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 total demand and consumption charges. This results in a downward shift in your demand profile, and provides a cost effective way to reduce the cost of network charges.

Graph showing how demand profile can be reduced through energy efficiency

Source: Marsden Jacob Associates' analysis (2011)

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 conducted can also assist to identify other demand side opportunities.

Energy efficiency opportunities can involve investing in new technology, processes and practices that reduce the energy intensity of business activities.

It is important to check the implications of reducing overall usage within existing contracts, and when negotiating future contracts.

For example, some end users have ‘take-or-pay’ clauses in their energy contract. This means that they are obliged to purchase a certain minimum amount of energy. If they reduce their consumption below that point, they may still have to pay for it.

Large energy users also usually pay a capacity or demand charge as part of their network tariff. Typically, this is levied as a fixed charge on the retailer’s energy bills. In most circumstances, a user who reduces consumption will also reduce demand. However, this may not lead to a reduction in the capacity or demand charge , until that charge is due for review, which may be once every 12 months..

From time to time, circumstances may arise where the network service provider faces constraints in the local network. In this instance, the network service provider may be willing to amend the capacity or demand charge earlier than specified, or even pay for demand side response if this helps reduce network constraints.

Industry Case Study – Oxford Cold Storage – How energy efficiency can reduce network costs

Oxford Cold Storage has a policy of funding new energy efficiency initiatives that achieve a payback in two years or less.

Energy efficiency measures have included:

  • increasing the building shell thermal performance of new storage facilities by using under-slab insulation and increased building shell insulation;
  • greater protection for loading dock doors and installation of ‘air-lock’ door-closing systems that substantially reduce air loss during loading and unloading operations;
  • more efficient LED lighting systems;
  • installation of ‘voltage optimisation’, which works with ‘induction loads’ to keep voltage at an optimum level;
  • power factor correction equipment; and
  • variable speed compressor motor controls

Implementing energy efficiency measures has enabled the company to reduce their existing maximum demand of 5,616kW to around 5,200kW with their network provider. This reduction will save the company approximately$31,850 annually.

Oxford Cold Storage see the Energy Savings Scheme in New South Wales as an opportunity to implement additional initiatives with payback periods out to four years. Implementing these additional initiatives, which the company has already identified, could achieve an additional 15–20% energy savings.

For more detail on energy efficiency opportunities, refer to

Energy Efficiency Assessments

Sectors

Technologies

Substitution of energy source

Substitution involves changing the source of energy, for example switching from electricity to gas, or by using onsite generation or cogeneration to create capacity to provide part of, or all of your energy requirements.

Substitution requires investment in, and maintenance of, any onsite facilities and sourcing and storing the fuel to run them. If you require reliable energy there may not be any opportunity to shed load from the grid and substitute it for self-generated power.

Graph indicating how one energy source can be substituted for another.

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 Bankstown Sports 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 allows 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, Bankstown Sports Club retains 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).

Bankstown Sports Club has yet to undertake a detailed analysis of the costs and benefits of the current arrangement, but it is clear that the overall benefits are reduced as the number of dispatch events and run time increases. Payments received must also be analysed against any increased maintenance or equipment replacement costs in the longer term.

Last year, we were paid the ‘standby fee’ through the whole summer and were only dispatched for one 5 hour period. But this summer, we received about the same ‘standby fee’ but were dispatched 5 times for a total of 48 hours, using up 4,000L of diesel fuel. Clearly, the returns in the first year are a lot more favourable than the returns this year.

- Steve Williams, Maintenance Manager, Bankstown Sports Club

Load shifting

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 by 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.

Graph showing how demand profile can be shifted to avoid peak load pricing

Source: Marsden Jacob Associates' analysis (2011)

Capturing the benefits

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 has entered into an agreement with a demand-side aggregator which allows a significant financial benefit from reducing load, or running onsite backup generators for short periods of time.

Amcor uses 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 combines individual items of Amcor’s capacity into a reliable portfolio and contracts with National Electricity Market participants for demand-side response services.

Amcor also uses their demand-side aggregator to provide demand side response services in Western Australia using approximately 1.7 MW of load that can be turned off at short notice. The demand-side aggregator aggregates 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 receives capacity (or ‘standby and availability’) payments from the demand-side aggregator for offering demand-side response capacity. Amcor also receives payments when responding to a ‘dispatch’ instruction from the demand-side aggregator.

Peak shaving

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 can optimise network and retail tariff costs.

Graph showing how energy use can be reduced to avoid peak prices

Source: Marsden Jacob Associates' analysis (2011)

Peak shaving is most appropriate when

  • total load on a site is approaching the agreed maximum demand, enabling you to avoid penalty charges; or
  • 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. These types of arrangements should be discussed with your retailer however 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

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. See wholesale markets.
  • In the gas market, by having a fixed price retail energy contract, end users 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 the main site does not exceed its total demand level, currently 3,546 kW; and total demand is reduced, which will enable the company to reduce its bill by $80 per kW per year.

Oxford Cold Storage 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, Oxford Cold Storage 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.

Oxford Cold Storage has also successfully implemented measures to reduce maximum demand charges.

Because lighting is not a weather-dependent fixed load, replacing high-bay lights with LEDs has enabled us to permanently reduce our maximum demand, which is a fixed monthly charge on our bill, by 280kW. This strategy, together with our other energy efficiency measures such as variable speed drives , will enable us to ask our network provider to reduce our existing maximum demand of 5,616kW to around 5,200kW. This reduction will save us approximately$31,850 annually.

- Gabor Hilton, Engineering Manager, Oxford Cold Storage