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Progressive Green PTY LTD T/A Flow Power
ABN 27 130 175 343
National Energy Performance
Strategy
Flow Power submission
February 2023
Ground Floor, 109 Burwood Rd, Hawthorn, VIC hello@flowpower.com.au 1300 08 06 08 flowpower.com.au
3122
Table of Contents
Table of Contents .........................................................................................................................................2
About Flow Power........................................................................................................................................3
Summary .....................................................................................................................................................4
Demand flexibility is key to the energy transition .......................................................................................5
What is demand flexibility? ..................................................................................................................................5
The benefits of demand flexibility ........................................................................................................................6
Encouraging more demand flexibility...................................................................................................................7
How we support demand flexibility ......................................................................................................................8
Connecting customers with renewable energy ..................................................................................................10
What works for improving energy performance .................................................................................................10
Improving our national energy performance .............................................................................................12
Governance .......................................................................................................................................................12
Industrial, commercial and residential customers..............................................................................................12
Retail markets....................................................................................................................................................13
Carbon accounting ............................................................................................................................................15
Conclusion .................................................................................................................................................16
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About Flow Power
Flow Power is an electricity retailer that works with energy customers throughout the National
Electricity Market (NEM). Together with our customers, Flow Power is committed to our vision of creating Australia’s renewable future.
We empower customers to take meaningful action. By providing energy knowledge and innovative technology, we are delivering smarter ways to connect customers to clean energy to make our renewable future a reality. We provide our customers with:
+ Engineering support, access to live data and transparent retail tariffs that reward demand
flexibility and encourage electricity usage at times of plentiful renewable output.
+ Hardware solutions that equip customers with greater information, visibility and control over
energy use.
+ Access to renewable energy, either through distributed solar and storage installed on site, or
through a power purchase agreement with utility-scale wind and solar farms
We believe that by equipping customers with these tools, we can lower costs for all energy users and support the transition to a renewable future.
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Summary
The key points we would like to make regarding the Department of Climate Change, Energy, the
Environment and Water’s (DCCEEW) consultation paper are:
+ Demand flexibility is key to the energy transition. The demand side of the market is where our
best opportunities for improving the energy transition lie. Improving our energy performance
will mean the energy transition can be faster, cheaper, smoother, and more reliable.
+ Energy governance could be updated. There is no dedicated body within government or the
market bodies who is focussed on increasing energy productivity. There would be merit in
creating a dedicated entity who can implement targets and provide advice.
+ Expanding access to data and load control will increase demand flexibility. This is an
opportunity across industrial, commercial, SME and residential customers. With more data and
hardware dedicated to automation, energy users will be able to respond to variations in
wholesale prices and better compliment renewables.
+ We look forward to engaging further. We have been focussed on innovating in the energy
market to create opportunities for better energy productivity. We have experience working with
a range of customers and would welcome the opportunity to share our views in more detail with
the DCCEEW.
We’ve provided some additional comments on various aspects of the consultation paper below.
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Demand flexibility is key to the energy transition
We welcome the government’s focus on energy performance in its broader ambitions to decarbonise the country. Replacing coal and gas-fired generation with renewable energy is central to reducing emissions and as such, this is often the focus of most policy making. However, the demand-side of the market is where our best opportunities for improving the energy transition lie. If Australia can improve its energy performance (including demand flexibility and energy efficiency), the energy transition can be faster, cheaper, smoother and more reliable.
Flow Power has been highly successful in working with a diverse range of energy customers and supporting their development demand flexibility. Unlike other retailers, we pass through incentives to all our customers to encourage them utilise their demand flexibility and use electricity at times of low prices and high renewable output. The tariff structure of all our products are designed to engage customers further with the wholesale market; not only providing them with opportunities to achieve financial savings but to also improve the carbon-intensity of their electricity usage.
With our engineering teams and technological solutions, we equip our customers with the tools they need to start using energy in smarter ways. Demand flexibility improves outcomes for our customers and improves market wide outcomes by moving load out of peak periods into otherwise low demand periods, improving reliability and integrating grid-scale renewables.
