Reduced demand - what's the problem?

There are abundant energy efficiency measures Australia could be pursuing which reduce both peak demand and overall use. Provided they benefit consumers and society it shouldn't matter that they undermine electricity businesses asset base.

Today a new body has been launched to represent those businesses engaged in the market of saving energy, rather than simply consuming more of it - The Energy Efficiency Creators Association. A body focussed on promoting a market in saving energy is needed because to date design of the energy market has been dominated by a concern for maximising utilisation of electricity infrastructure. This may help electricity supply businesses, but isn't necessarily the best thing for consumers nor society as a whole.

The Productivity Commission’s recent report on electricity networks (2013) repeats, yet again, the widely held but erroneous view that energy efficiency does not contribute significantly to management of peak demand. It states:

For example, many energy efficiency measures have a ‘conservation effect’ by reducing consumption across all periods, rather than just ‘clipping the peak’ or shifting load.

This ‘problem’ is used to justify ignoring the role of energy efficiency measures in the list of demand management options in Table 9.1 in the report, and in further discussion. So a major potential contributor to reducing peak electricity demand is ignored simply because it offers consumers additional benefits through reducing their electricity bills. This approach can only be described as tunnel vision. It also reflects the basic structure of our failed electricity market model: energy supply industry relies on increasing sales to increase profits, so energy efficiency undermines their business model.

This was most clearly stated in a submission to the 2010 Prime Minister’s Energy Efficiency Task Group by IPRA, then owner of coal-fired power generation. The submission stated:

IPRA rejects any proposal to introduce climate change policy, under the guise of energy efficiency measures, which has the potential to destroy the value of existing investments in the generator sector. (submission 186)

Like most myths, the rejection of energy efficiency as a demand management measure has an element of truth. It must also be seen in the context that the electricity market design and a focus on ‘economic efficiency’ of the electricity supply industry bias thinking towards measures that limit peak demand but maintain (or increase) electricity consumption at other times. The logic is that occasional peaks add to infrastructure costs while reducing the average utilisation of generation and power lines. This reduces the economic efficiency of the electricity supply industry. But the financial viability of the electricity industry is based on ongoing growth in sales.

So measures that can be carefully targeted at times of peak demand, while not reducing consumption at other times or, better still, shifting that consumption from peak to other times, is the natural focus for the electricity industry. Policy makers seem to have been captured by this perception.

The impact of energy efficiency measures varies, depending on the exact nature of the measure. Generalising about their lack of impact on peaks is a very courageous approach. 

How can energy efficiency measures affect the electricity demand profile?

Building fabric energy efficiency measures typically reduce demand for cooling, but there are complexities. Insulation and draught-proofing work better as the temperature difference between indoors and outside increases. So, while they do reduce consumption at other times, they are very effective during summer peaks. Shading of windows cuts demand whenever it blocks sunlight. So shading on west and north windows cuts afternoon cooling demand. Shading east windows also helps: they cut morning start-up peaks and keep the building mass cooler, helping to lower afternoon temperatures.  

Replacing halogen lights with energy efficient LEDs or fluorescent lamps offers multiple savings whenever the lights are on. First, each lamp uses much less electricity. Second, it feeds less heat into the room, which must be removed by cooling. Third, it dramatically reduces the amount of radiant heat falling on people from halogens, so they feel cooler at a given temperature. In extreme heat, air conditioners are less efficient, so efficient lights save more air conditioning electricity at peak times. 

On the other hand, some efficiency measures cut consumption while not reducing peak demand. For example, the building code requires a new commercial building to install an economy cycle. This draws outdoor air into the building during cool temperatures, to replace artificial cooling. However, the economy cycle shuts down when it is hotter outside than inside – when the peak cooling demand usually occurs. Further, if the ventilation system is leaky, it may allow more hot outdoor air into the building when the economy cycle is not operating, adding to peak cooling loads.

We have poor data on what equipment operates when, so it is difficult to design optimum programs that both cut peak demand and reduce consumer bills. One 2004 study made estimates of summer peak day demand for residential and commercial buildings in NSW, as shown below. While this data is relatively old, it provides an example of how energy efficiency measures can be selected to reduce summer peak demand.

If we are concerned about peak demand between 2pm and 8pm on a hot day, we can see that efficient commercial building lighting, reduction of cooling loads and efficient fans can drop demand early in this period. Residential measures dominate later in the day, when high efficiency lighting, LED TVs, induction or gas cooking and reduced hot water usage can provide focused energy and peak savings. Switching off equipment that generates heat inside a building, or extracts air (e.g. exhaust fans) also reduces cooling demand on a hot day.

Many other energy saving measures help to reduce peak demand, but also reduce energy consumption at other times. Implementing these is great for consumers, as they cut electricity usage as well as reducing the need for investment in electricity infrastructure. Unfortunately, they are not so attractive for the electricity industry! In homes, efficient refrigerators, pool pumps, computers and other appliances can deliver this dual benefit, along with more efficient building fabric and high efficiency cooling and heating technologies. A wide variety of efficient equipment in commercial buildings (especially cooking and refrigeration) can also help, with efficient building technologies and advanced heating and cooling systems.

Smart controls can save electricity by switching equipment off when it is not needed, and also make it easier to manage demand at critical times. 

Energy policy makers need to provide a framework that encourages or forces the electricity industry to support both peak reduction and electricity savings. Separation of these two objectives simply reflects the distorted electricity market model, not fundamental economic efficiency for society. For example, the NSW and Victorian energy efficiency certificate schemes could offer bonuses for measures that cut peak demand, on top of the credits for electricity savings. Building codes could also target peak demand as well as overall energy efficiency. 

There’s plenty of opportunity to save money, cut greenhouse gas emissions and reduce pressures on the electricity system. Too bad that it further undermines the business models of the electricity industry.

*From EMET Consultants (2004) The Impact of Commercial and Residential Sectors’ EEIs on Electricity Demand Report for Sustainable Energy Authority (Vic).

Graph for Reduced demand - what's the problem?

Graph for Reduced demand - what's the problem?

Alan Pears AM is a senior lecturer at RMIT University and a co-director of Sustainable Solutions, an environmental consultancy.