says.

“These state-based actions have come at much greater cost to consumers and distorted energy markets far more than a Strategic Reserve ever would.

“For example, the South Australian Government recently spent over $339 million on diesel/gas generators that will still idle for the vast majority of the year, won’t operate within the wholesale electricity market and will distort investment in the energy sector.

“If an effective Strategic Reserve had been in place for several years it would have provided capacity at much lower cost, given the South Australian Government comfort and avoided this distortionary investment.”

The reference to South Australia is interesting. Last week, RenewEconomy was sent a link to a fascinating report that illustrated that South Australia’s electricity woes – high prices, “peaky” demand, and lack of competition have been endemic long before renewables entered the equation.

The report, written in 2005 by ETSA, the South Australia grid operator as it was then known, and still available on the website of what is now known as SA Power Networks, laid out the benefits of demand response.

ETSA identified the problems that South Australia faced then – a lack of good quality coal, reliance on expensive gas, limited connections with other states, and a unique demand profile caused by its mild climate contrasted by bursts of extreme heat that sends demand up more than 3-fold.

Even then, almost 90 per cent of South Australian homes had air-conditioning, and the need to address these huge peaks meant that they had the highest electricity prices in Australia – even before the arrival of renewables.

“(This) is why prices to residential customers are high,” the report said. “It is mainly residential customers who create the peak use.

“This has been exacerbated by the trend to high density housing without either eaves or appropriate window placement, or other design features, to reduce summer heat. Those customers rely heavily on large air conditioning units.

“Much of the generating plant, and the network capacity to deliver power during those few peak days, is underutilised for most of the year. Some plant only operates within SA for a few days each year.”

That’s why demand response was considered such a good idea. But not much happened. Now the same problem is affecting all states.

How to encourage demand response (or not) is just one of the issues that divide some of the key members of the new Energy Security Board, particularly the AEMC and the Australian Energy Market Operator.

AEMO’s new CEO Audrey Zibelman been a strong supporter of demand response, having come from US markets where such measures can clip peak demand by more than 10 per cent, avoiding the costly price spikes that drain the pockets of consumers and become fuel for partisan positions on energy politics.

“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.

The AEMC is less keen. It has argued that because the National Electricity Rules (NER), for which it is responsible, do not “completely prevent” wholesale demand response, then they do not “impede” wholesale demand response.

The EEC was not kind in its assessment, and offered this oft-made criticism for the AEMC:  “While playing with pure economic theory on paper is fun, if markets aren’t designed with real-world conditions in mind then they will lead to sub-optimal outcomes.”

EnerNoc, a company specialising in demand response technologies, sided with the EEC.

It said the AEMC’s arguments were “problematic” and “puzzling”, and suggested there was prima facie evidence that retailers  are not sufficiently motivated by their “theoretical efficient incentive”, and in practice were doing little.

“Despite a theoretical ‘efficient incentive’ to pursue wholesale DR, too few retailers are doing so; innovation and competition are being stifled as a result,” it wrote.

“A gentailer long on generation may earn more from selling expensive energy than they pay to the market in order to serve their retail book.

“In the long term, such a gentailer may have an incentive not to engage in activities that reduce spot prices (like wholesale demand response) … and that all of these factors are hindering innovation on the demand side, to the detriment of consumers.”

 

  

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  • Andrew Lang

    The ETSA report is great. Why was it not implemented?

    • Rod

      I don’t know for sure but possibly because the generators stopped it in its tracks. No financial incentive for SAPN to initiate it. The result of privatisation.

  • Peter Todd

    The Energy Security Board has just called for submissions on the National Energy Guarantee so a great opportunity for all the have further input.

    • Miles Harding

      (that will be ignored!)

  • Chris Fraser

    Let’s not pretend. The AEMC is populated with generators.

  • Ray Miller

    As long as everyone in the NEM (including AEMC and AEMO) get rewarded for the total of units of energy sold, the more the merrier, this extortion will continue.
    Lovins decades ago made the case for a services driven energy sector as a “true” competitive energy market, one where the actual service needed by the end customer was only paid for, freeing up and encouraging the potential for smart, innovative and efficient companies.
    What do we get in Australian but a gravy train of dumb fat companies and poor energy users, housing which still has an unmet need for larger heat pumps to be safe. Who builds a boat with holes in the keel which needs a massive bilge pump to stay afloat!
    It seems the HIA, Master Builders and the whole NEM in Australia encourage mandatory holes below the water line!

  • itdoesntaddup

    If DSR is such a slam dunk proposition, why are you waiting? The info on live generation is readily available on the web, so all it takes is a very small computer (e.g. Raspberry Pi) that reads that info and doles out the commands to household appliances to shut themselves down until the situation eases. You don’t need anyone’s permission.

    The reality is that equipping household appliances for DSR does not come for free. Neither does the complex software and communications that are needed to make it work at grid scale, rather than simply adding a volatile component to grid demand as everything responds simultaneously, potentially setting up oscillatory behaviour designed to stress the grid, not help it.

    • Ren Stimpy

      You fail as usual to account for ordinary people who have no such snobbery.

