Regulatory Changes Incentivise Customers to Participate in Demand Response
With new guidelines progressively emerging under the Retailer Reliability Obligation (RRO) framework, the potential benefits to customers of participating in demand response activities are becoming clear.
Retailer Reliability Obligation (RRO)
Following the introduction of the RRO on 1 July, retailers and other large energy users are now required to actively participate in efforts to facilitate reliability of power supply to the National Electricity Market (NEM). The RRO was introduced in response to concerns of supply shortfalls over the coming decade. It also imposes contract obligations on energy retailers and large users to manage reliability in times of tight supply. While many energy retailers have historically held hedging contracts to manage wholesale energy price volatility, the RRO now requires them to hedge to a specified level, using a number of predetermined contractual methods, including direct arrangements with energy generation, storage and demand response to meet their contracted customers’ share of system peak demand where there is an identified reliability gap. These gaps are forecast three years and three months out and, once flagged, set in motion a process which ultimately puts a higher onus on parties to prevent the shortfall.
Demand Response opportunities
The commercial impact of supply shortfalls (or perceived shortfalls) includes sharply escalating energy costs, demand for contracts and the risk of penalties for energy retailers that under-hedge. On the flipside, the RRO means that the opportunity to reduce energy costs through demand response activities may be more lucrative for customers.
In addition to existing price signal incentives—that calculate a customer’s network tariff based on the correlation of their individual energy consumption with periods of high regional demand—the RRO provides significant financial incentives for customers to manage their electricity usage during periods of higher demand and tighter supply.
ERM Power has a longstanding Demand Response Program that can help customers navigate the new landscape to maximise commercial and operational benefit. Customers who participate in demand response will be encouraged and paid to reduce electricity usage during peak demand periods.
ERM Power’s Demand Response Program
Besides the benefit of demand response in contributing to the management of risks surrounding the RRO, demand response provides opportunities for organisations to take greater control of their energy costs in the shorter term. ERM Power’s Demand Response Program has been developed to reward your business for reducing the amount of electricity it takes from the grid during periods of very high use. Your organisation will contract to be on call during peak use times and paid to reduce energy consumption or switch to on-site generation. Understanding the options and implications will involve an individual assessment of your business operations and a tailored approach to participation.
Demand response activities may involve changing patterns or levels of energy consumption through more flexible production schedules, shifting part of your electrical load to an alternate supply, or using storage or batching functions to optimise supply.
Participation in the Demand Response Program is voluntary, and while incentive payment is naturally linked to the actions taken, even with an agreement in place, customers have the choice to opt in or out of a given event, without penalty. We’ll tell you when we’d like your organisation to participate (via SMS or email) and leave the immediate decision to you—or we can integrate our dispatch system with your onsite controls to manage requests automatically.
Benefits of Participation in the Demand Response Program
Financial incentives are paid to customers who assist with capacity availability, whether through reducing their energy consumption or switching to alternative generation. Participants can also use the program to take care of their existing obligations to test back-up generators.
Given the predictions of a challenging summer ahead and the associated risk of aging generator unavailability during extreme temperature conditions, customers are encouraged to think now about how their business could benefit from strategic involvement in ERM Power’s Demand Response Program.
If you have any questions, speak to your account manager, otherwise get in touch with us.