What is demand flexibility?
Demand flexibility is an umbrella term for a highly varied range of services the demand side can provide, all of which will play key roles in supporting the transition to a net-zero power system. Demand flexibility includes:
+ Rapid short-term changes, usually in response to frequency deviations or sudden price spikes,
which are generally automated.
+ Demand reductions for at least 30 mins and up to many hours. This is usually used to avoid
prolonged high prices or when participating in the Reliability and Emergency Reserve Trader.
+ Dynamic load-shifting based on the expected price profile for a day or week. This might involve
changing operational patterns to avoid high prices and to take advantage of low prices.
+ Behavioural or long-term change can mean reorganising processes to take advantage of longer-
term price trends. For example, maximising day time load to coincide with on-site solar or low
wholesale prices.
+ Energy efficiency, which refers to reducing the energy needed to run existing processes.
These facets of demand flexibility provide valuable services and reduce the overall strain on the power system. Complexity often arises because energy consumers do not necessarily fall into specific buckets
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– the demand flexibility they provide will be highly dependent on numerous variables. However, some consistent elements to unlocking demand flexibility across the board include:
The importance of engaging with consumers. Direct engagement with customers is a precursor
to any meaningful demand flexibility.
Providing customers with choice. Energy customers engaged in providing demand flexibility
need to be provided with choice regarding how, when and if they participate.
Delivering value. Energy consumers need to be able to understand and access the value of
demand flexibility. Without the appropriate incentives in place, consumers will not provide
demand flexibility.
Demand flexibility should be central Australia’s decarbonisation. All five types of demand flexibility listed above neatly complement high penetrations of renewable energy, either by helping to adjust for short-term changes in renewable output or decreasing the reliance of energy storage to maintain reliability. At the same time, demand flexibility offers energy users with the opportunity to improve their energy affordability and productivity.
The benefits of demand flexibility
Numerous reports and studies have found the benefits of demand flexibility in a transitioning power system. As part of the Energy Security Board’s (ESB) final advice to Energy Ministers, the ESB commissioned a report by NERA to modelling the value of greater levels of demand flexibility. The study, which had been informed by a broad range of stakeholders, estimated $6.3 billion in efficiencies available under a higher uptake of demand flexibility.1 This was because demand flexibility is a cost- effective resource that reduces the amount of storage that would need to be developed, and reduces the levels of thermal generation necessary to maintain reliability.
A similar study from the United States found that combining efforts to introduce new renewable energy generation alongside demand-side solutions would almost double the reduction in greenhouse gases, when compared to just supply-side solutions.2
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1
NERA, Valuing load flexibility and resource adequacy mechanisms in the NEM – Prepared for the Energy Security Board, p. v,
July 2021. Available at https://esb-post2025-market-design.aemc.gov.au/32572/1629945921-part-c-5-2-nera-economic-
consulting-valuing-load-flexibility-and-resource-adequacy-mechanisms-in-the-nem.pdf
2
Brattle Group, The customer action pathway to national decarbonisation – Prepared for Oracle, p. 4, September 2021.
Available at: https://www.oracle.com/a/ocom/docs/industries/utilities/customer-action-pathway-report.pdf
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Energy management and demand flexibility also support job creation and economic growth. The Energy
Efficiency Council, the Australian industry body representing energy management, produced a report that noted:3
“Energy efficiency improvements increased global GDP by an estimated AU$2.8 trillion in
2017… Raising the EU’s ambition on energy efficiency has been estimated to increase GDP
growth by 4.1%, and generate an additional 4.9M jobs”
These studies highlight the critical importance of demand flexibility in creating economic opportunities, integrating renewables, and supporting decarbonisation.
Encouraging more demand flexibility
The graph below shows the correlation between the renewable output, carbon intensity of the grid, and wholesale electricity price dynamics in New South Wales from 2017 to 2021. It shows an inverse relationship between wholesale prices and renewables/grid carbon intensity. This effect should become more pronounced as renewable penetrations continue to increase.
