Managing Energy Sector Disruption is Like Delivering a Joke’s Punchline… Timing is Everything

One of the most disruptive impacts on Australia’s electricity system over the past decade or so has been the rapid uptake of air conditioners – a consumer driven response to the introduction of inexpensive products from China.

Proportion of Australian Households with air conditioners 1990-2014


The impact of this has been the requirement for energy networks to increase their ability to cope with peak demand… a burden they have only been too happy to comply with, with some suggesting an over-zealous response has led to ‘gold-plating’ of some networks. Many billions of dollars have been spent over the last decade, upgrading our ability to meet ever-increasing peaks. These costs have been passed through to consumers – both those who have benefited from air conditioning and those who have not.

While policy makers are typically slow to react to disruptive events (e.g. air-con efficiency standards only tightened towards the end of the uptake), the fact is that the impact on the energy sector was being effected by actors one or two steps removed from the sector itself. Homeowners bought air conditioners to meet a consumer want. Air-conditioner suppliers and retailers sold units out of self interest. Neither had much incentive to think about the cost impact to the electricity network, where perhaps more appropriate network pricing structures and demand response measures might have led to lower network augmentation costs and a more equitable outcome for consumers.

And so it is now with solar and storage.

As chief scientist Alan Finkel noted in his preliminary report into electricity security, the “unstoppable” move toward distributed solar and storage is a consumer driven demand. Again, it is homeowners, and to an increasing extent businesses and large energy users, and the suppliers and retailers of solar and storage systems, of whom many are one or two steps removed from interests of the electricity sector, that are driving the next wave of disruption, which will continue for at least a decade to come.

Policy responses are required. Not in the future, when hindsight can make a genius of any fool, but now… as a matter of urgency. Take for example capacity mechanisms. While the NEM agonises over whether it is an appropriate response to the rise of distributed and semi-scheduled generation, we have had a capacity mechanism here in WA since 2006. There is nothing controversial about them – most energy markets around the world have some form of capacity mechanism or other. But they do need to be fit-for-purpose. The WA capacity mechanism was introduced in 2006, largely in response to supply-side shortfalls a few years earlier. At this time, basing the capacity mechanism on constructing a diesel fired OCGT was probably a sensible idea. It used appropriate technology of the day and met the construction timeframes believed to be required to head off future supply shortfalls. But a decade later, besides some tinkering at the edges, the mechanism remains the same. Is it appropriate in 2016? Unlikely. Will it be appropriate in 2020 and beyond, when the “unstoppable” force of consumerism delivers an air-conditioner-like-impact from solar and storage? Almost certainly not. Decisions made now have a chance of mitigating poor efficiency outcomes being driven by consumers who don’t have appropriate incentives to do otherwise.

Of course… had the explosion in air conditioning uptake occurred 15 years later, or the solar and storage disruption begun a decade or so earlier, we might have seen a gloriously unintended coincidence of complementary technologies. Instead, we have spent billions on upgrading networks to accommodate peak demand, and now ponder how to pay down all that network capacity, as the demand disappears behind the meter (solar) and the peaks flatten out (storage). Like delivering the punchline of a bad joke… timing is everything.

About our Guest Author

AAEAAQAAAAAAAAUMAAAAJDI5MDg0YmYzLTgzMWMtNDZjNC05ZjY2LTA1NTJmNmM5ZDE3MA Shane Cremin is an energy specialist with an understanding of how government policy, economic regulation and other external influences impact investments and commercial operations within markets.

Shane has been the Chief Executive Officer of Infinite Energy since early 2016.

Further background to Shane can be found on Shane’s LinkedIn profile.

9 Comments on "Managing Energy Sector Disruption is Like Delivering a Joke’s Punchline… Timing is Everything"

  1. Hi Shane Cremin,

    As you completely fail to mention Australian Standard AS4755: Demand response capabilities and
    supporting technologies for electrical products, it appears that you are unaware there are technical solutions to the problem you introduce in your first line of your Joke Punchline article.

    If you are aware of AS4755 then it’s disappointing that you have not informed the readers of your article the following information. WattClarity readers are not your average dumbed down blog and deserve more detailed information.

    The solutions are not without consumer backlash though.

