Evaluation of Demand Management in Australia - Coursework Example

Demand Management Name: Institution: Course: Lecturer: Date: Introduction Advancing affordable energy through cheaper infrastructure is very crucial for the Australian community. The overall transitioning to have efficient and clean energy is of paramount importance in sustaining prosperity and especially for the future generations. The creation of affordable as well as sustainable electricity scheme is very possible and requires change. The change necessitates embracement of consumers’ interests within the electricity market. According to Narayan and Smyth (2005), demand management entails assisting the electricity consumers reduce their overall electricity demand being an alternative of building infrastructure. The application of demand management is cheaper than the convectional power lines, the power stations as well as substations. Such application can be regarded as a vital element as far as restoration of power to the consumers within the market is concerned (Eriksson, Garvill and Nordlund, 2006). This paper discusses major reforms that need to be undertaken which would lead to an increase in the cost-effective demand management grid within Australian electricity industry. The paper also discusses the need to help consumers and their representatives to advocate an overall reduction of customer costs as well as carbon emissions (Strengers2012). Demand Management Network Demand Management entails those activities whose when undertaken reduce the electricity demand as alternative of providing additional supply. Electricity demand management gets undertaken by the utilities that ensures reliable as well as enough electricity supply, where the moderating demand is cost effective than the increasing supply. The measures of demand management are characterized by peak load management, overall energy efficiency and or distributed generation (Strbac 2008). While demand management network focuses on minimizing peak electricity demand within the constrained sections of the grid, different ways exists to achieve it. The measures of demand management are categorized based on energy efficiency, the peak load management and distributed generation. The examples of demand management are discussed below. 1. Energy Efficiency This entails providing information and sensitization activities to assist the consumers decrease energy waste, provision of subsidies to replace the inefficient lights and or facilities and free installation of the weather-stripping materials aimed at reducing leaks around windows as well as doors (Eriksson, Garvill and Nordlund, 2006). 2. Peak load management This entails offering all householders cash incentives geared at reducing demand during peak times, offering funding support in regard to battery storage, offering time-of-use pricing to all those consumers managing to shift demand away off peak periods and shifting discretionary loads such as pool pumps and EV charging. 3. Distributed Generation This entails giving incentives for solar-panel installation within network constrained areas, providing subsidies for cogeneration and trigeneration installation, use of standby diesel generators aimed at supporting the grid and use of the landfill gas and using bio energy from waste as a means of relieving the local network constraints (Qureshi, Nair and Farid 2011). Need for boosting Demand Management in Australia According to Strengers (2012), there exist economic, environmental as well as technological imperatives to boost employment of demand management within the country’s electricity system. There has been a rapid influx of electricity prices resulting from massive investment levels in electricity network especially within NSW and Queensland regions. The massive investments tend to be the result of supply side focus in boosting electricity demand, sturdier reliability standards as well as replacement of the aging network infrastructure (Narayan and Smyth 2005). In the recent past, AEMC identified massive demand management opportunities within the electricity system in Australia. These opportunities if undertaken could result to substantial savings ranging from 4 billion to 12 billion dollars in the next 10 years. Moreover, if the savings could be passed to the consumers, the electricity bill reduction could fall within the ranges of 120 to 500 dollars. However, regulatory barriers just mentioning a few are curtailing timely up-take of the massive opportunities by DNSP (Gellings1985). The flow-on impacts resulting from reduction in electricity generation demand, with an example of low prices in the energy market means that extra decrease in consumer cost in bound to rise. Whilst the aggregate electricity consumption within NEM has reduced in the recent past, the electricity consumers as well as peak demand are predicted to increase in the next decade in Australia. The overall failure of building cost-efficient demand management volume is bound to leave the electricity consumers barer to risks related to another price shock, especially if the peak demand growth hastens and or market conditions varies (Ikeda, Watanabe and Eneres 2015). The environmental influence is also clear. The country is termed as carbon intensive in regard to the current electricity system. The overall assumption of distributed generation has been affecting the electricity system. According to research, if the trend is not tamed, it is bound to accelerate especially when merged with the emerging energy efficiency, energy management technologies, electric vehicles as well as battery storage (Strengers2012). Current Demand Management in Australia According to the prevailing estimates, there was a reduction of demand management experienced in the year 2010 to 2011. The electricity levels reduced to 700MW whilst half of it emanated from demand management projects. Whilst