Figure 1: Renewable percentage, grid carbon intensity and spot price profile in NSW, 2017-21
These graphs represent the opportunities available for increasing demand flexibility. Customers with the right incentives can take advantage of these variations in spot price, and better align energy use with renewable generation.
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3
Energy Efficiency Council, The world’s first fuel – How energy efficiency is reshaping global energy systems, p. 12, June 2019.
Available at: https://www.eec.org.au/uploads/Documents/The%20Worlds%20First%20Fuel%20-%20June%202019.pdf
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How we support demand flexibility
Flow Power works with customers to integrate demand flexibility and distributed energy resources into their operations. Every product we offer includes a financial incentive for our customers to engage in demand flexibility. Importantly, we accompany these financial incentives with engineering and technological solutions to support customers.
An example of one of our customers responding to wholesale prices is shown below. In this example, our customer greatly reduced their energy use in a period of volatile, expensive wholesale prices. This reduces the energy costs for the customer and reduced the demand on the system at a time of stress.
Figure 2. Flow Power customer reduces electricity consumption in high prices.
Our customers also make changes to how they operate their businesses to make the most of the solar power produced throughout the middle of the day. The two following figures show the energy profile of an agricultural Flow Power customer. This customer adjusted their processes to move a shut down from a time of high renewables energy to the peak period. This change delivered savings to the customer, but these actions also provide benefits to the system. This customer will now:
+ Use up more of the solar energy produced in the middle of the day.
+ Help with increasing demand in the middle of the day, which in turn assists with managing
minimum demand.
+ Be shifting energy use out of peak periods, which reduces strain on the local network, and
assists with overall power system reliability.
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Figure 3. Flow Power customer energy usage before load shifting.
Figure 4. Flow Power customer energy usage after load shifting.
As well as encouraging our customers to respond to changes in the wholesale electricity price, we also provide our customers with technological solutions and engineering support. For example, Flow
Power’s large customers receive a “kWatch Controller” that reads energy usage in real time and provides that information to the customer. In addition, our controllers can be integrated with certain loads so that they can be remotely controlled and optimised with respect to wholesale electricity prices.
For example, several of our agricultural customer’s use water pumps and these loads are controlled to operate during periods of low wholesale prices. These controllers can be used to control other types of loads, such as HVAC and data centre loads.
Flow Power continues to grow and sign-up new customers. Each new customer that joins Flow Power increases the amount of load with strong incentives to adjust their demand with spot prices. The
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aggregate effect is large amounts of demand for electricity shifting out of peaks into times of cheaper, more renewable electricity.
Connecting customers with renewable energy
Flow Power has been a market-leader in connecting customers directly with renewable energy projects through power purchase agreements (PPAs).
PPAs allow customers to sign direct offtakes with renewable projects. For customer, signing a PPA creates a link between themselves and a renewable project. However, it can be a complicated undertaking and involves price risk and credit risk, has long durations and administrative costs. For these reasons, direct PPAs have typically been the domain of large, sophisticated energy users.
Flow Power is an industry leader in corporate PPAs, which are sometimes referred to as sleeved-PPAs.
Corporate PPAs have lowered many of the barriers faced by end-users looking to sign a renewable
PPA. These arrangements reduce the complexity, size, and transaction costs of entering an offtake with a renewable project, allowing a far greater range of customers to sign PPAs.
Customers who have entered a PPA are often inclined to match their energy usage with the renewable generation they are connected to. Customers signing PPAs have benefits for the energy transition including:
+ Supporting long term offtakes that help with project financing for renewable energy projects.
+ Increasing the responsiveness of customer energy use to times of renewable energy generation.
What works for improving energy performance
Through our experience as a demand management business, energy retailer and engineering advisory company, we have a long track record of working with energy consumers to develop and reward better energy performance. In our experience, improving energy performance is achieved through:
+ Visibility and data: Most customers have limited understanding on where, when, and how they
use electricity. Therefore, the first step to improving energy performance is to increase this
understanding by increasing visibility of energy use and providing energy data in an accessible
manner. This data is often what underpins subsequent decisions and investments made by
customers to improve their energy performance.
