New policies needed to beat demand management trap

06 May 2009Archived News Energetics in the News

PUBLISHED: Environmental Management News, by Pauline Jasudason - Jonathan Jutsen, Founder and Executive Director, Energetics Pty Ltd talks to EMN about the recent changes to the NEM rules to increase the requirements and incentives to employ demand management.

 

A proposal to recast the rules on the National Electricity Market to increase the requirements and incentives to employ demand management has resulted in marginal change, according to energy efficiency expert Jon Jutsen. The Australian Energy Market Commission made only “inconsequential” amendments, he said, mainly because the terms of reference skew its view on demand-side responses.

For demand management to work here, there must be good government policy and the right frameworks and incentives. The MD of consultancy Energetics said they are currently non-existent.

“The AEMC and the [Australian Energy Regulator] do not understand the scale of demand side opportunity or the regulation changes that would be necessary to achieve meaningful carbon mitigation through demand management,” Jutsen told Environmental Management News.

“AEMC and AER are looking at it from the perspective of the utility industry, not from the perspective of what is the most effective way to deliver energy service outcomes for customers. They have the completely wrong view.”

But this isn’t entirely their fault – the role of the two bodies is viewed narrowly within their terms of reference, which says their function is to cost-effectively run power generation and distribution systems. Says Jutsen, “the regulations are regulations around market efficiency, not around carbon efficiency”.

“The first thing is … there needs to be government policy that says to these organisations, you are at the frontline of carbon mitigation, your terms of reference are not just generating electricity and supplying it.”

“What they need is a much broader policy direction which explains what their role is … not the operation of a set of infrastructure, but what your role is to actually deliver to customers the end services that they need with the highest level of energy efficiency… at the lowest carbon emissions.”

Among the proposals the AEMC has incorporated into regulations, to take effect July 1, are provisions that utilities should detail “non-network alternatives” that they had considered in their revenue proposal, and that the AER should “take into account” whether the utilities had “demonstrated, and made provision for, appropriate efficient non-network alternatives” when assessing these proposals. These were only small parts of the proposal that were put to the body, Jutsen said.

“The purpose of electricity and supply infrastructure is not to supply electricity, it’s to supply end services to customers. Customers do not have an inherent demand for electricity, they have a demand for heating, cooling ... If [the AEMC] saw their role as providing the end services that customers need, most effectively and with the lowest carbon emissions, you will have a different set of solutions.”

Jutsen points to the experience of the California Public Utilities Commission. Its commissioner overseeing utilities’ energy efficiency programs, Dian Grueneich, said the utilities spend some US$1b annually on efficiency, achieving $2b in net economic savings every year.

She outlines four items that have driven it: clear policy, adequate financial mechanisms and funding, rigourous evaluation, measurement and verification to ensure savings are real and for continuous improvement to take place, and progressive standards and enforcement.

“We believe you need to have a government that says, we’re prioritising energy efficiency,” Grueneich said. “Here we have that in a law.”

California has also adopted financial measures to ensure utilities are on board, not acting in opposition to energy efficiency. This includes measures such as “decoupling”, which allows utilities to pursue energy efficiency without having to reduce revenues, and a more recent mechanism that allows utilities to make a profit on energy efficiency “similar to what they can make if they’re building power plants or transmission lines”.

These are examples the local sector needs to emulate, Jutsen said, pointing out another pitfall – people on the boards of the AEMC and AER don’t have the capabilities or understanding of demand management.

Changing the thrust of the AEMC and the AER, for a start, will result in the utility industry becoming “a very enthusiastic participant”, but for now “we’re missing the framework and the legislation to actually provide incentives for the private sector to participate”.

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