this output is double of 2009 -2010 generation, the levels are low especially in an electricity system bearing a production capacity of 45,000 MW. It actually represents a mere 2 percent of the total peak demand. The overall size as well as uptake of current incentive scheme in demand management is at low levels. According to reports, total allowance prevailing within the current regulatory span amounts to over 36 million in the 13 DNSP operating within NEM. Furthermore, yearly allowances fall in the range of 100,000 to a million dollars; that is, depending on size of DNSP. In the current period, too many institutional barriers exists curtailing efficient embracement of demand management within NEM. These are regulatory barriers, the cultural bias, splint incentives, inefficient pricing as well as the confusion created by interplay of other barriers. The issues regarding regulation entails lack of overarching policy imperative, bias of network augmentation on demand management, the inflexible deterministic criteria as well as disincentives for demand management (Eriksson, Garvill and Nordlund, 2006). A substantial number of processes have been implemented geared at solving the discussed challenges. However, despite the importance of the activities, the existing reforms cannot fully address barriers to demand management (Qureshi, Nair and Farid 2011). Economic Importance of Demand Management There has been under utilisation of demand management across Australia for a substantial number of years. As a result, factors related to peak demand, network infrastructure investment as well as electricity prices have been on the verge of rising. In the last 5 years, the expenses on electricity infrastructure have been rising sharply. The period has seen 45 billion dollars invested on the grid, an amount that exceeds expenditure on National Broad Network. According to the estimates, one third of the amount invested in infrastructure is for growth associated with peak demand, despite the fact that peak demand happens in a period not exceeding forty hours yearly. Between the year 2007 and 2013, electricity prices towards the consumers doubled whilst network charges now makes up 50 percent of Australian electricity bill (Ikeda, Watanabe and Eneres 2015). Despite the fact that a decline in electricity consumption was experienced in the recent past, the peak demand growth has been projected to shoot in the next decade. This will put pressure on the electricity networks resulting to higher electricity prices and bills. With the rising demand in electricity, the major investment augmenting with the network turns out to be less economically efficient. This is an event that has been observed which has caused dramatic reduction in the electricity network productivity. As aforementioned, Australia is experiencing massive investment levels in electricity network with stakeholder investing more than 45 billion dollars in form of capital expenditure. These figures were reported in the period from 2010 to 2014. In this regard, one third of this investment is recognized as growth related. A large part of this growth capex is either avoidable of deferrable via the use of demand management in the reduction of growth. The other part of the capex is driven by other factors, with an example of replacement of old infrastructure and or variations to reliability standards. A bigger part of the investment is potentially avoidable via demand management. According to AEMC, the overall estimated economic savings yielded by peak demand reduction within National Electricity Market ranges between 4 billion to 11 billion dollars in the next 10 years. This equates to total forecast expenditure of between 3 to 9 percent; that is, based on the supply side. The savings include those costs-reduction linked with the avoided network capital-expenditure. The major contributing factors underpinned in these scenarios are the demand-based pricing as well as energy efficiency. Assuming that the cost savings pass over to the customers, the total network charges must decline as per the need of network augmentation in order to meet overall peak demand falls. The magnitude of consumer’s savings will vary across jurisdiction of NEM as regions with stronger peak demand highly benefitting. According to AEMC review, the forecasted savings approximate 500 dollars per consumer in South Australia, 350 dollars in the New South Wales and 120 dollars in Victoria. The increased levels in peak demand management is likely to yield implications in the overall pricing of electricity generation. In this regard, if at all peak demand decline whilst the electricity consumption is directed to other periods, the resultant effect will be a flat demand curve. The entire price of the electricity generation is far much determined through half an hour blocks within a bidding process. This means that few periods related to peak demand, fewer periods of high-electricity generation pricing within wholesale electricity market is bound to reduce average wholesale electricity price in the country. This will have a resultant effect of reduced consumer prices as condensed electricity generation factor in the electricity tariffs (Ikeda, Watanabe and Eneres 2015). It is important to note that if the consumers reduce their consumption, the increase in prices will still be experienced. This will be as a result of recovery mechanism that will be instituted by DNSP as they strive to recoup their ‘sunk’ investments within a less sales volume environment. Furthermore, if the consumption levels falls, DNSPs will try to recover losses associated with revenue reduction through the increment of fixed charge on bills. This will then reduce the overall capability of the electricity consumers to control bills. Therefore, if advanced measures can be undertaken to encourage DNSPs to spend in demand management in