Turnbull's right: we need cheap, clean and reliable power – here's how

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.