Restoring the balance: startup opportunities in Demand Side Participation

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Published: 28/1/18

Demand Side Participation (DSP) in the electricity grid has received increasing attention in recent years. Historically, the most important question relating to electricity has been how to generate and transport enough of it to meet our ever-rising needs. However, the focus has increasingly turned to how demand-side resources, such as rooftop solar, household batteries and smart appliances, can be utilised to better manage the grid.

The business opportunity in providing DSP solutions is in the hundreds of millions, if not billions of dollars. The market for frequency control ancillary services (FCAS), which help balance the grid, has grown by an average of 54% per year for the last five years to be worth more than $200 million. In addition, new government incentives could unlock a similarly-sized market for Demand Management (DSP that reduces network constraints). However, the real prize could be in using demand-side approaches to innovate in the $50bn retail electricity market.

These opportunities are becoming accessible as a consequence of changing legislation and market rules. The Australian energy policy landscape is presently characterised by a high rate of change, with regulatory adjustments occurring across the system in response to recent events and reviews. Three changes of note are:
- Ancillary Services Unbundling: On 1 July 2017 a new way of participating in the electricity market – as a Market Ancillary Services Provider – was created, lowering the barriers to providing FCAS.
- Demand Management Incentive Scheme and Innovation Allowance Mechanism: On 14 December 2017 this scheme and accompanying mechanism were published to incentivise electricity distributors to explore demand-side approaches as alternatives to infrastructure spending. This could potentially create a $200 million market for Demand Management services.
- The 5-Minute Rule: On 1 July 2021 the settlement period for the National Electricity Market will reduce from thirty minutes to five, significantly increasing the opportunity for demand-side resources to generate value.

Entrepreneurs can leverage emerging technologies to take advantage of these new opportunities. Household batteries are becoming cheaper and more ubiquitous, creating new opportunities to support the grid and arbitrage the volatile electricity market. Household appliances are also becoming smarter, creating new opportunities for Demand Response programs. Coordinating all household appliances in Australia could create something in the range of a 7.5 GW Demand Response resource, 100 times the capacity of Tesla's 'big battery' in South Australia.
We believe there are untapped business opportunities in DSP, and residential Demand Response in particular. By taking advantage of these trends startups may be able to reduce electricity bills, increase the ability of our grid handle renewable energy resources, and grow valuable businesses
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