place of infrastructure investment, then the matter can conclusively provide the consumers with more powers to control their bills. On the other hand, DNSPs can gain considerable powers to control their operating costs (Strengers2012). Environmental Importance of Demand Management If the carbon emission in the world will not have shoot up by the year 2020, severe negative effects will be experienced. This means that there is an urgent need of shifting to the use of cleaner energy options. There is therefore a need to boost the overall response that is needed. This would rise beyond incremental and the piecemeal approach embraced recently (White and Fane 2002). In the year 2013, the carbon dioxide levels recorded in Australia hit 400 ppm. According to the scientific requirement, the levels of carbon emission should remain at below 450 ppm. These levels should be maintained in order to avoid temperature rise within the global atmosphere. According to the estimates, the carbon emission on the globe is projected to 685mm by the year 2050. This will in turn result to massive rise 2 to 6 percent temperature rises across the world by the next century (Eriksson, Garvill and Nordlund, 2006). In the recent past, the world had experienced such rise in temperature levels. This had been in the form of greenhouse gases, effects of rainfall and extreme weather conditions, rise in sea levels and the overall negative health effects. According to the climatic commission, Australian is in the bracket of vulnerable developed nations in the world. In order to avert the dire effects of climatic changes, the global emissions need to decrease rapidly to close to zero by the year 2050. Moreover, the global emission levels need to rise by the year 2020. Consequently, this decade has been turned as the critical period in regard to emission reduction (Qureshi, Nair and Farid 2011). According to study, Australia has been termed as one of carbon intensive economies globally. The country’s continued supply of electricity has worsened this issue. The electricity sector in Australia accounts to more than 35 percent of the total greenhouse gas emissions. The energy-related Australian carbon emissions accounts to 18 tpc (tonnes per capital) exceeding OECD average levels of 10 tpc. In order to participate and offer her input in global emission reductions, the country will be require to decarbonise her electricity systems rapidly (Gellings1985). The increment of energy efficiency through the use of less energy as well as reduction in peak demand is termed as the most cost-efficient methods abating carbon. Moreover, employment of demand management geared at supporting energy efficiency whilst avoiding infrastructural cost has been termed as the most cost effective method of supporting energy efficiency (Strengers2012). Social Importance of Demand Management The Australian electricity sector is in a turning point. The existing disruptions in technological variations which include exclusive adoption of photo-voltaics, improvements in electrical appliances, building and electric vehicles have changed the overall needs of electricity networks (Strbac 2008). Currently, Australia has a centralised electricity system that consists of limited number of extensive electricity generators as well as a network to shift the supply from generators to consumers. The existing business model pertain provision of kilowatt-hours to consumers, while changes are based on total electricity volume utilised. As a result the total volume and eventual revenues have hiked annually. Consequently, this has led to an increase in peak demand resulting to an increased amounts related to network requirements (Ikeda, Watanabe and Eneres 2015). This situation has been changing rapidly in the whole country. The mass volume that is generated by coal-related power stations and which has been flowing along the main network has declined from year 2007, whilst the amount related to distributed generation has risen especially in form of solar-panels. According to the AEMO, the usage levels to solar energy shifted from 1.5 upto 2.7 TWh. This accounted to one third of reduced output (White and Fane 2002). The overall ability of consumers in generating electricity from sun, in conjunction with immense ability to store electricity might provide viable alternative towards the current innermost supply system (Qureshi, Nair and Farid 2011). The application of such changes plus the use of demand-side technologies; with an example of efficient supplies, buildings as well as energy management technologies has resulted to a decline in the overall demand and the energy sales for the centralised energy utilities. The continued use of decentralised electricity solutions calls for major business model variations across Australia electricity suppliers. Therefore, encouraging DNSPs to enhance development of demand management as well as support demand management as part of business opportunity is vital in managing transition (Gellings1985). Electricity Measures It is important to note that all practises embraced by DNSPs get governed by the regulations that control NEM. The legislation that is emphasized by AEMC as well as regulations instituted by AER function at various stages and incorporates original content as well as actual operation of regulations related to demand management. At the highest operational levels, National Electricity Law in conjunction with the National Electricity Rules directs the entire regulatory framework which controls the supply as well as the demand side of DNSPs practises. The framework contains a specific provision regarding an incentive scheme in demand management (Narayan and Smyth 2005). While performing its work, National Electricity considers long-term interests of customers at heart. This is particularly in regard to the operations of NEM. However, the body is always