New research has identified a large opportunity for industrial companies to reduce their own energy bills while also helping respond to peak demand pressures on the national electricity grid.

Climateworks Head of Research, Amandine Denis, said more direct financial incentives to industry could reduce spikes in peak demand and place downward pressure on electricity prices.

“Reducing peak demand could help reduce electricity costs, by avoiding or deferring the construction of power plants and network augmentations that are only needed on a limited number of days each year,” she said.

Ms Denis said a Climateworks report estimates some industrial companies have the potential to contribute to reduced total grid electricity use at peak times, with estimated potential impact of 10.5 per cent, by reducing or shifting load to off-peak times.  However, this potential appears to remain largely untapped today as companies lack easy access to strong enough financial incentives to implement these opportunities.

“More direct incentives to industry for shifting their energy use could take pressure off the entire network on days when demand is expected to be high, for example extremely hot days, and minimise spikes in spot electricity prices,” she said.
Ms Denis said the report analysed 34 companies across 22 sectors that make up 83 per cent of Australia’s industrial grid electricity use.  

“The report estimated up to 3.8 GW of grid electricity could potentially be saved at peak demand times (summer weekdays between 2.00 and 7.00pm) by key industries reducing their electricity use or shifting it to off-peak times about five to 10 times a year,” she said.

“This would be the equivalent of about 42 per cent of total demand these industries are expected to draw from the grid at peak times and 10.5 per cent of Australia’s total peak demand, including industrial, commercial and residential use.

“Achieving the full estimated potential would require companies to be given 24 hours notice and a financial incentive equivalent to 20-30 per cent of their electricity bill (this incentive is considered to be the high end of potential market benefits). Additionally a range of internal company capacity factors need to be aligned, such as supporting skills, and competing company priorities.

“If the incentive level was decreased to between 5 to 15 per cent of the companies’ energy bill (similar to current incentives in Western Australia) then the estimated potential would be 1.7 GW or about 5 per cent of total peak demand.

“The sectors with the largest potential to shift or shed their load during peak electricity demand include fabricated metal products and ceramics.  The industrial processes with the largest potential to shed load include mining, earth moving and excavation, stationary materials handling and motors.” 

“The potential identified in this report will be difficult to realise unless both financial incentives and internal company capacity are aligned by a market approach under the National Electricity Market,” she said.

“Industrial demand management programs are already operating successfully in parts of Australia and the United States. 

“Typically, these programs involve voluntary agreements with large energy users whose production processes can be shifted in time or interrupted, in exchange for a cash payment and an agreed notice period.

“For example, in Western Australia, large construction company BGC receives an incentive payment for being available to shut down 5MW of load at peak demand times while another participant Water Corp can shift about 60MW of load.

“A range of reforms seeking to promote higher market participation of demand side response have already been initiated by the Standing Council on Energy and Resources in response to recommendations of the Australian Energy Market Commission (AEMC) Power of Choice Review. This includes reforms to improve incentives for network businesses to undertake demand management projects with their customers. 

“This report focused on identifying capabilities and opportunities in industrial energy users. It has not estimated what the optimal level of industrial demand response would be or the full costs and benefits to the electricity market of reforms to untap this potential. These questions could be addressed in a further cost-benefit analysis”

In December the Standing Council on Energy and Resources announced it was undertaking a cost-benefit analysis on a proposed scheme to provide more direct incentives. This will be in context of a number of other supporting reforms.