FLEXIBLE DEMAND RESOURCE ASSESSMENT _______________________________36

Preliminary estimates of the system wide value of this 1000 MW of FD are tabulated below:

Source of value

Wholesale market Network augmentation RERT FCAS Total

Value

(million $/year) 290 100

35 30 455

These estimates are conservative compared with several more detailed modelling studies conducted elsewhere and other sources of comparative information. Importantly, the structure of Australia’s electricity system is such that the reliability needs of the industry (and concomitant benefits of FD) are poorly recognised.

Even with relatively expensive sources of FD (costing ~$155/kVA/year), it appears that 1000 MW of FD could provide around $300 million per year of bill savings for customers. Detailed research should be conducted to develop more rigorous estimates for Australia.

Why isn’t more flexible demand already being dispatched?

Barriers to current adoption of FD were investigated with both a literature review and industry consultation. Consultation included nine energy-user interviews, three industry roundtables and a barriers workshop, with the latter two involving 38 industry stakeholders. The majority of barriers to FD relate to:

1. Lack of reward for participation. Price signals for energy users (providers of FD) are both muted (not fully cost reflective) and uncertain. This makes building a business case difficult. The structure and market design of the electricity industry have a major influence on the financial viability of FD. For example, processes and requirements for providing FD in network applications are opaque, making it difficult to simultaneously derive value from different components of the electricity industry. This makes obtaining fair and full value from FD resources difficult.

2. End user engagement issues. These include (i) lack of awareness of the opportunity, (ii) perceptions of risk/risk aversion, (iii) disinterest, confusion, and competing priorities for time and resources, and (iv) a lack of trust amongst energy users (providers of FD) in both the electricity industry (buyers of FD) and rules of markets where FD can participate.

Stakeholder consultation found that these barriers overlap. The ability to convince energy users to adopt FD depends on the right economics and risk profile, which depends on workable industry structures and market design. While some energy users are gradually working through the complexity of current industry structures, most of those interviewed considered the risk of FD to far exceed any possible reward.

For many energy users the effort to even bother considering FD requires fundamental integration with business models and business strategy. The opportunity for strategic board-level attention may best be linked to ‘net-zero’ and renewable energy investment considerations. Successful engagement with energy users will likely follow when FD is: 1. easy and trustworthy 2. relevant, and 3. financially visible and viable.