By Chris Briggs, Dani Alexander, Tom Morris, Lawrence McIntosh and Joseph Wyndham of the Institute of Sustainable Futures.

Australia is leading the world in residential solar and is now in the early stages of an investment boom in on-site solar for businesses – commercial and industrial businesses now account for around 30% of new installations. Bloomberg New Energy Finance projects that before 2025 Australia will have the most decentralised energy system of the major economies analysed in coming decades – and by some margin.

However, the current energy system is likely to constrain the continued expansion of  renewable uptake by businesses. In wholesale markets, solar PV is hollowing out demand in the middle of the day (known as the “duck curve”), which is lowering the price and business case for new solar installations.

On distribution networks, large volumes of solar power can push infrastructure beyond operating limits (for example, by increasing voltage fluctuations), requiring increased network investment. Consumers are already being forced to limit the size of solar PV installations to avoid or minimise grid exports which, in some cases, destroys the business case.

The energy you use

Luckily new technologies that integrate renewable energy and load management (or REALM) can offer a win-win for energy consumers and network businesses. REALM solutions use storage and load flexibility to locally optimise demand and supply, such as through efficiency improvements (focussed on peak loads), renewable energy (usually solar PV), battery and existing non-battery thermal storage, and the use of demand management controls to optimise integration. This local optimisation is key to leveraging corporate investment in decentralised energy to lower costs for all consumers.

Most businesses have a range of storage and load flexibility options available to them including: thermal storage, such as a cold or hot water tank or in the thermal inertia of cool rooms by pre-cooling (or heating); material storage, such as an irrigator pumping water into a reservoir; back-up generators; battery storage, and; peak-focussed energy efficiency.

Leveraging the flexibility within these options can add value to renewable energy by:

  • reducing energy bills (especially monthly network demand charges when solar output is not aligned);
  • increasing the capacity to install and use renewable energy by avoiding exports which are paid at lower rates, and;
  • enabling consumers to participate in emerging energy market options such as wholesale demand response, network support and off-site renewable energy power purchase agreements.

Low-cost demand flexibility

To prove this concept, the UTS Institute for Sustainable Futures (ISF) and the Australian Alliance for Energy Productivity (A2EP) undertook an ARENA-funded study with seven Australian businesses. In partnership with the host businesses – IKEA Australia, Schneider Electric, Woolworths, V&C Foods, NBN Co, Goodman Fielder and Teys Australia – the project team investigated opportunities to deploy REALM systems to utilise more renewable energy at a lower overall cost for the business.

The commercial sites offered different REALM opportunity given the flexible loads that were available (see table 1). ISF tested the business case for different configurations of PV, thermal and battery storage using an optimisation model with sensitivity testing against battery pricing. A summary of each site’s results is outlined in table 2.

Flexible loads for REALM study participants

Summary of REALM opportunities across seven Australian businesses

The key findings from the pilot study were:

There is significant potential for commercial and industrial sites to deliver load flexibility: across the majority of the sites there was significant scope for load flexibility using existing on-site storage (such as cold tanks).

REALM configurations can improve the business case for solar PV: the returns were better thansolar PV alone and generally batteries, and in many cases facilitated higher levels of renewable energy on-site. The quantum of the potential increase in renewable energy deployment for the businesses who participated in the REALM pilot study is summarised in table 3. 

Existing tariffs generally do not provide an effective incentive for sites to use or develop load flexibility: financial returns were improved by REALM systems but still generally beyond standard commercial benchmarks (5-8-year paybacks). Returns typically ranged from 12% to 15%. However, these business cases were assessed under existing, relatively flat electricity tariffs combined with monthly peak network demand charges and did not include revenue for delivering energy market services (such as wholesale peak demand reduction).

Potential renewable energy deployment facilitated by REALM

Pilots and pricing reform needed

The study made three key recommendations to unlock the potential for low-cost demand flexibility:

  1. Business and market capacity must be developed

Business and market capacity will need to be developed to utilise the opportunities for demand-side flexibility. Some of the issues identified through the pilots included:

  • Data quality and data management systems: a consistent feature across most sites was data quality was generally not sufficient for “actionable advice”. There were various challenges with either faulty or proprietary building management systems (BMS) and missing data. However, emerging technologies such as advanced data analytics, machine learning and cheaper sensors create major opportunities.
  • Energy knowledge and expertise: the level of understanding of site energy profiles, opportunities for load management and how rooftop solar interacts with demand charges was mixed.
  • Competition for scarce capital: Opportunities for energy efficiency and renewable energy are better understood at all levels of the business.

Energy efficiency or solar projects without demand management are better understood and lower-risk. Demonstration projects are needed to test different market, technology, pricing, institutional and regulatory models. These should be tested in collaboration with technology providers, networks and retailers and/or energy market aggregators.

  • Redesign electricity tariffs and incentives

The financial returns for pilot sites from the REALM systems modelled would be significantly higher if network and energy pricing better reflected the cost of supplying electricity at different times. To use one example, a “critical peak” incentive would provide a focused signal to load-shape in a way of value to energy networks that minimised impacts on the business. All the sites that participated in REALM agreed that tariffs provide little to no signal for load shaping, and therefore do not shape their investment decisions.

  • Energy market reforms and rule changes to allow businesses to access the value of demand flexibility

The value-stack for demand-side flexibility at a site level and across the energy market is illustrated below.

Few of these value sources for the energy market can be currently accessed by business customers. The FCAS market and RERT scheme have grown but remain small in scale. There is limited transparency on the use of demand management in wholesale markets but the Australian Energy Market Operator and Australian Energy Market Commission have stated it is significantly under-utilised. The use of demand management by networks is rare.

There are two major opportunities to increase the use of demand-side flexibility for wholesale markets and electricity networks: wholesale demand response and the demand management incentive scheme (DMIS). Wholesale demand response would enable aggregators and retailers to bid demand response as competition to generation supply resulting in a genuine two-sided market, especially during high-price events. The DMIS is recently established but there is a major risk it will be underutilised if networks struggle to identify projects.

And so we tie back to the first recommendation – proof of concepts must be deployed and shared to build understanding across Australian companies and network businesses.

Don’t forget the demand side (again)

Australia has a history of investing in more expensive supply-side solutions without facilitating lower-risk, cheaper demand-side options (not just in energy – think desalination plants in water and motorways in transport policy). As our coal-fired generators are retired and electricity reliability becomes more and more political, big investments are being made that will close the door on other cheaper decentralised options. Transmission infrastructure, Snowy 2.0 and grid-scale batteries may address the technical issue, but the financial burden on consumers will be high.

Analysis by Dunstan et al (2018) found demand response and time-varying prices were two of the cheapest ways to replace the firm capacity being lost as coal plants such as Liddell close. 

If Australia chooses (again) to ignore the demand-side we will be adding to the cost of the clean energy transition and miss opportunities for businesses to add cheap generation and load resource to the mix.

In fast-moving, uncertain times of technology and market change, it is wise to learn from our mistakes and invest in consumer-driven options. Because that’s who has to pay for it after all.

Dani Alexander and Dr Chris Briggs are research principals, Lawrence McIntosh is senior research consultant and Joseph Wyndham and Tom Morris are research consultants at the institute of Sustainable Futures.