Wrestling Marshmallows - TransGrid's 2014 Demand Management Innovation Forum

1. TransGrid’s 2014 Demand
Management Innovation Forum
Wrestling Marshmallows:
how to build a demand
management market?
Chris Dunstan, ISF
24 September 2014
1 | The role of networks in a changing market dynamic September 2014

2. Introduction
TransGrid’s 2014 Demand Management Innovation
Forum was held on 24 September in Sydney.
This is an annual event that TransGrid hold to discuss
demand management activities both in our network
and across the NEM.
More than 60 people joined the conversation, ranging
from large energy users, consumer advocates,
researchers, technology providers and other
networks.
2 | TransGrid’s 2014 Demand Management Innovation Forum 24 September 2014

3. Overview
1. State of Play:
Not Business as Usual
2. Barriers to DM
3. Building the DM market
(Targets, Reporting, Incentives and Customer Engagement)
4. Crossing the streams?

4. What is Demand Management (DM)?
Reducing or shifting demand, as an alternative to providing
more supply capacity to meet demand
Peak Load Management
Ice Storage
Battery Storage / EVs
Power factor correction
Energy
Efficiency
Distributed
Generation
Interruptible loads
Cogeneration
Efficient motors & chillers
Efficient Lighting
Efficient showerheads
Efficiency Retrofits
Gas Chillers
Electric to Gas Hot Water
Standby Generation
Time of Use pricing
Biomass Generation
Small Gas Generation
Solar Photovoltaics
Behaviour change

5. State of Play
Not business as usual

6. “Another Kodak moment?”
1. What business are you in?
2. What business do you want to be in?
3. What business are you expected to be in?
Source Technology Review: http://philebersole.wordpress.com/2012/01/21/kodak-and-the-rochester-mentality/

7. Don’t cross the streams?
The old paradigm
> Centralised supply
> Forecast demand
> Build infrastructure
> Maximise revenue
from growing MWh
> Minimal DM
> Little engagement with
customers (end users)
The new paradigm
> Decentralised supply
> Manage demand
> Invest in least cost supply
and demand side mix
> Grow revenue & returns by
customer value adding
> Maximise cost effective DM
> Extensive engagement with
customers (and retailers
and service providers)

8. The DM Opportunity
$16b
$14b
$12b
$10b
$8b
$6b
$4b
$2b
$0b
Total benefit of demand reduction in the NEM 2013/14 to 2022/23
Lower Upper
NPV of absolute benefits
Demand reduction case
Efficient pricing
Demand response
Energy efficiency
$4.35b
$11.7b
Source Data : AEMC Power of Choice Review Final Report, 2012

9. Demand Management Innovation Allowance: allocation and expenditure
12% 14% 15%
44%
1%
20%
0%
12%
70%
1%
100%
80%
60%
40%
20%
7% 4% 0%
$6m
$5m
$4m
$3m
$2m
$1m
$0m
ActewAGL
Ausgrid
Endeavour
Essential
Energex
Ergon
SA Power
CitiPower
Jemena
Powercor
SPAusNet
United
Aurora
ACT NSW QLD SA VIC TAS
2009-14 2010-15 2011-15 2012-16
DMIA spent to 2011/12 DMIA allocated over 5yr period Proportion of DMIA spent
Source: AEMC Power of Choice Review Final Report, 2012

10. Status of Network DM
US average
Aust average
Source ISF, Restoring Power: Cutting Bills & Carbon Emissions with Demand Management
http://www.aemc.gov.au/getattachment/fa79d4d7-ff1d-4632-b818-45c99bb23ca3/Rule-change-request-supporting-report.aspx

11. Source: 2014 National Electricity Forecasting Report (NEFR) (June 2016)

12. Source: 2014 National Electricity Forecasting Report (NEFR) (June 2016)

13. Source: 2014 National Electricity Forecasting Report (NEFR) (June 2016)

14. Components of electricity price rises in NSW
2007/08 - 2012/13
14
Source: IPART, Review of regulated retail prices and charges for electricity 2013 to 2016, (2012)

15. Wild Card 1: Solar PV
Source: APVI http://pv-map.apvi.org.au/analyses

16. Wild Card 2: Climate policy
“Climate change is a defining issue of
our age, of our present. Our response
will define our future.
…
The human, environmental and
financial cost of climate change is fast
becoming unbearable. We have never
faced such a challenge, nor such an
opportunity.
…
We must cut emissions. Science says
they must peak by 2020 and decline
sharply thereafter. By the end of this
http://cambia.pe/?p=6240 century we must be carbon neutral.”
Ban Ki-moon, Secretary-General, United Nations, 23 Sept 2014
http://www.theguardian.com/environment/blog/live/2014/sep/23/un-climate-change-summit-in-new-york-live-coverage#block-54216343e4b020a19dddfbfe

17. Wild Card 3: Energy Efficiency
the cheapest way to cut carbon emissions
Source: International Energy Agency,
World Energy Outlook 2011, Fig 6.4

18. Wild Card 4: Electric Vehicles
The Mitsubishi i-MiEV
(16kWh of batteries +
54 kW electric generator)
Q. How many Volts = Australia’s
total peak electricity demand?
A. ~800,000 (= 6% of the fleet)
(16kWh of batteries +
150 km range)
(Chevy) Holden Volt

19. Wild cards interactions? e.g. EV + PVs
Cost of Solar PV: 2009-2020 (Chevy) Holden Volt
Solar is already at “socket parity”
cost in much of Australia
What happens when you combine:
(16kWh of batteries +
54 kW electric generator)
cheap solar energy with... “free” battery storage and
abundant local generation?

