Energy innovation: what is demand response?

A promising new initiative is currently being trialled by the Australian Renewable Energy Industry (ARENA) to make electricity grids more stable and cost-effective.

Known as 'demand response', the idea is simple but could have far ranging implications for the future of energy supply management and new investment generation spending.

Here's how it works.

Curbing demand to prevent extreme usage peaks

For most businesses and households, there is an expectation that the supply of electricity is available at all times and at all levels of usage.

This creates a situation where total generation capacity must always be able to handle the highest peak level of usage, even if those levels occur relatively rarely.

One example of this occurs during extreme weather events. In the height of summer for example, high usage of air conditioning units creates a temporary peak in electricity consumption. To accommodate higher peaks over time, more generation capacity must be created in the form of new power plants and costly grid infrastructure - however much of this additional capacity will go unused for most of the year when electricity demand is lower.

But what if users were incentivised to limit their electricity usage during these high demand periods? This would lessen the need to build more grid infrastructure, and the savings passed onto both those users who voluntarily limited their usage, and lower electricity bills in general.

ARENA Demand Response Trial

A trial from ARENA, the Australian Renewable Energy Agency, is offering $30 million over three years to support demand response demonstration projects nationally. Another $7.5 million will be invested by the NSW Government for projects in that state.

Estimates for the ARENA trial are that electricity users would be paid up to $12.5 million a year to have 160MW capacity on standby to take offline.

Participants consist of large energy users willing to shift their production by a few hours, industrial users able to temporarily shut down operations such as water pumping, or energy retailers who in turn sign up individual residential households in a range of schemes. Examples of retailer schemes would include taking control of certain appliances such as air conditioners or pool pumps, or sending messages to customers asking them to reduce their usage. In turn, these customers could receive additional discounts on their next bill or cash payments.

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