AEMO Demand Side Management

Hi, I’m Jervis Whitley. Today’s Friday, 25th of October, and you’re listening to WindFront, the weekly roundup of the wind industry from Australia around the world. Today, I’m gonna talk about demand response. So getting paid to do nothing.

So AEMO is currently working on a round of work that’s aimed at implementing a demand response mechanism into the national electricity market. What that means is normally if the price goes high, a consumer would have the option of switching off the electricity and not paying perhaps at high price if they were directly exposed to the pool. In reality, not many people are exposed directly to the pool and they buy their electricity off a retailer who gives them a fixed flat price and the customer doesn’t really know that the price of electricity goes up and down in the electricity market. Now, what this new mechanism will do is it will give the customer the opportunity to switch off their electricity and not only miss out on paying for their electricity for that period, but get paid an additional amount of money for switching off.

Now, the exact structure of how it’s going to work in the electricity market is still being drafted right now. This was a recommendation from the Ministerial Council of Energy. And they recommended that this strategy market, AEMC, the Australian Energy Market Commission, take a look at whether or not something like this needs to be in the electricity market. They’ve recommended that AEMO draft a rule change to place a demand response mechanism in. And then it will go through the normal change process and likely become part of the market in 2015.

Now, the exact mechanism that will be chosen for the electricity market at this point looks like potentially one where you as a consumer will have a hedge with your retailer, a fixed price for electricity, let’s call it, say, $300 per megawatt hour. And that’s your flat rate. If the price for electricity in the market goes up to, say, $1000, you’ll have the opportunity to reduce your usage down from its normal amount. And what will happen at that point is that you pay your retailer as if you had consumed electricity at that time. But you are instead paid from the pool the amount that you were lost, the difference between your strike price, your $300, and the $1000 that the pool was really at. And so the way it kind of works out is you’re a little bit like a generator, in that case, where the megawatts, instead of coming from someone increasing generation, came from a load decreasing its load.

Now, AEMO pointed at a few other schemes that exist around the world, 2 of them in the US. One in the New York system, the NYISO. They actually refer to these consumers reducing their electricity as megawatts, or negative megawatts, I guess, and they have a list. The way that works is the customers aren’t doing this directly. They have a curtailment service provider, which is a middleman. The middleman will go around signing up a bunch of large kind of businesses and install some sort of IT sort of stuff there to manage the load and notify them when it’s time to shut off and they’ll share the revenue. And so there’s a bunch of, I guess, an industry, a little mini industry that’s sprung up in the US around the provision of these services.

And PJM is the other one, which is also in the US, that they point to. PJM have an interesting system. The way theirs works, and it raises, because these are existing systems in their electricity markets, they have worked through and raised, I guess, some of the issues that you would encounter in placing one of these mechanisms in. And one of them being that the business needs to have genuinely reduced its electricity usage. Now, it can’t be something that you would normally do, like switch off for the weekend, or for a planned holiday or something like that. It needs to be genuine reduction in electricity. I’m not sure exactly how that’s policed. And the response is only called for when it’s above an agreed price for the next month. So PJM does a forecast and calculates what the net benefits test is. So the net benefits test is the threshold point at which demand response resources will be compensated. So if it’s above what they consider a net benefits test, which is the level they think that it’s worthwhile switching off consumers instead of turning on generation. So the price goes above that, then people are able to switch off if they like and get paid. But otherwise, they aren’t able to.

And I was looking through some of the small companies that have sprung up, this smaller industry that are providing the little IT services. And some of them are talking about how much you may earn. So if you have an equivalent of, say, one megawatt, some of them are saying in New York, one megawatt is worth around $75 to $100,000 in a year. Now, if you compare that to last week, my analysis of the wind farms in Victoria, we found that the wind farms were probably the best ones are around $100,000 for the quarter, well, the worst ones are at $50,000 per megawatt for the quarter. So one megawatt of demand response seems to be about half of the worst wind farm in Victoria.

And now for the top 3 owners. Macarthur hitting up again just over $1 million. But as we saw last week, maybe not the most efficient wind farm for its size. North Brown Hill, just under half a million dollars, and Lake Bonney, also just under half a million dollars. That’s it again from me this week. And till I see you next time, keep buying those green electrons.