+ Time and experience: Changing the energy performance of a business or consumer often takes
time and experience. Customers need to develop their own understanding and trust in the
benefits of more demand flexibility. Energy performance improvements should be thought of as
a journey of continued improvement instead of upgrades that simply happen at a point in time.
We consistently see customers who use time and experience to increase their energy
sophistication and find new ways to improve their energy performance.
+ Price signals: Incentives and price signals are key to rewarding better energy performance.
Price signals create the business case for making investments and operational decisions that
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improve energy performance. They also provide the reward for effective improvements in
energy performance.
+ Technology: Advances in technology provide tools that can unlock energy performance
improvements. Controllers, sub-metering and energy management systems are increasingly
ubiquitous, and provide a low-cost avenue for increasing available data, visibility of energy use
and options for control. Continued improvements and rollouts of these technological solutions
will unlock further gains in energy performance.
+ Aligning with renewable and climate ambitions: Energy users are strongly motivated by
environmental, renewable and climate ambitions. These ambitions often lead to significant
actions being taken to increase renewable energy used, and this can coincide with investments
in improved energy performance. For example, a demand management program can be
implemented alongside PPAs to improve its effectiveness.
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Improving our national energy performance
We are strongly supportive of the intent of the Government’s review. We have provided feedback on how we can improve our national energy performance, grouping our feedback into:
+ Governance
+ Industrial and commercial customers
+ Residential customers
+ Retail markets
+ Carbon accounting.
Governance
The governance frameworks relating to energy could be updated to increase the emphasis on energy performance. Currently, there is no clear ownership of demand side considerations within the various government and regulatory bodies. As such, this review should explore the creation of a dedicated, independent body focussed on energy performance. This body could:
+ Represent a central body for governments and stakeholders to engage with on long-term plans
to improve Australia’s energy productivity.
+ Set and maintain national targets for energy efficiency, demand response and demand
management.
+ Report to governments on progress against these targets.
+ Inform and/or design policies to improve energy performance.
This body could continue the work the Energy Security Board has been progressing on distributed energy resources and coordinate with the Australian Energy Market Commission on its extensive program of work relating to the demand-side.
Industrial, commercial, and residential customers
There is enormous potential to improve the energy productivity of Australia’s industrial, manufacturing and commercial energy users. To unlock this potential, this review should consider:
1. Increasing data available to energy users. Programs should implemented to expand the use of
sub-metering, building management systems, energy management systems and control
systems. This would allow energy users of all types to make more informed investment and
operational decisions regarding their energy usage and opportunities to improve productivity. In
particular, the review should consider setting up grant and financing processes for:
a. Upgrading sub-metering for industrial and manufacturing customers.
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b. Rolling out control systems that allow for automation of load processes. These control
systems should come with commonly used standards to maximise interoperability. For
example, using AS4755.
c. Smart home devices for residential customers which could be used to automate hot
water, air conditioners, pool pumps and EV chargers.
2. How to encourage increased responsiveness to wholesale prices. The wholesale price for
electricity conveys information about the supply-demand balance on the grid. High wholesale
prices signal times when the grid is constrained. By having more customers respond to
wholesale prices, it means the demand side can adjust to these conditions. This will only get
more important as more of the generation in the NEM is weather dependent. Governments could
support this by:
a. Expanding the educational material available to energy users regarding the role of
demand flexibility. This includes updating Energy Made Easy and the Victorian energy
comparison website to more clearly reflect retail products that include demand
flexibility.
b. Encouraging governments to adopt dynamic tariffs and set up strategies to respond to
the price signals.
c. Encourage state government programs focussed on energy efficiency to evolve to also
support demand flexibility and price responsiveness.
We are not suggesting here that all customers should be exposed to the volatility of the
wholesale market but that regulators should encourage product development that passes-
through meaningful incentives to customers to respond.