    It’s called Demand Response Enabling Devices or (DRED) and there are various states of operation from DRM1, DRM2, DRM3 and DRM4.

    DRM1: shut off, or operate at minimal load, for the duration of the event. In an air conditioner, this means the compressor must not operate, but fans and controls may continue to do so. During normal peak load events the utility (or a pre-programmed DRED) would ‘cycle’ air conditioners to operate for, say, 15 minutes and then shut off for the next 15. In emergencies, a constant DRM1 signal could switch appliances off for the duration of the emergency.

    A pool pump controller responding to DRM1 must switch the pump off.
    An electric, solar-electric or heat pump water heater must cease the use of electricity for heating water (whether by resistance elements or compressor operation) but water circulation pumps and controllers may continue to operate. This makes DRM1 a technically superior method of control for solar and heat pump water heaters than traditional off-peak, which de-energises the entire unit.

    DRM2: continue operation at not more than 50% load for the duration of DR event.
    DRM3: continue operation at not more than 75% load. This was differentiated from DRM2 at the request of electricity utilities, on the grounds that it will be easier to enrol customers in DR programs if they can be assured of having at least 75% cooling during DR events.

    DRM4: switch on even if timers or user settings would not require operation at that time. This is intended to allow appliances to come on at times when electricity price or CO2-intensity is low, eg when renewable generation availability is high. It would apply to swimming pool pumps – by bringing forward but not extending daily running hours – and to electric water heaters – allowing additional energy to be stored by temporarily raising thermostat settings. Utilities may also use DRM4 to pre-charge solar-electric water heaters on winter mornings, to prevent their boost elements from operating during the evening peak when space heating, lighting and cooking loads coincide.

    Now here is the real Joke Punchline..

    For an appliance to be AS4755-compliant, it must be able to respond to only DRM1(Shut off or Minimum load), which is not really consumer friendly.. An old adage used to be that the customer is always first.. This adage iis lost when you prevent a customer from using the air conditioner that they brought for the sole purpose of cooling themselves down on a hot day, all because it’s a hot day and Lack Of Reserve LOR exists due to insufficient reserve in the National Electricity Market (NEM)

    The real problem!
    Who is managing this whole debacle that is centred around closing existing power plants like Hazelwood Power Station without cheap reliable alternate energy sources ready to take up the Lack Of Reserve LOR created… NOBODY!

    Well allegedly it’s the Australian Energy Market Operator (AEMO), under the control of the Australian Energy Market Commission (AEMC), which was actually created by the Council of Australian Governments(COAG).
    Currently the entities of AEMO, AEMC and COAG are the equivalent of a rudderless ship being dragged by the undercurrents of the energy Generators.

    Can you guess the names of these engie companies?

    • Mark,
      The availability of demand response options does not negate Shane’s main point – the cost of funding infrastructure needed to satisfy the increasing peak demand due to air conditioning.

      There is a limit to how demand response can be used to manage this. Turning off lights, swimming pool pumps, and other miscellaneous power uses can shave a bit off the peak. You can’t really turn off your fridge and freezer on the hottest Summer days. In order to make a substantial reduction you would need to turn off or ramp down air conditioning. How would consumers perceive this? They spend money on a home air conditioning system only to turn it off during the hours they need it most. If forced into such action, they may start to wonder why they purchased air conditioning in the first place.

      There are solutions in the form of better building designs however anyone involved in the building industry will understand how difficult it is to promote these sorts of design improvements. Construction standards in Australia are poor by comparison with other OECD countries. The industry is geared up to churn out cheap lightweight structures at very low prices. Any sustainability initiatives struggle to gain acceptance in this environment. When consumers are prepared to spend more money on their homes it tends to go to amenities such as granite kitchen bench tops rather than sustainability features and initiatives.

      Note also that the Building Code does not help. It contains energy efficiency provisions based around minimizing annual energy consumption. This does not lead to the same outcomes that would be achieved with a focus on minimizing peak electricity demand. There are some perverse outcomes from this when NatHERS star rating software encourages designs that do not minimize peak demand. For instance:
      – there is limited credit for deep overhangs and other external shading features
      – dark coloured roofs are sometimes favoured over light coloured roofs

      For most of the 200 or so years of European settlement in this country people have survived without air conditioning. For locations in the Southern part of the country, it is still possible to provide a comfortable home without the need for air conditioning. The critical factor is thermal mass. Lightweight homes can never be adequately comfortable without air conditioning.

