South Australia should dump diesel plan and think smarter

South Australia is being urged to rethink its plan to install up to 200MW of diesel power around the state, and think of smarter solutions on the other side of the supply-demand equation – as would be befitting of a state forward thinking enough to lead the world on renewable energy.

The Labor government’s recently released energy supply plan included six main initiatives, mostly notably the 100MW/100MWh of battery storage, which is eliciting huge interest, and most controversially a planned $360 million investment in a new gas peaking plant.

Any such plant is unlikely to be built in time for the next summer’s peaks, so the government has said it is looking to install temporary diesel generators to ensure sufficient supply – at a high cost of installation and of fuel use, if ever they are switched on.

It may be debatable whether the government will still need this, given that the second unit at the Pelican Point gas-fired generator has been brought out of mothballs after Origin Energy decided to supply it with some gas and take the output, and as more solar farms with battery storage are proposed to be built.

But the biggest change in thinking at state level may have come through discussions with Audrey Zibelman, the new CEO of the Australian Energy Market Operator, who met with energy minister Tom Koutsantonis and premier Jay Weatherill earlier this week.

The forthright Zibelman is understood to have shared her thoughts about using demand response – signing up large energy users to agree to be dispatched to voluntarily curtail some load at critical times, and get paid to do so.

As we noted the other day in this profile of Zibelman, who headed New York’s ambitious Reforming the Energy Vision program, she wants to bring some of that thinking to Australia and focus on the demand side of the equation, rather than the usual Australian response of just over-loading supply.

Indeed, in the vast PJM market, some 12,000MW of demand response is contracted each year to help meet demand peaks and is dispatched by the system operator to maintain system security on peak demand days.

They choose to do this rather than build new gas peaking plants, which might only be used a few hours a year, and be incredibly expensive to build and to switch on.

“You don’t have to invest in generation that you are only going to use a few hours a year, because you can use the load itself as a balancing resource,” Zibelman said this week.

“It is that signal that says (to peaking power plants): ‘Hey there, we don’t really need you,” that’s going to help moderate prices. It’s pure economics applying to them and making demand a much more active portion of the grid.”

One of the companies proposing such an option is EnerNOC, the largest demand-response aggregator in the world.

EnerNOC says it could source a 100MW “virtual power plant” in South Australia by December, by signing up commercial and industrial users to agree to reduce non-essential load when dispatched by AEMO or the SA government.

The company’s head in the Asia-Pacific, Jeff Renaud, says that can be done at a much lower cost than diesel generators. In effect, he says, it will be smarter, cleaner, and cheaper. AEMO and the government can guarantee that it will show up exactly when and where it’s needed.

The current process of involuntary load-shedding, where the market operator would intervene to switch off supply to some customers if it cannot source enough generation during the afternoon system peak (as occurred on 8 February in South Australia), is not voluntary and is indiscriminate. And affected customers get no financial reward.

“Demand response is an elegant solution. By creating voluntary measures, and a virtual power plant, we can protect those customers who don’t want to be cut off. It turns the load shedding paradigm on its head,” Renaud told RenewEconomy.

Demand response exists in Western Australia, and most other grids in developed economies, but has limited opportunities in the main National Electricity Market.

Such suggestions have been hitherto rejected by the Australian Energy Market Commission, which sets the rules, after fierce lobbying from the fossil fuel industry.

They said it would cost too much – just as they fought against the carbon price, the renewable energy target, energy efficiency measures and now changes to the settlements period which might even level the playing field for another smart technology, battery storage. But they are really seeking to protect their revenues.

Renaud says even though the rules are not in place in the NEM, the South Australia government could put in place a one-off scheme to protect against any load shedding this summer. Then it could encourage more widespread use in Australia, as Zibelman advocated.

We could create a temporary market – it would have significant economic benefits and environmental benefits,” Renaud says.

EnerNOC believes 100 MW of demand response would cost the South Australian government significantly less than 100 MW of rented diesel generators, and is hopeful that the government consider proposals from demand-side aggregators like EnerNOC during their procurement process.

And as an extra incentive, the money spent by the state would go directly to local South Australian businesses, reducing their energy bills rather than adding to them – and rather than paying money to out of state diesel generator rental companies.

“Demand response is a means to some money back into local industry. That means it is money more intelligently spent.”

Renaud says that based on the amount of demand response in the US PJM market, there could be potential for around 200MW of dispatchable demand in South Australia.

Taiwan, for instance, which only narrowly avoided blackouts last northern summer, is contracting 200MW of demand response to ensure it can meet demand needs this coming summer.

Renaud is also hopeful that the push for demand response is echoed in the Finkel review. It will allow for more efficient markets, help to depress high price intervals, and utilise existing assets to contribute to energy security.

And he echoed his company’s support for a change to the 30-minute settlement rule to 5-minute, to help quick  response mechanisms such as demand management and battery storage over gas and diesel.