Who will be getting on at the first stop?
It’s almost exactly one year until the commencement of the ‘Wholesale Demand Response Mechanism’ in the NEM.
Recently, Nicole Lashmar wrote about her PhD project, focused on understanding how some energy users have already overcome perceived (or real) barriers to participating in demand response in the NEM.
Nicole’s research prompted me (as my 1st article on WattClarity) to put forward some considerations on how key aspects of the upcoming wholesale mechanism might dictate how much response capability will be realised once the mechanism goes live before Summer 2021-22.
It’s important to understand that this new rule goes live at the same time as 5MS, which will have its own impact on the viability of demand response for some energy users.
It’s also important to view this mechanism within the broader context of the Energy Security Board’s Post 2025 Market Design undertaking. It’s expected that this mechanism will eventually outgrow itself as participation increases, such that a two-sided market will be necessary. The opportunities for commercial and industrial (C&I) consumers are highlighted in the Post 2025 Market Design Consultation Paper but the message extends to where the future of demand response needs to head:
Like residential consumers, large commercial and industrial (C&I) consumers also have diverse needs. Some C&I consumers may not see actively engaging with the electricity market as a commercial priority – others will see the NEM as an opportunity to generate (significant) revenue as well as an input cost. C&I consumers already bear a large proportion of system costs , and the future market design needs to examine the allocation of these and how costs are passed on. Those C&I consumers who can be flexible should see appropriate incentives to do so. Similarly, C&I consumers that place a higher value on reliability than others should have the opportunity to purchase this higher service level.
About the author
I commenced with Global-Roam in August this year after 7 years working on demand forecasting at AEMO. I have a passion for building software and systems to make our lives easier, enabling us to tackle bigger problems and more effectively deal with the increasing complexity that is unfolding in this energy industry transformation.
At AEMO I contributed to many forecasting products including the Electricity Statement of Opportunities’ estimates of demand-side participation. This saw me focus on coincident demand response at times of high wholesale prices and supply scarcity. These response estimates necessarily excluded responses that were already accounted-for elsewhere in (either the supply model or the demand forecasts used for) the studies. The estimates focussed on coincident response levels that are detectable above the noise of general demand variability. Yet the depth and diversity of demand response activity that already operates in the NEM continues to interest me and drives me to further develop my understanding in the broader landscape of demand response.
My immediate focus at Global-Roam has been on expanding the team’s capability to add new functionality into ez2view, a product for clients who have significant involvement in the wholesale market.
I understand that Global-Roam has helped facilitate a form of Demand Response with large energy users for more than 15 years, and that the deSide® product was developed specifically for those clients.
- We have other people working on an upgrade to deSide® to take account of 5MS, and we have conducted detailed feedback sessions with most existing clients to ensure this upgrade will also take into account their other needs.
- If you have not yet spoken with us, but wish to, please contact Paul or Justin.
The rule to enable the wholesale demand response mechanism was published in June 2020. Complimenting the rule change final determination was a high-level design outlining how the requirements of the rule will be met.
Since June 2020, and as part of ongoing stakeholder consultation and work behind the scenes at AEMO, details of how the mechanism will be implemented are being fleshed out and this is providing increased clarity for potential wholesale demand response service providers (WDRSPs) and the customer loads that may engage as wholesale demand response units (WDRUs).
These should evolve into the guidelines for wholesale demand response (and any other necessary documents in accordance with the rule) in 2021. Until then, stakeholders are keeping up to date with progress via the consultation forums facilitated by AEMO.
In order to consider barriers and hurdles let’s first refresh ourselves with some key aspects of the mechanism.
A WDRSP will be a registered NEM participant. Depending on how it registers it could be able to make energy bids and offer ancillary services in the market.
The DRSP registration category will be combined with the existing registration category for market ancillary service providers, of which currently there are only three!
- Note that a load can only be classified as both an ancillary service load and a wholesale demand response unit by the same demand response service provider or market customer.
Given this article is centred on demand response I’m concentrating on energy services.
At its bare bones:
The WDRSP will have a portfolio of units (WDRUs) that provide the demand responses.
If its units are dispatched, the WDRSP will signal to its WDRU(s) the required responses so that the WDRSP achieves its dispatch target.
The response may be a load reduction, increase generation or both. And based on the unit’s own circumstances it will need to ascertain it maximum response capability that the WDRSP would register with AEMO.
As the WDRUs will be responding, it will be their load patterns that will be subject to response calculations and settlement processes using revenue meters at 5-minute granularity.
The following key features of the mechanism are the ones I’ve gathered my thoughts on for now. There isn’t the space to cover all aspects of the mechanism. Additionally, each aspect will likely take on differing degrees of relevance for individual facilities. If noteworthy omissions exist please let me know!
The WDR rule targets fast-acting dispatchable plant
The dispatch interval is 5 minutes meaning the load should be able to achieve its target response (preferably linearly) within that timeframe. Some sites will be able to make considerable responses almost immediately whereas some will require longer periods to respond at their potential.
Because of slower response times with some of our clients, some energy users have expressed concern that they may be less able to participate in Demand Response in the five-minute settlement world.
