By managing your overall energy demand and the way it fluctuates from one period to the next, energy costs can be reduced. Changing your consumption in response to real-time electricity prices, can also generate savings or earn extra revenue. Understanding how these opportunities arise enables the development of a holistic energy procurement strategy.
Improving energy efficiency
Implementing energy efficiency opportunities permanently reduces energy usage, lowering both total demand and consumption charges.
Identifying energy efficiency measures requires a detailed assessment of your company’s energy use. This will provide an understanding of how energy is used within your operations and identify opportunities to improve energy performance. Analysis can also assist to identify other demand side opportunities. An energy efficiency assessment is the best way to begin this process.
Substitution of energy source
Sometimes, it can pay off to switch the energy source your business is using or to consider using onsite generation or cogeneration to provide all or part of your energy requirements.
Before committing to a new energy source onsite, do your due diligence to ensure you understand the financial and maintenance commitments for any onsite facilities, including the sourcing and storing of fuel to run them.
Industry case study - Bankstown Sports Club - demand side response
Bankstown Sports Club was approached by a demand side aggregator following pending network capacity problems in the local area. The club entered an agreement to provide network support, using on site generation, because this was clearly preferable to facing loss of supply due to network outages.
The initial agreement included payment of a ‘standby’ fee and a ‘dispatch’ fee and extended for one summer period. The club’s ‘standby’ generators were dispatched twice under this agreement.
The initial agreement was modified and extended to allow for dispatch by the demand side aggregator during periods of extreme high wholesale market spot prices. The terms and conditions of the modified agreement are similar to the initial agreement and require the club to offer ‘standby’ and ‘dispatch’ services (typically) during hot summer periods. The demand side aggregator installed and rigorously tested a remote, automatic start facility for the club’s diesel generators. This allowed the demand side aggregator to remotely dispatch the generators at very short (5 minute) notice during very short periods of extreme high spot price. However, the club retained control over the generators, which can be ‘locked out’, thereby preventing the remote start function, whenever this is required (e.g. for routine maintenance of the generator units or controls).
Load shifting involves shifting energy consumption to another time period, typically when prices are lower. It can generate returns that may more than compensate for the costs of lost production, organisational training and administration of the demand-side response measures.
Load shifting can be achieved through rescheduling activities, switching off unnecessary equipment, switching to onsite generation or building product inventory to enable parts of the plant to be switched off when wholesale prices are high. For example, a cement works might choose to store surplus stock enabling them to continue production after turning off their crushers during peak periods.
Load shifting can help end users reduce their total demand charges, but may not necessarily reduce overall usage charges. Additional power is often required at other times to undertake the rescheduled processes or to return processes to the appropriate temperatures. However, end users can still benefit if they are able to shift their load during times of high wholesale spot prices, and capture the value of load shifting.
Capturing the benefits of load shifting
Demand bidding provides an opportunity to capitalise on shifting load from a peak demand period, when wholesale market prices are high, to a time period when demand and wholesale market prices are lower.
The load you are willing to shed can be offered to the market through a demand-side aggregator or your energy retailer. A higher risk approach, but with potentially greater rewards, is to deal directly with a network service provider, wholesale energy markets or through financial contracts.
Demand-side aggregators pay for shed loads in a variety of ways. In all cases, there is an actual payment for the load that is shed; in some cases there may be a standby charge for being available and willing to shed load.
Industry case study - Amcor - using demand side aggregators
Amcor entered into an agreement with a demand-side aggregator which allowed a significant financial benefit from reducing load or running onsite backup generators for short periods of time.
Amcor used their preferred demand-side aggregator to provide demand-side response services in South Australia, using 3 MW of back-up generation at their Gawler glass plant. The service provider combined individual items of Amcor’s capacity into a reliable portfolio and contracts with National Electricity Market participants for demand-side response services.
Amcor also used their demand-side aggregator to provide demand side response services in Western Australia using approximately 1.7 MW of load that could be turned off at short notice. The demand-side aggregator aggregated Amcor’s capacity into a reliable portfolio and contracts for Reserve Capacity with the Western Australian Independent Market Operator through the Reserve Capacity Mechanism.
Amcor received capacity (or ‘standby and availability’) payments from the demand-side aggregator for offering demand-side response capacity. Amcor also received payments when responding to a ‘dispatch’ instruction from the demand-side aggregator.
Reducing energy use at peak times is called peak shaving or peak clipping. Peak shaving can realise a range of benefits when it coincides with peak demand, and therefore peak prices, in the wholesale market.
Peak shaving, as illustrated in the figure below, can be achieved by shedding load or by using onsite standby generation facilities during peak times. When reducing usage at peak times, it can enable you to stay within your contract’s maximum demand and to optimise network and retail tariff costs.
Peak shaving is most appropriate when:
- total load on a site is approaching the agreed maximum demand, enabling you to avoid penalty charges
- the load on the distribution network is approaching its maximum
When load on the distribution network is approaching its maximum, end users can enter into an arrangement with the distribution network service provider to ease congestion on the system and enhance network reliability. However, these types of arrangements should be discussed with your retailer to ensure changes in your demand profile do not impact adversely on their energy supply arrangements and result in you paying higher energy prices (because your load appears to be more volatile).
Capturing the benefits of peak shaving
There are a number of ways for end users to capture the benefits of peak shaving:
- By agreeing to a demand-side response clause with your retailer you can shed load at times of high underlying spot prices in return for a pre-agreed compensation.
- By purchasing all, or part, of your energy requirements directly from the wholesale electricity market, and avoiding loads when the spot price exceeds a certain level, you can achieve a lower average cost for energy. This approach requires very careful assessment of the opportunities and risks, investment in suitable monitoring and control systems and very thorough training of production staff and management personnel. Financial risks can also be managed through appropriate financial instruments.
- In the gas market, end users on a fixed price retail energy contract can re-sell unused energy created by load shedding back into the spot market, either directly or through a demand-side aggregator.
Industry case study - Oxford Cold Storage - shedding load to stay under maximum demand
Oxford Cold Storage’s main demand management focus is to ensure that its main site does not exceed its total demand level and that total demand is reduced, which enables the company to reduce its energy bill.
The company manages demand using the thermal mass of their cold storage facilities.
Freezers can be switched off for periods of up to 24 hours. The duration of the downtime depends on a range of factors, such as how well insulated the individual freezer unit buildings are, the number of times and duration that doors are opened, and the ambient outside temperature.
By switching off freezer units, the company is able to halve its load within 15 minutes. However, once a freezer has been switched off for some time, it is sometimes necessary to increase energy use above normal operating levels to return contents to the appropriate temperature.
The company has also successfully implemented measures to reduce maximum demand charges.