      I think you inadvertently promote our Australian right to self government (without pale withering illogical in-breds as our official guardians) more than anyone!

      Viva Republic!

  • Hettie

    Demand response is clearly a great idea. A friend in Qld had organised that the aircon in her new house is responsive, but when I was getting quotes for aircon in Armidale, the only serious supplier had never heard of demand response, no idea what to do to enable it on the unit I selected as being the only one of the Choice recommended models that is equipped for d.r. and met my other criteria.

    I shall not have the funds until late April, so have plenty of time to find out what needs to be done, how to proceed, but thought that asking the brains trust here would be a good first step.
    And to raise the whole issue. If a dedicated air con business doesn’t have a clue, at a time when air con is being installed even faster than solar panels, what hope that Joe Public will know to pursue this opton?

    • Ren Stimpy

      Frig-all. Joe Public has Fuck All recourse for his grandkids and further descents if he accepts this weak shite from Turnbull. The ordinary citizen is so wrapped up in their own self-interest that they don’t give a flying frig about where the energy comes from. When are you (ordinary person) going to wake up and realise that we need to start using the system to effect change instead of some dreamy illogical pretence that we can ride his high cost inefficient corruption model ? ? ? ? ?

      • Hettie

        Feel better now?

        • Ren Stimpy

          Yeh there I go again.

      • Greg Hudson

        Luckily I’m abnormal. During my research on DR, the only power company I could find offering it was PowerShop. Even then it was well hidden on their site…

        • Ren Stimpy

          It’s only available in Victoria and only to customers with a Smart Meter. It’s going to require government programs to roll Smart Meters out to everybody, which means it will only go ahead if people can be convinced of the long term cost savings of doing so.

          • Greg Hudson

            Lucky I’m in Melbourne where smartmeters were made mandatory years ago.

  • Nick Kemp

    The air conditioner problem is an example of immensely stupid planning. It is quite possible to design entire suburbs with passive solar housing that need little air conditioning or heating. Even simple solutions such as new suburbs having all the streets running East/West alleviates many problems but instead we keep building crap houses facing into the rising or setting sun then spend money later trying to ‘fix’ them

    • solarguy

      Couldn’t agree more! The insulation used currently is inadequate, code needs to change to R8 in ceiling and walls too.

      • Rod

        Insulated homes with the incorrect orientation and unwanted solar gain are even hotter hot boxes.
        Even our pitifully low 6 star rated houses would be a huge step up if they are oriented correctly. I think local councils have a greater role to play. Either that or rate a house in situ. If it fails to meet 6 then mandate a fix.

        • solarguy

          Yep, correct orientation is a big factor, but so is the overall design of the house to take full advantage. You know what I’m talking about Rod I’m sure.

          • Rod

            Agreed, we need both. And a shed load of education for consumers.

          • solarguy

            Education, yes, yes for sure, but it’s a two edge sword. Not only consumers, but the draftsmen the architects and builders.

            When I was studying for my RE qualifications the basics of energy efficient home design was part of the course, the rest was self education on my part.

            So many consumers don’t have a clue, they contact me about solar for their home as the thing is all but built and ask how much for an off grid system. Of course they have already contracted for the (3 phase,10kw input) ducted A/C to heat and cool the 5 bed Macmansion. Even if they contact me before they build, they can’t be told. If they don’t like what they hear, they won’t listen. Seems they would rather spend $200k and beyond to get the grid, when they could have all the A/C they need and other appliances just by sensible design and appliance choices and be off grid for less than half the cost!

          • Rod

            I think all architects get the basics and many go the extra but yes it is the end consumer who needs to ask about energy efficiency.
            It is pretty easy to source info and relatively easy and affordable to retrofit for efficiency. Much of it comes down to desire to reduce. Simple things like opening the house up at night and closing up in the morning (Summer) can make a huge difference.
            Apparently much easier to gnash and wail about renewables and how they make electricity more expensive for many people though.

      • neroden

        R8 seriously? Where we live (cold climate) the “efficient house” ceiling is R60, and R8 is for windows!

        • solarguy

          Where do you live Antartica? That’s passive house standard, those sort of ratings and not a cheap build. Windows don’t use the R rating method, they use U factor I’m pretty sure.

          • solarguy

            Anyway the current standard of R3.5 for ceilings isn’t good enough, R1.5 for walls not including R value of material used for cladding. So R8 would be and is a big step up for homes in the Hunter valley and surrounds.

        • solarguy

          Please see second post below.

    • Liam

      It’s more profitable to pass the costs on to somebody else, hence the developers do it. However in a climate like Melbourne’s there are more effective methods of retrofit to beat the heat such as “dew-point cooling” aka “Indirect-Direct Evaporative Cooling”. It’s all the rage in modern power-cost conscious data centres for having very high COP.

    • Phil

      Yeah no eaves , cant open windows to cool if ANY even light rain, turn on aircon

      But you get a good sized house on a small block and hear what your neighbour has been eating or how stable their relationship is by the toilet sounds 1 meter away or the conversations.