This fast-acting response requirement, at least initially, could pose a challenge for some prospective units as they may effectively have a maximum response capability limited to how fast they can change their load. At the extreme end, if it takes more than 5 minutes to respond the window is missed.
However this challenge might be surmountable – one solution put forward during consultation by AEMO recently has been to consider the Fast Start Inflexibility Profile in a way analogous to how it is used for generation. This would allow a WDRU to tell AEMO that it needs periods of time:
- To prepare,
- To reach its minimum response level,
- To run at its minimum response level and
- To resume to full load again,
in effect a profile representing the minimum reduction profile that the unit would be committed-to by the dispatch algorithm.
The remaining challenge for WDRUs here will still be to ensure the dispatch targets are followed as dispatch conformance will be assessed. If found to be non-conforming the mechanism provides for limits to be imposed on the response capacity of the WDRU.
There’ll be product constraints on response magnitudes and availability
Some sectors operate equipment that is better suited to providing dispatchable demand response. An Oak Ridge National Laboratory report from 2013 summarised many of the most common processes that can act as a fast-acting response resource. When grouped into load types these included:
- Mechanical loads that exert abrupt forces such as crushing, milling, grinding and chipping which may not be able to modulate power consumption and therefore may be on/off loads.
- Mechanical loads that exert consistent forces on moving media such as pumps, fans and air compressors and may be more likely to be able to modulate power consumption.
- Thermal loads used to change phase, composition or chemical composition of materials and these include electrical furnaces and electrolysis.
Exploiting any of these processes for demand response is likely come with limits relating to minimum duration, maximum duration, call limits (responses per day) or lead times. For example:
- Stopping a mill may require time for the conveyor to be emptied before it can be stopped.
- Longer lead times may be needed to change business processes such as pre-cooling arrangements if refrigeration loads are targeted.
- Maximum durations will also be important for processes melting raw materials to avoid damage to equipment.
However there may be opportunities among prospective facilities to upgrade or modify equipment to enhance energy flexibility, even energy efficiency, that could minimise key product constraints on demand response participation – in turn creating additional capability to support to the business cases for these upgrades.
A site’s load needs to be consistent in its pattern
To take part in WDR means having an established baseline level of demand – I tend to think of this as a stable typical level of demand. It’s summarised in the high-level design: “The load at the NMI must demonstrate a level of predictability so the baseline can be established against which demand response settlement and dispatch performance will occur.”
While the rule provides for different types of baseline calculation methods to be used and work is ongoing in this area, current efforts are centred around having, initially, a single baselining method that employs a ‘similar days’ approach and distinguishes between weekends and weekdays. Potentially, this will mean the most recent 10 qualifying days are used and the average applies as the baseline pattern. This pattern would be adjusted up or down to current actual levels as seen before the event when its needed to evaluate a response.
Sites with variable load patterns (whether driven by production schedules, equipment usage or even weather and variable renewable energy resources) may not meet the predictability measures that are to be set out by AEMO. I’m curious to see whether on-site energy storage systems are able to support smoother profiles as costs decline further in the future.
The actual criteria for predictability are yet to be set out until then so we await the finer details to gauge how this accommodates prospective participants at 5-minute granularity.
Technology upgrades may be needed
Sites with demand greater than 5MW will require telemetry (SCADA) to be installed for system operations and visibility however I suspect many sites of this size may already have systems in place to meet other network connection requirements.
Lessons learned from the ARENA trials of demand response suggest many sites relied on email and phone calls for notification of an upcoming response event. If the site is keen to see its full capability offered and dispatched it may need to adjust or change systems to ensure responses can be delivered in line with dispatch requirements.
Yet there is obviously value in being able to efficiently monitor, control and even automate via a comprehensive energy management system. Many facilities may be well positioned in this aspect and I think many envisage that, for most sites, the appropriate signals and measurements will just need to be connected to the right endpoints.
Cut out the middleman?
Large electricity customers can decide to become WDRSPs in their own right.
It’s been noted that industrial facilities are configured and dedicated to focusing on making their product. Participating in demand response seems like it should be a lesser priority. For new participants investment in the systems and staff knowledge needed to act as a WDRSP may at first appear as prohibitive.
But it may not be as difficult as it looks, especially relative to some of the complex industrial processes that may be already operating on site. One advantage would be in having control over bidding which could appeal to some sites wanting a high degree of flexibility in the response levels they are prepared to offer to the market.
At first glance it seems that a prospective WDRU needs to be a good fit for the puzzle. Those with fast response capability, manageable product constraints and a steady and predictable load profile will fit nicely.
However, as Albert Einstein suggested, “in the middle of difficulty lies opportunity”.
Global-Roam’s experience facilitating demand response over the last 15 years tells me there’s a lot of knowledge among my colleagues and capability in the products they’ve built that has already helped large energy consumers succeed in similar terrain.
More so, if the past examples of industrial facilities addressing their own energy cost challenges are any indication, there’ll be multitudes of future cases where innovative solutions are found and implemented to address individual operational circumstances and add flexibility in energy use.
I’m keen to see how this segment of large energy users grows into this mechanism and look forward to supporting it through the Global-Roam software products I develop and enhance.