Manufacturers’ Monthly catches up with Flow Power to get its thoughts on the National Energy Guarantee (NEG) proposal to manage electricity consumption and prices.
In the last quarter of 2017, the Energy Security Board (ESB) provided the Council of Australian Governments (COAG) Energy Council with advice on changes to the National Electricity Market (NEM) and legislative framework.
The proposed National Energy Guarantee (NEG) aims to support the provision of reliable, secure and affordable electricity with a focus on ensuring that the reliability of the system is maintained. It was also designed to ensure that the electricity sector emissions reductions needed to meet Australia’s international commitments were achieved with the objectives to be met at the lowest possible costs.
COAG describes the NEG as a way to encourage new investment in clean and low emissions technologies while allowing the electricity system to continue to operate reliably. To deliver this transition, the NEG requires retailers to contract with, or invest in, generators or demand response to meet a minimum level of dispatchable “on demand” electricity. At the same time, retailers must also keep their emissions below an agreed level.
Energy management specialists Flow Power has long been proponents of demand response and it believes the method of implementation is the key, according Matthew van der Linden, managing director of the company.
“I think there may be many questions in the market place on how the NEG is going to be implemented and become effective,” said van der Linden.
There are two components to the NEG. The reliability guarantee, which aims to make retailers more responsible for reliability. That means that retailers will need to prove to the regulator that they have enough contracted capacity to meet peak demand. Then the emissions guarantee means that retailers will be required to meet a certain amount of emissions from the market.
“The question that the Energy Security Board is trying to resolve is: how can you spread the responsibility of reliability and sustainability while bringing costs down? They are looking to shift the accountability across the power system from just generators and the operator through to retailers and users. That could be fantastic – as long as we get it right,” said van der Linden.
NEG success dependent on structure
Van der Linden explained that if this scheme is built and structured correctly, the customer will only stand to benefit. “Demand response also needs to become the central focus of the scheme because it gives users the power to impact their electricity prices. If not, then existing problems might get worse because if demand response is removed from the equation, then the message to customers is to not manage their load and price, but instead, it would get the government and industry to spend money on building new generators that can respond for them – an economically unviable option as compared to the demand response option.
“The NEG’s structure has to be strong if it is to get customers to care about how they use energy. This will also open the door to open a framework that encourages innovation and hopefully, let the market know that power can be used differently and more efficiently in terms of a price reduction,” said van der Linden.
“At the end of the day, demand response is still a lot cheaper than a generator. If the retailer is going to need to contract with gas generator, it would be expensive. In that scenario, we and the other retailers would have to pass that cost to the consumer. However, if we could provide that capacity in the form of demand response, there may be some upfront costs to bear for the user but in theory, there is a cost saving and a payment mechanism that can have big benefits for the customers.”
Surviving the scorcher
Getting past the 10 hottest days within a calendar year depends on how the customer handles the situation, according to van der Linden.
“Take for example a cool store. If they come onboard with us, they will have many tools at their disposal. If it is a hot day with high power demand, we will send an alert to them prior and they will cool their store by an extra few degrees to prepare for the coming hot hours where electricity prices go up and they shut off their cooling units for about two hours to avoid the high price period,” said van der Linden.
Flow Power is also automating the process. By installing a physical black box like the kWatch Intelligent Controller on customer sites, they can see power demand in real time and remotely control equipment across many sites. That means they can respond quickly when prices change, or the power system is willing to pay for extra capacity such as in the Australian Renewable Energy Agency (ARENA) and Australian Energy Market Operator (AEMO) demand response programs.
“The whole point of demand response, for us, is to make sure that the customers don’t have to pay for the risk of high prices like they do with a fixed price power contract. That doesn’t meet powering down completely though but limiting it by using 70-80 per cent less and this makes a huge difference in the price,” said van der Linden. “The result can be up to a 30 per cent reduction in power costs across a site.”
Getting the best outcome for businesses
At the moment Flow Power is working with a large building manufacturer who has already been participating in the ARENA Demand Response program in NSW.
“They (the manufacturer) have analysed their processes and have decided that in some instances, they just go ahead and pay the market price rather than responding. However, they still find demand respond a viable way to cut power costs most of the time. Flow Power works with them to manage their operations through the controller,” said van der Linden
Manufacturers across Australia are struggling with power price rises. The consultation on the National Electricity Guarantee will occur in 2018 through the Energy Security Board and users are encouraged to get involved. Demand response programs operate across NSW, Vic and SA and can create new revenue streams while cutting costs at the same time.