      If the retail electricity sector were properly deregulated so that consumers paid the true price of power at the time they use it, uptake of air conditioning would be greatly reduced. This should include time based transmission and distribution fees – not just for energy consumption costs. Such deregulation would then expand the market for well designed homes. Unfortunately, those who had already invested in poorly designed lightweight homes would suffer (financially, thermally or both).

      Note also that cost increases resulting from the closure of coal fired power stations are a separate issue. Even without these closures, the increasing uptake of air conditioning was always going to drive cost increases – in generation, transmission and distribution. These issues may be compounding however it is important not to conflate them.


    • Hi Mark,

      You are correct – AS4755 provides some mitigation of the issue, but as the article pointed out, I don’t think this standard really came into effect (with any real impact) until well into the air-con roll out. The point of the very brief article (not initially written for the readers of Watt Clarity) was to highlight the slow, reactive nature of regulators in an era of fast-paced change. Whatever your view of the rapid uptake of solar (and likely uptake of storage), it will have consequences to how energy markets behave. I didn’t make a big issue of it, but over here in the West, we have been bogged down by a 3 year “Energy Market Review” which has not really achieved much and hasn’t even addressed the looming issue of solar + storage. I can’t help feeling that in a couple of years, we will look back and wish we had the foresight to implement some market reform that might mitigate some of this impact – where I specifically, albeit briefly, focused on the capacity market and its inadequacies.


  2. “Who is managing this whole debacle that is centred around closing existing power plants like Hazelwood Power Station without cheap reliable alternate energy sources ready to take up the Lack Of Reserve LOR created… NOBODY!”

    Govt is managing it alright by intervening in the marketplace with subsidies and legislative fiat to create a whole bunch of suppliers to engage in the purist form of dumping one could imagine. The only problem is the nature of supply via the dumpers when they’ve driven the dumpees out of the market. Still, there’s no doubt blackouts and brownouts will reduce the emissions they want to and that’s the payoff apparently.

  3. OTOH to stop dumping in its tracks Govt would only have to legislate for a level playing field (well aside from the subsidies and other specific legislative fiat which would be small beer under anti-dumping legislation) All it needs is for legislation that only permits suppliers to tender to the grid up to a maximum they can supply 24/7 all year round and bingo! naturally they’d have to cut deals with thermal providers to do that but bang goes their desired emissions payoff.

  4. I should add the obvious caveat that it assumes our historical and ongoing inability to store energy which is rather pitiful, apart from in the form of calories and pumping water uphill. Yes I know the cheer squads place great faith in electochemical storage, but all I’d point out to them is we’re still using essentially the same lead acid battery in our cars Henry was plonking in the Model T.

    • Roger S,
      I know there is a real potential to store electricity via a molten salt energy system.
      Specifically by initially using off peak or hydro grid electricity as well as other heat sources to heat a molten salt energy storage system. This stored energy would later be used to heat steam for a turbine. Ideally this would be used in a NEM price peaking scenario and would likely be competing against gas generators. In some states the option of a solar heating array could be implemented.

      • Mark,
        This type of system is ideal for managing peak electricity costs in the wholesale market.

        It does not however deal with transmission and distribution costs. These typically represent between 40 and 60% of an electricity bill.

  5. I find it odd that the Office of the Chief Scientist should declare something to be “unstoppable”, which sounds much more like politics than science, and deciding the outcome in advance is the antithesis of good science. Predictably the marketing departments of the “Transition” industry are in raptures about “unstoppable”. The notion of consumers eagerly embracing “The Transition” is also somewhat less than convincing to me, eagerly embracing free money is probably much closer to the truth.

    Both solar and wind will never have much direct impact on peak demand, but why does the Chief Scientist fail to mention this fact? It is already widely known that solar PV in South Australia has pushed peak demand times towards dusk, so adding more capacity will have very little effect. Similarly the large wind capacity in SA has pushed peak demand on non-wind generators to times of very low wind power, which hobbles any further wind capacity.

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