Buying time with DSP

Transpower has been trialling Demand Side Participation as a potential tool to take the heat off the national grid and buy time while waiting for upgrade consents.   By Hugh de Lacy.

A Demand Side Participation (DSP) pilot followed by a successful trial this year were carried out in the upper South Island by Transpower, revealing potential to reduce congestion on the lines when demand is at its peak. The programme involves giving selected large electricity users a financial incentive, through contracted ‘aggregators’, to reduce their consumption at peak times. The 2007 pilot contracted 14MW of load reduction and this year’s trial, beginning June 1 and finishing at the end of August, contracted 27MW.

It’s a strategy that could be used in the grid-restricted Auckland region to buy time for the state-owned transmission company while it hastens to expand network capacity to meet demand growing at around two percent a year.

Transpower thinks there are a couple of ways DSP can be used. The first is to manage construction risks inherent in large and complex developments. If demand grows faster than expected, or the commissioning of a new line or upgrade is delayed, DSP can be used to manage demand until the investment is in place.

A second DSP application is in managing peak demand within the current capacity, thereby deferring additional investment. In this case DSP delivers two benefits. The first is an accounting benefit from deferring costly investment that relies on the principle that a dollar today is worth more than a dollar tomorrow. The second is an ‘option benefit’, in which deferring investment allows Transpower to collect more information to identify the best investment option. While stressing DSP is not a silver bullet for fixing transmission bottlenecks, Transpower says it sees potential for this investment.

This strategy, which is the essence of DSP, may seem blindingly obvious – surely it’s in everyone’s interests to flatten out the peaks and hollows in demand to match the capacity to supply. But the fact is, only the really big consumers – the likes of New Zealand Steel and Bluff aluminium smelter owner Rio Tinto – actually monitor and adjust their demand profile in response to real-time pricing. Some smaller businesses do, but most don’t and the reason, according to Tom Walmsley, a senior analyst in Transpower’s Development Strategy Group, is that they have neither the knowledge nor the incentive to do so. Because their operations aren’t big enough to justify real-time monitoring, these mid-level businesses – the likes of, say, a medium-density fibreboard (MDF) factory – simply don’t know what’s happening at the interface between demand and price, Walmsley says.

“Secondly, as a rule they’re reasonably well covered by hedge contracts at a fixed rate, so they don’t face real-time pricing. So even if the spot price is high, they may not be seeing it because their contract only exposes them to the top 10 percent or 20 percent.”

DSP is a system of aggregating the potential of a group of companies to shift a proportion of their electricity requirements away from peak times through negotiation between those companies and an appointed aggregator. If Transpower is concerned its grid won’t meet the peak of demand of a chilly winter’s evening and it needs to cut that demand by 30 megawatts, it rings up an aggregator and says, “We want 30 megawatts of demand taken out of the system at such-and-such a time.”

The aggregator then approaches (dispatches) its cluster of participating companies and asks them individually what the chances are of their switching some of their power usage to a low-demand period, for which they will be rewarded financially. In effect the aggregator buys back electricity from the participating companies and sells it to a buyer on the supply-side (a transmission, lines or retail company), clipping the ticket along the way as reward for its services.

In its DSP pilot, carried out in winter last year, Transpower used five companies as aggregators, each of them contracting with large industrial users, cold-stores, water-pumping facilities or the owners of diesel generation plants to shed or generate 14.2 megawatts of peak-time load. The aggregators and their five client sources achieved 68 percent of the target.

In the trial this year, which ran from June through to August, Transpower sought 30 megawatts of savings using just two companies as aggregators, Australian DSP specialist Energy Response and Tauranga-based generator and retailer Trustpower. Overall the project had a budget of $8.27 million, but that included all the set-up and monitoring costs, with potential benefits of $9.8 million.

Energy Response, which pioneered DSP in Australia, was the larger of the two aggregators with two blocks of 10MW, covering 24 industrial and commercial sites – involving cold-stores, manufacturing, water pumping, quarries, mining and diesel generation. Trustpower  deliver another seven MW.

Energy Response says it delivered 10MW in block #1, 13 out of the 15 times, only missing the target in the first half hour period. The company delivered block #2 in all its six calls from the system operator (Transpower). The Aussie company achieved its share with a Wellington-based manager, Stephen Drew and an operations team in Melbourne; contracting with 24 industrial and commercial sources at 11 different grid exit points on the upper South Island grid. The company found our MetService a very help tool.

“Energy Response’s impressive results were achieved by a dedicated team supported by tools such as trying to forecast peaks on the grid by understanding forecast MetService wind chill data,” says Drew.

Total savings during the 2008 trial reached 27 megawatts or 90 percent of the target. Transpower is coy about the actual amount it paid for this saving, but admitted to Energy NZ it had budgeted $6 million for it and found the actual cost to be “considerably less than that”.

Central to DSP are the aggregators, and it’s the nature of the beast that they be independent of both the lines company and the sources. Transpower has neither the real-time resources nor the expertise to manage the aggregation itself, Walmsley says. Transpower might have four controllers sitting down of an afternoon to manage an evening peak exacerbated by a southerly coming through. Rather than get on the phone themselves to contact potential sources and savings, it’s more efficient to turn this over to a specialist in the field.

The success of the DSP pilot and trial means the system could be tried in the near future in Auckland, says Transpower, where the grid is under greatest pressure and the potential for savings is far higher than in the upper half of the South Island.

And as a strategy, DSP may just be able to stave off further power shortage threats until the national grid’s capacity is better matched to demand, though it’s yet to be decided who would be responsible for such a programme.