silent about the demand management role in obtaining the objectives (Strbac 2008). National Electricity Law as well as National Electricity Rules presides over how the electricity market operates. While setting up the objectives NEL emphasize on the pricing, reliability, security and the overall safety of national electricity system. The various bodies operating in the market such as AEMC, AER and AEMO are considered as Energy market institutions (Gellings1985). The bodies work together is sealing the missing criteria. In this case, the missing criterion is vital as far as meeting the consumers’ needs is concerned. This entails achieving environmental performance as well as protection of the vulnerable consumers. In this context, the missing criterion entails energy efficiency as well as demand management. Too much focus on the electricity price in place of electricity bills has for long obstructed a balanced consideration of demand management (Strengers2012). The main intention of electricity regulation is to enable DNSPs to apply the much efficient means in service electricity demand. This is regardless of whether supply and or demand side solution exists. However, AEMC in the recent times has found out that current regulations inhibit DNSPs from furthering efficient demand management projects. This has in turn resulted to preference for a network capital investment. According to the review, the contributing factors in regard to preference of capital investment comprise of regulatory frameworks for approving as well as assessing the opex and capex, the differing financial returns related to opex and capex as well as ways in which mandated cost get recovered via tariff structures (Narayan and Smyth 2005). Specifically, the current regulations take demand management and its entire projects differently. This depends on whether the projects are integrated within DNSP’s regulatory proposal in the regulatory control period. In an instance where DNSP proposes demand management option within its regulatory proposal; that is, as both capital and or operating expenditure, then it is possible to recover cost associated with implementation of demand management option. However, this does not include capital expenditures which might be avoided such as network augmentation expenditure (Ikeda, Watanabe and Eneres 2015). If however demand option has not been included in the regulatory proposal, but happens that it was identified within regulatory control period, the direct implementation expenses are never recoverable. However, any savings emanating from successful deferral and or avoidance of capex get retained by NSP up-to the end of control period. Moreover, any deferred and avoided opex get retained in a period of not exceeding five years under EBSS (Efficiency Benefit Sharing Scheme). Nevertheless, whilst demand management may be incurred within the regulatory period, then there is an expectation that deferred capital expenditure would be incurred in the subsequent regulatory period. This means that DNSPs would therefore not be able to retain majority of capital expenditure savings emanating from demand management. Recommendations There exist options geared at reforming major incentives related to demand management. Some vital reforms have cropped up from the recent occurrences, research and inquiries on demand management as well as network efficiency. However, a substantial number of reforms have not been implemented (White and Fane 2002). Moreover, there exist major gap regarding demand management that needs to be addressed. Despite lack of comprehensive nation-wide reporting on the demand management, there exists some evidence showing miniature progress of network businesses related to demand management. However, this has not been achieved in the entire country but only in some parts of the country such as Queensland. One major action in support of resourceful demand management network is for AEMC to make amendment of the prevailing rules which should emphasize on the need of providing incentive as a way of overcoming barriers of an efficient demand management. The AER should establish effective demand-management incentive plan geared at driving DM to areas that would reduce overall consumer cost (Strbac 2008. The distribution network businesses should be compelled to report concisely about their demand management practises as well as the results. Moreover, the AER should provide both effective and efficient incentives for demand management to all network businesses. References Strengers, Y., 2012. Peak electricity demand and social practice theories: Reframing the role of change agents in the energy sector. Energy Policy, 44, pp.226-234. Ikeda, M., Watanabe, K. and Inoue, M., Eneres Co., Ltd. and The Japan Research Institute, Limited, 2015. Power demand management apparatus and power demand management system. U.S. Patent 9,148,017. Eriksson, L., Garvill, J. and Nordlund, A.M., 2006. Acceptability of travel demand management measures: The importance of problem awareness, personal norm, freedom, and fairness. Journal of environmental psychology, 26(1), pp.15-26. White, S.B. and Fane, S.A., 2002. Designing cost effective water demand management programs in Australia. Water Science and Technology, 46(6-7), pp.225-232. Qureshi, W.A., Nair, N.K.C. and Farid, M.M., 2011. Impact of energy storage in buildings on electricity demand side management. Energy conversion and management, 52(5), pp.2110-2120. Strbac, G., 2008. Demand side management: Benefits and challenges. Energy policy, 36(12), pp.4419-4426. Gellings, C.W., 1985. The concept of demand-side management for electric utilities. Proceedings of the IEEE, 73(10), pp.1468-1470. Narayan, P.K. and Smyth, R., 2005. Electricity consumption, employment and real income in Australia evidence from multivariate Granger causality tests. Energy policy, 33(9), pp.1109-1116. Read More