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Better managing how we use electricity in our homes will reduce pressure on the grid, and reduce the need for more power stations. Power line image from www.shutterstock.com

As Prime Minister Malcolm Turnbull noted in his National Press Club address yesterday, energy policy is all about balancing the trifecta of affordability, reliability and sustainability. More commonly known as the “energy tri-lemma”, it can often seem impossible to achieve all three objectives at the same time.

For instance, in Australia’s current energy debate, fossil fuel advocates claim that only coal and natural gas can deliver reliable and affordable power.

In the opposite corner, renewable power is synonymous with sustainability, but many governments remain unconvinced that it can also guarantee reliable, low-cost energy. Until renewable energy overcomes this scepticism, calls from the likes of former prime minister Tony Abbott to limit its growth will find a receptive audience.

However, there is a powerful solution to the energy tri-lemma and, after decades of neglect, Australia may be about to give it a serious try.

The missing link

The missing link is “demand management”. This is where energy utilities support consumers to save energy and shift demand, instead of building expensive new energy supply.

The greatest volatility in the current electricity system is not solar and wind generation, but the peaks and troughs in demand. And it is generally peak demand that drives investment in expensive new electricity infrastructure like poles, wires and power stations. Managing the amount of electricity we use and when we use it can save money, for both utilities and consumers, and reduce our impact on the environment.

Demand management has long been a smart strategy, but recent developments mean its value is increasing. For instance, the rapid growth in rooftop solar generation has led to a reduction in net power demand in the middle of the day, followed by a rapid spike in demand in the early evening, particularly in summer as we come home and turn on our air conditioners.

The emergence of this solar-driven “duck-shaped” demand curve has led to calls for us to “behead the duck” or, in more humane symbolism, teach the duck to fly.

We’re already using it

While unfamiliar to many, demand management has been around for decades. It includes off-peak water heating, which started here in the 1930s. It is already reducing peak electricity demand by hundreds of megawatts. That’s a saving to Australian electricity consumers of hundreds of millions of dollars in avoided electricity supply costs.

If you have an off-peak water heater or pool pump, or a time-of-use power tariff, you are already part of a demand-management program. If you are saving money with efficient LED lights or a five-star refrigerator, you are benefiting from technology developed by demand-management efforts overseas.

As the controversy raged in 2012 about skyrocketing power prices, the Australian Energy Market Commission (AEMC) concluded that demand management could save between A$4.3 billion and A$11.8 billion over the next ten years.

One of the key reforms the AEMC proposed to unlock these savings was incentives for poles and wires businesses to encourage demand management that would save consumers money.

Better late than never

After much to-ing and fro-ing, the Australian Energy Regulator (AER) is preparing to implement this recommendation.

It recently published a consultation paper on a new Demand Management Incentive Scheme to apply in New South Wales and the ACT in 2019, and then roll out across the National Electricity Market.

The paper focuses on the distribution networks, such as United Energy in Victoria and Ausgrid in NSW, which connect our homes to the electricity grid. It suggests a range of incentives for these businesses to help their customers reduce and shift electricity demand.

An example of the sort of project that would be stimulated is the recently announced Community Grids Project between United Energy and the smart energy startup GreenSync (supported by the Victorian government). This project will encourage households, businesses and community organisations on the lower Mornington Peninsula to voluntarily reduce and/or shift their electricity usage by using solar PV and battery storage systems. In the process, this will defer the need for around A$30 million of investment in new poles and wires.

Network businesses have long been supposed to choose demand management when it costs less than network upgrades, but regulations have discouraged them from doing so. Recent reforms have reduced this bias, but without an effective incentive scheme, demand management is very unlikely to fulfil its potential to cut costs and facilitate renewable energy.

At the Institute for Sustainable Futures (with support from the Australian Renewable Energy Agency) we’re undertaking a detailed study of the regulatory bias against demand management.

It’s not just about networks

While the focus of the scheme is on saving networks money by avoiding or delaying spending on infrastructure, its impact will likely be much more profound.

Network costs make up just under half of total electricity supply costs.

The network demand management incentives will bring forth energy efficiency, load management and local storage and generation resources. These resources can also then be tapped at low extra cost to help balance variations in generation output (for instance, from wind and solar generators) and consumer demand across the whole electricity market.

This will also reduce wholesale energy charges, the need for gas-fired power stations and new transmission links to back up variable wind and solar generators. And by encouraging energy efficiency, demand management will save money while cutting carbon emissions.

