Victorian businesses and households will be able to volunteer to get paid to use less electricity at times of stress on the national grid under a program to be trialled next summer.
Incentive payments will be offered to energy users who agree to be on standby to cut use during emergencies or on days of high electricity demand. They will get a further compensation payment if they are called on to actually cut use.
The $22.5 million demand response pilot program, to be jointly run by the Australian Energy Market Operator (AEMO) and the Australian Renewable Energy Agency (ARENA) and also taking in South Australia, is pitched as an important step in integrating renewable energy into the grid.
AEMO chief executive Audrey Zibelman said it would help the electricity system deal with high demand as it unfolds without the need to build expensive fossil fuel plants – gas-fired generators – that are only called on occasionally.
The agencies aim to have the equivalent of 100 megawatts of demand, roughly 2 per cent of average Victorian electricity use, signed up by next summer.
Ms Zibelman said it was a common approach in other countries. “From Texas to Taiwan, demand response has been proven to be a cost-effective way to manage demand at peak times and acts as a contingency to avoid disruptive power outages,” she said.
The method and amount of payment is yet to be determined, but is likely to be a competitive process where interested parties apply for funding.
ARENA expects applicants may include both individual businesses – manufacturers, for example – and groups of smaller energy users, possibly including households that rely on air conditioners or have battery systems.
It is likely the smaller users would apply through a company that aggregates their claims – probably their energy retailer. The compensation could be paid as a discount or a cash rebate.
Energy industry analysts have long called for a greater emphasis on demand management to soften the extraordinary peaks in electricity use on hot days when air conditioners are humming along the Australian east coast. Last summer there were instances of forced load shedding – effectively blackouts in targeted areas – at times of high demand.
Electricity demand in Victoria at peak times is about 80 per cent higher than average. It means households and businesses pay for hugely expensive electricity from power plants used only a fraction of the time.
Demand management can also make a difference at non-peak times. As Fairfax Media revealed on Thursday, wholesale electricity prices in Victoria have risen more than 25 per cent since the Hazelwood power station closed, in part due to a greater reliance on expensive gas-fired plants designed for only occasional use.
Nationally, wholesale electricity prices have risen nearly 50 per cent in a year due to high gas prices and uncertainty over what plants will be favoured by future policy settings stalling investment.
The Victorian government said on Thursday it was providing funding for more than 3300 homes to become more energy efficient, and upgrading more than 11,000 public housing homes.
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