Australia enjoys access to much of the world’s energy resources. Oil, gas, and coal are abundant. The continent’s geographic position positions it perfectly to take advantage of new renewable energies, including wind and solar. Yet Australians pay some of the world’s highest energy prices.
In July 2019, the Australian Energy Market Commission released a draft rule to put a demand response system in place. While the jury is still out, demand response has been used with some success in China, the EU, and the United States, among other places. The commission is hoping this success will be repeated in Australia.
What is demand response?
When energy providers anticipate high demand on the grid, to the point where demand threatens to outstrip supply, they can institute a demand response or conservation event. Instead of putting on another power plant online to cover the relatively small amount of extra demand, demand response asks consumers to voluntarily cut their power usage.
Electricity users who voluntarily cut their usage during peak periods of demand can then sell their reduction on the marketplace. The plan for Australia, at least for now, is to allow only large commercial entities to sell their demand response energy cuts.
How does it help?
The basic idea of a demand response system has been used all over the world, but each area has its own rules for running the system. In some places, anyone can sell back their power savings. Some plans allow for disincentives as well as incentives or respond to demand by simply raising prices during peak times.
In Australia, the demand response system should help in two ways: the biggest users have an incentive to cut back and the marketplace opens up to competition.
Offering incentives so users will cut back
Simply raising prices during peak periods is not always effective. The largest energy users tend to simply absorb the costs, building the financial loss into their business model. This has a trickle-down effect that hurts everyone:
- Continued excessive use drives up costs for everyone, including individuals, small businesses, and farms.
- Extra costs to industrial and commercial concerns are simply passed on to end consumers.
By allowing large energy users to voluntarily conserve energy and then sell it wholesale, the demand response system provides a carrot rather than just a stick. Corporations can add the extra funds earned through selling unused demand into their budget. This lowers costs for everyone.
Opening the marketplace to competition
Several Australian states have already deregulated their energy markets, and this move has made a difference already in energy prices within those states. Allowing big energy users to sell their reduced demand gives smaller businesses more choice of electricity providers to buy from.
The future of demand response
The demand response system won’t come into effect until 2022, and several hearings have already been scheduled to handle concerns about the plan. One reason for the delay is to allow energy providers and big energy users time to work out the kinks. Trial projects are already underway throughout the country, and more are planned for the next few years.
At first, smaller businesses and individuals won’t be able to participate in the scheme, but that may change once the system is up and running smoothly. It’s also possible that energy retailers could offer financial incentives to customers who cut back on energy usage during peak demand.
Demand response is being used everywhere, from Texas to Paris, South Korea to Taiwan. Australia leads the world in access to energy resources. Now it hopes to lead in demand response innovation.