20. Will “grid defection” impact
be bigger for those who stay?

21. Wild Card 5:
Empowering consumers (& 3rd parties) with data

22. Google
Nest

23. How should network businesses respond?
(possible options)
1. “Defensive” pricing (e.g. raise fixed access charges)
2. Cost reflective pricing
(e.g. capacity charges & dynamic peak pricing)
• Needs interval/smart meters and customer acceptance
3. Demand management incentives
(e.g. support customers to lower their bills)
• Needs policy reform to address disincentives.

24. Barriers to DM

25. Survey of Perceived
Barriers to DM (2011)
• Do stakeholders agree these
barriers are real?
• Which barriers most important?
• Do different stakeholder groups
see barriers differently?
– 800 stakeholders;
– 200 replies
www.a2se.org.au/images/stories/files/a2se_isf_dm
%20barriers%20report%20june%202011.pdf

26. Survey Respondents
Category Respondents # Respondents
Utilities Energy Utility – Network
Energy Utility – Retailer
Energy Utility – Generator
29
5
1
Government Government Agency – Federal
Government Agency – State
Government Agency – Local
2
20
8
End User Energy Consumer – Commercial
Energy Consumer – Industrial
12
2
DM Provider Demand Management Provider
Demand Management Consultancy
Energy Supply Consultancy
8
17
14
Other Environmental organisation
Consumer organisation
Industry organisation
Regulator
Research Institution
Other
16
8
3
2
26
28
*

28. Stakeholder Type:
Level of Agreement
Top 10 Barriers to DE

29. How do we build a
Demand Management market
that maximises benefits to customers,
while protecting network businesses
(and facilitating carbon emission reduction)?

30. Elements of an effective DM incentive scheme
*AER addressing this
*AER addressing this
*small
*AER addressing this
Source ISF, Restoring Power: Cutting Bills & Carbon Emissions with Demand Management
http://www.aemc.gov.au/getattachment/fa79d4d7-ff1d-4632-b818-45c99bb23ca3/Rule-change-request-supporting-report.aspx

31. 6 KEY ACTIONS FOR NETWORK DM
1. AEMC to change National Electricity Rules to remove actual and
perceived barriers to DM.
2. AER to establish an effective DM Incentive Scheme (DMIS) to drive DM
wherever it will reduce costs to consumers.
3. Set collaborative DM targets with distribution network businesses.
4. Ensure transparent DM reporting by network businesses.
5. Provide effective DM performance incentives to network businesses.
6. Intensive customer engagement (incl. via intermediaries) via pricing,
incentives, facilitation and information
• Ring-fencing barriers?

32. Precedent #1: Californian DSM Incentive Scheme
• Incentive/Penalty Mechanism – Utility ratepayers and shareholders
“share the savings” from EE programs.
• Financial rewards balanced by penalties for poor performance, tied
to Commission-adopted kW, kWh and therm savings goals.
Source: Dian Grueneich, California Public Utilities Commission, 2007

33. Precedent #2: Queensland Energy Conservation
& Demand Management Program
> In 2009/10, Qld Govt allocated $47 million for
demonstration projects
> In 2010, Energex and Ergon sought and were
allocated ~$220 million for Demand Management
programs from the Australian Energy Regulator
> Energex and Ergon now have extensive plans,
teams, budgets and targets in place to reduce
demand growth and support DE.
33

34. © Institute for
Sustainable Futures,
UTS
34
http://www.energex.com.au/network/network_prices/pdf/Energy%20Conservation%20&%20Demand%20Management.pdf

35. Informing the market:
Network Opportunity Maps
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

36. Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

37. Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

38. 2010
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

39. 2011
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

40. 2012
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

41. 2013
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

42. 2014
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

43. 2015

44. Summer Peak Day- 9am
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

45. Summer Peak Day- 1pm
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

46. Summer Peak Day- 4pm
Dynamic Avoidable Network Cost Evaluation (DANCE) Model
http://cfsites1.uts.edu.au/isf/news-events/newsarchive-detail.cfm?ItemId=31169

47.  Price reform (and metering).
-incl. AEMC Distribution Network Pricing Arrangements draft rule change.
 Actively engage with customers to cut their bills via DM.
(Demand side engagement strategy)
 DM planning and budgets in Network Pricing Determination.
 Seek an effective DMIS from AER.
 DMIS Rule Change an opportunity to progress network DM.
 ARENA/ISF network opportunity mapping re DM
 Just do it!
Network DM Next Steps?

48. 1. What business are you in?
2. What business do you want to be in?
3. What business are you expected to be in?
These are key questions not just for NSPs,
but regulators and policy makers too.

49. Donald Horne, The Lucky County, 1964
“Australia is a lucky
country run mainly by
second-rate people who
share its luck.”
…but also:
“The saving Australian characteristic … is the ability to change course
quickly, even at the last moment ... This can happen almost without
discussion or dramatization of the change…
Australians … hate discussion and ‘theory’ but they can step quickly
out of the way if events are about to smack them in the face.”

50. Or when it comes to wrestling
marshmallow, listen to the experts:
Cross the streams!
http://www.youtube.com/watch?v=9wrEEd1ajz4

51. Thank you
Chris Dunstan
E: chris.dunstan@uts.edu.au,
T: 02 9514 4882