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How ‘negawatts’ could help businesses cut their power bills

Manufacturers including BlueScope Steel and CSR stand to benefit from proposed rule changes in the electricity market that will allow them to better control their power use and bid directly into the wholesale market, saying it will help drive down prices.

Although retailers are lukewarm about the demand response draft rule that could threaten their profitability, big energy users said it would be a big incentive to help deploy their technology, change their systems and respond directly to price signals in the market.

“Just as the grid is changing from a small number of large generators, to a large number of smaller generators, so too will the demand-response rule change enable a large number of businesses to become more flexible in their operations,” Energy Users Association of Australia chief executive Andrew Richards said.

“This will collectively have enormous benefits by reducing wholesale prices, creating better outcomes for consumers.”

The draft rule, proposed by the Australian Energy Market Commission, has also been welcomed by Australian Competition and Consumer Commission chairman Rod Sims, who said it was “profound” and would definitely benefit consumers through lower power prices.

Demand response allows energy users to cut their power needs by better controlling their assets. It is already used in the National Electricity Market, especially during times of peak demand in summer.

But the proposed rule change recommended by the AEMC, which if approved would come into effect in 2022, would allow big industrial users to offer it directly to the wholesale power market.

The new system would involve commercial electricity customers that are willing to reduce their power use selling their demand reduction into the grid through a new third-party body that will bid it into the market as wholesale prices peak.

If the generation available from power plants is more expensive than the reduced demand available from industrial users, the demand reduction would be used first, instead of generation.

In effect, the “negawatts” available from energy users – who are saving energy – would be competing against the megawatts able to be supplied by generators.
ERM Power chief executive Jon Stretch, who runs the energy retailer that already provides demand response to some of its industrial customers, said the company did not object to the rule change and more competition was good for the sector.

He said he was not worried about some customers bidding directly into the wholesale market.

“We think that in any market where there is competition, that’s a good thing if the end customer is the beneficiary,” Mr Stretch told The Australian Financial Review.

“We do think what is missing is they haven’t figured out how a third party, in a trusted way, can curtail load on behalf of a customer, and bid that into the market.”

Mr Stretch said there also was very little transparency about the extent of demand response in the market already. He believed some big industrial customers would stick with retailers to help with demand response programs, rather than manage the process themselves.

A spokesman for Bluescope said they had been calling for the draft rule changes for a number of years which would take pressure off the electricity grid and lower prices.
“The rule change provides opportunities for large energy users like Bluescope to more actively manage their electricity costs; cutting back use where it make sense and selling that electricity back into the wholesale market,” the spokesman said.

“This will have benefits for all consumers by reducing peak demand and taking pressure off the grid.”

Major Energy Users spokesman David Headberry said the demand response draft ruling, which had been a decade in the making, would allow more participants in the wholesale demand response process.

“A number of our members have been active in providing AEMO with RERT services as they see this as an important element of making the electricity market more secure,” he said, referring to the reliability and emergency reserve trader function conferred on the Australian Energy Market Operator to maintain power system reliability and system security using reserve contracts.

“Many MEU members are also active in the electricity market, where they take spot-price exposure and reduce their demand when prices are high.

“They see the new draft rule is an important extension to what they are already doing to make the electricity market more two-sided.”

The Public Interest Advocacy Centre, one of the groups that lobbied the AEMC for the rule change, said the demand response rule would work better if it were introduced sooner than 2022 and included households.

“With the Liddell power station closing that year and summer peak energy demand continuing to grow, energy users can’t wait that long,” PIAC’s Craig Memery said.

“We think the new demand response market can, and should, have a staged introduction starting in 2020-21. We understand their concerns, but the problems are minor and solvable and the potential benefits of household demand response are high.”

Source: Financial Review