Clean energy’s quiet achiever

As global temperature records topple on a monthly basis and the Paris climate agreement bites, the demand for sustainable power becomes irresistible. But as the share of renewable energy rises, the need for flexible resources to balance the variable output of solar and wind power increases.

Even with dramatically falling battery costs, energy storage alone is unlikely to be a viable solution (as highlighted in our study of 100% renewable energy for Kangaroo Island).

It is a little ironic that the missing link for cheap and reliable electricity, which has been staring us in the face for so long, may ultimately also be the key to achieving sustainable power.

Submissions on the AER’s Demand Management Incentive Scheme Consultation Paper close on February 24 2017.

Chris Dunstan is a Research Director at the Institute for Sustainable Futures (ISF) at the University of Technology Sydney. ISF undertakes paid sustainability research for various government, corporate and NGO clients. The Demand Management Incentives Review study was is funded by the Australian Renewable Energy Agency (ARENA), with in kind support from a range of other stakeholders.

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Malcolm Turnbull has set a high bar for his government’s national energy policy. But in his speech to the National Press Club on Wednesday, the prime minister provided little by way of the clear policy direction that is so desperately needed if the bar is to be cleared.

Turnbull devoted almost a quarter of the speech to Australia’s energy challenge: delivering secure and affordable power while meeting our emission reduction targets.

His political opponents and environmentalists will reject as too low Australia’s current target of 26-28% below 2005 levels by 2030. Yet few can credibly reject his framing of the challenge.

Security concerns

Given the events of the last half of 2016, including the state-wide blackout in South Australia in September, it was appropriate that Turnbull began with the issue of security of supply.

Subsidised wind power in South Australia provided more than 40% of supply, and the market responded by driving down prices. The closure of existing coal plants and the mothballing of some gas plants followed. The state’s consumers were left exposed to power outages and high prices due to a high dependence on transmission from Victoria and a few gas generators with considerable market power.

Yet it was the Renewable Energy Target, a policy supported by both Coalition and Labor governments since 2002, that provided the subsidy. This policy had scant regard for the security consequences of high levels of intermittent supply.

Turnbull was justified in his criticism of uncoordinated state-based renewable energy targets and their potential for adverse price and security consequences. Yet he chose to ignore the argument that a key driver for the states’ action is the failure of the federal government to deliver a credible, scalable climate change policy.

Storage solution

The critical need to manage high levels of intermittent supply was a major theme of Turnbull’s speech and he identified several technology approaches that could address this need.

Storing energy in a form that is available as electricity to match supply and demand has enormous attraction. However, large scale, flexible energy storage as heat, electricity in batteries or as pumped water in dams, is very expensive today.

Applying the resources of the Australian Renewable Energy Agency and the Clean Energy Finance Corporation to develop projects, as energy minister Josh Frydenberg announced following the speech, makes a lot of sense. This could drive down the costs in Australia.

Gas supply is a major issue on the Australian east coast, and one where federal/state differences have led to a real mess.

Inconsistencies between states on project development regulations and few levers of influence in the hands of Canberra. Turnbull suggested he is willing to explore incentives in an effort to break the impasse. Let’s hope the states take up his offer.

Coal in the mix?

Over the past few weeks, Frydenberg and resources minister Matthew Canavan have raised the question of a future for coal power in our energy mix. It was therefore not surprising that Turnbull proposed that new coal power technologies could offer both reliability and low emissions. However, on this front, there are big challenges.

The current cost of these technologies is considerably higher than that of existing plants. And the scale of the required investment, combined with climate change policy uncertainty, makes it highly unlikely that such plants could be financed without government backing. There were no hints from Turnbull as to how this might be provided.

In summary, the prime minister‘s vision of an integrated energy and climate change policy is, at a high level, coherent and convincing. His suggestion that the next incarnation of national energy policy should be technology agnostic should be applauded.

Yet, there remain three areas for criticism. First, he sought to draw “battlelines” on energy policy. In a policy area where long-term investments are so critical, it is hugely disappointing that Turnbull appears unwilling to seek bipartisan support.

Second, while arguing that his government’s policies could deliver emissions reduction more cheaply than Labor and without threatening security, he chose to let pass an opportunity to explain to the Australian people the economic cost of the energy transition he has embraced.

Finally, he has left for others the hard task of framing the energy policy framework that will clear his high bar. Let us hope his colleagues, specifically minister Frydenberg, are up to the task.

Tony Wood owns shares in energy and resources companies via his superannuation fund

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