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Report finds CEFC investment in Demand Management could cut energy costs

23 July 2013

A study commissioned by the CEFC identifies how a cooperative approach to saving energy could cut billions of dollars from the nation's electricity bills.

Investing in Savings: Finance and Cooperative Approaches to Electricity Demand Management, a study by the Institute for Sustainable Futures of the University of Technology Sydney, has found that electricity network businesses could become the source of big energy savings for households and business.

Demand Management involves helping customers to save energy and reduce demand in order to defer the need for expensive new supply infrastructure.

While historically underutilised in Australia, overseas experience shows that Demand Management can reduce business and household electricity bills through:  Lower customer energy consumption, via improving end use energy efficiency  Lower wholesale energy prices and reduced need for peak electricity generation  Deferred or avoided network capital expenditure, which has been the main driver of recent electricity bill increases

Demand Management can be a highly cost-effective means of reducing carbon emissions and increasing the uptake of clean energy initiatives, such as increased energy efficiency and renewable and low emission generation.

"It is estimated that savings of $900-$1900 per household could be delivered in instances where Demand Management is taken up," said the report's lead author Chris Dunstan, a Research Director at the Institute for Sustainable Futures of the University of Technology Sydney.

The Standing Council on Energy and Resources (SCER) has an extensive demand side participation agenda which seeks to address many of the relevant regulatory barriers. Following the AEMC's Power of Choice review, the SCER has agreed that officials should seek changes to the National Electricity Rules, including reform of the demand management incentive scheme.

"However, capturing these savings needs more than changing regulations. A more collaborative approach is required."

The report concludes that the CEFC could support Demand Management by making finance available to invest in energy savings for network customers. Collaborative efforts by government and regulators would include supportive policy for demand management, targets for network businesses for demand reduction and lowered consumer costs. These efforts would be enabled by the Australian Energy Regulator allowing network businesses to share in the future savings of avoided network infrastructure in order to recover investment in Demand Management.

Mr Dunstan noted that such collaborative approaches have been applied successfully in Ontario Canada, California and in Queensland. The study looks at international practice in this areas and how these systems could be adopted more extensively in Australia.

CEFC CEO Oliver Yates welcomed the report, noting that clean energy should be about delivering economic as well as environmental benefits to Australia.

"This scoping study provides a vision for a win-win outcome for energy customers, and for network businesses and their shareholders. The CEFC stands ready to invest in initiatives to help achieve this, but we recognise that policy makers and regulators also have a crucial role to play," said Mr Yates.

"The CEFC commissioned this study to explore ways the CEFC could help improve efficiency and provide more economically optimal alternatives such as investing in demand management, rather than ever more infrastructure to deal with growing demand," said Mr Yates.

Demand management lowers and shifts the demand for electricity as an alternative to creating additional supply through expanding the grid. Entrenched organisational and regulatory practices have favoured infrastructure development over demand management.

"While these regulations are now being reformed, it will take years before customers see the benefits. This reform could be complemented with policy change to provide financial incentives for networks to undertake Demand Management now, in order to bring forward bill relief by several years and avoid the need to build further unnecessary power grid infrastructure"," Mr Yates added.

Mr Yates said that the CEFC is focused on the transition occurring in the energy system and seeks the most efficient solution that produces grid infrastructure that is robust, capable and cost effective for the changing energy market and for lower carbon outcomes.

"The CEFC can assist networks to achieve this transition sooner", Mr Yates said. Mr Dunstan said that clear Government policy intent requesting network businesses to establish performance measures and targets to deliver Demand Management would allow the private sector to provide alternative solutions to the current consistent pattern of building more infrastructure to meet peak demand.

"More than $40 billion is being spent over the current five years period on electricity distribution and networks in Australia. This is the largest contributing factor to the rise in consumer electricity bills, which have increased in real terms by 70 per cent between June 2007 and December 2012. About $15 billion of this investment is earmarked to meet growth in demand. Meanwhile overall electricity consumption has been falling not growing," Mr Dunstan said.

Emerging clean, decentralised energy technologies and business models present opportunities for the CEFC to play its role in helping accelerate the market uptake of clean energy technologies including solar PV and battery storage, advanced meters and time of use pricing, electric vehicle infrastructure and smart energy management and energy efficient products.

The CEFC has the mandate and investment capacity to provide capital to accelerate the adoption of demand management activities in Australia. By doing so, the CEFC can contribute to lower electricity bills and deliver improvements in the investment environment for other clean energy activities, all of which support a more efficient and lower carbon economy for Australia.

About the Authors and the Institute for Sustainable Futures

The Institute for Sustainable Futures (ISF) was established by the University of Technology, Sydney in 1996 to work with industry, government and the community to develop sustainable futures through research and consultancy.

Its mission is to create change toward sustainable futures that protect and enhance the environment, human well-being and social equity. We seek to adopt an inter-disciplinary approach to our work and engage our partner organisations in a collaborative process that emphasises strategic decision-making. Research team: Chris Dunstan, Samantha Sharpe, Jenni Downes   For further information

Access the report

Media release, 2013

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