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Bigger incentives to "switch off" could drive down energy prices


South Australia is the perfect place to introduce changes to electricity market rules to give consumers a greater capacity to save on their energy bills by voluntarily “switching off”, writes Ben Oquist.

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On very hot days in the middle of our harsh Australian summers, most of us seek refuge in the relative cool of our homes or offices and instinctively reach for the air conditioning remote. Doing so may give us instant relief, but it can be a serious problem for our electricity network. That is because air conditioning can use a lot of electricity and, as demand spikes during extreme heat events, our aging fleet of coal-fired power stations in the eastern states have a nasty habit of breaking down.

Global warming is predicted to deliver hotter days more regularly in the years ahead, so it is essential that our national grid becomes more flexible and resilient. One key mechanism that could help in that regard is a policy known as ‘demand response’, which sees households, farms and businesses being paid to turn off non-essential devices during peak demand events. Doing so is completely voluntary and, while it eases demand on the grid, it also reduces the cost of electricity for all other consumers.

Various countries around the world have been using demand response for years and with great success. In Australia, demand response is being held back by poor regulation and a lack of government support, but there have been some small moves forward.

The South Australian Liberal Party, for example, did commit $20 million to support demand response during the recent state election campaign and the State Government has announced, just recently, an $11 million trial of demand response technologies across the state.

South Australia, which is leading the way at the cutting edge of renewable energy technology, would be the perfect place to introduce demand response on a larger scale, but so far the National Electricity Market’s rules have been getting in the way.

That is why The Australia Institute has teamed up with the Total Environment Centre and the Public Interest Advocacy Centre to recommend that the rules be changed to allow new players into the market.

As it stands, big generator-retailers who supply electricity to consumers, including the big players like AGL, Energy Australia and Origin, are also the gatekeepers for participating in demand response. This is a conflict of interest, because those big suppliers make huge profits during extreme demand times, from their peaking gas plants. For them, less demand means lower profit.

The only losers in the demand response game are those who profit during demand spikes…

The proposed rule change would give consumers the power to decide if they want to sell demand response services. They would be free to engage ‘aggregators’, who work with industrial and household energy users to orchestrate a reduction in demand during these peak times. For each megawatt of reduced demand, known as a ‘negawatt’, the aggregator would be paid the market rate as if it were generating supply. A portion of that money would then be passed onto those companies or home owners who voluntarily took their appliances offline, as per their contractual agreements.

Unlike recent attempts at energy policy reform, which have been fraught with political conflict, wholesale demand response is supported by all sides of politics, as shown when Labor and Coalition energy ministers endorsed the policy at last year’s COAG Energy Council.

The only losers in the demand response game are those who profit during demand spikes but, if any Australian home owners are upset by the idea, they can simply opt out. They can run their pool pumps all day long, if they wish, but they would also miss out on the money that they could have received by going offline.

A national poll commissioned by The Australia Institute last year asked what people thought was the best way to plan for peak demand events and two-thirds (64%) supported demand response.

That is because the alternative is to build extra energy supply for the tiny handful of high demand hours we have each year. That is an extremely expensive option which would, in turn, drive up the cost of electricity; an outcome that any rational government seeking re-election would want to avoid right now.

The good news is that, when it comes to Australia’s highly politicised energy debate, the best path forward is seldom so clear. Implementing reasonable demand response rules, operating on a purely voluntary basis for consumers, would help to lower costs and increase reliability.

What could be more fair dinkum than that?

Ben Oquist is Executive Director of The Australia Institute.


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