3. Cost reflective pricing on networks. Distribution pricing has been far too slow in trending
towards cost reflective pricing. While concerns about price shock for customers are valid, there
has been experience with programs like AusNet’s critical peak demand program that have been
highly effective in encouraging demand reductions at times of network peaks.
Retail markets
Retail competition and innovation have clear, direct benefits for energy users. Effective competition keeps energy costs down and pushes retailers to adapt to emerging customers. Particularly for commercial and industrial energy users, there is a fierce level of competition to keep margins and costs of service low. This also pushes retailers to find new ways to distinguish themselves and offer value to customers. Flow Power responded to this by:
+ Pioneering the corporate PPA, sometimes referred to as a sleeved PPA, in the NEM
+ Refining our kWatch controller, a hardware solution that gives customers greater visibility over
their energy usage and the option of automating demand response.
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+ Developing our ‘Power Active’ product that provides customers with a ‘fixed price’ but also
provides clear incentives to shift load by applying a discount to customers who shift load away
from high price periods.
The role of competition will only become more important as the level of complexity in the National
Electricity Market grows. For example, the expected growth in electric vehicles (EV) presents a complex challenge and opportunity. On one hand, unmanaged EV charging could grow demand peaks, placing strain on the grid infrastructure, and adding costs to the system. Alternatively, businesses like Flow
Power are equipped to manage EVs so they can soak up renewable energy, simultaneously accessing cheap, clean power, helping to manage minimum demand, integrating renewables and reducing the need for new network and generation infrastructure.
However, despite the gains made in retail competition, it is worth noting that there is still a small number of large players dominate the market. This was exacerbated by the withdrawal of multiple retailers in 2022 following sustained, elevated prices.
Effective retail competition become increasingly important when accounting for new trends in the industry. For example, the growth of:
+ Load control such as hot water
+ Solar photovoltaics and distributed storage
+ Electric vehicles
+ Smart homes that can adjust electricity consumption.
These technologies have varying maturities and applications, but all have the capacity to improve the decarbonisation of our power system. Harnessing them involves developing the right retail products, pricing models, control frameworks and technical solutions. If they can be harnessed, these resources can create individual value for their owners, and aggregate value for the system.
The challenge with these resources is how we integrate them into an efficient pathway from here to net zero. Failure to integrate them leads to outcomes like higher network costs as the system is built to cope with new, higher peak loads and lower minimum demands.
Innovation in the retail space has been crucial for creating the incentives necessary to allow distributed energy resources to create value for customers and for the system. Historically, retailers have shielded customers from variations in the wholesale price. While this accommodated preferences for price certainty, it also removed the incentives for responded to spot price volatility. Changing perceptions about variable pricing is a challenge Flow Power has been committed to since our inception. We believe the best method for integrating these resources is a competitive marketplace where retailers are incentivised to integrate DER effectively.
To promote innovation and competition amongst energy retailers, the government should:
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+ Increase harmonisation in energy efficiency schemes across the states where possible.
Increasing the consistency between energy efficiency schemes would reduce the regulatory
burden on retailers and reduce the administrative costs of these programs.
+ Encouraging greater adoption of innovative retail products to supply government loads. If the
government is seeking options for accelerating the development of the tools and products that
can enable greater energy productivity, it can use its own sites to help develop the industry.
+ Resist government subsidy programs that favour large multinational developers. Future
government programs intended to support the energy transition should be required to consider
the consequences of offering subsidies to market participants with retail positions, including the
risks this would introduce for smaller retailers.
+ Design energy programs that exclude regulated monopolies from participating in competitive
markets. For example, allowing DNSPs to own and operate community batteries means they
have significant advantages over community groups who may be willing to develop projects.
Carbon accounting
There is an established process for measuring the emissions associated with using electricity (scope 2 emissions4). Currently, the carbon footprint of electricity use is determined by looking at the total electricity taken from the grid over the year and multiplying it by an emissions factor determined by the
Clean Energy Regulator.5
However, this process does not account for the timing of that electricity use. From the perspective of measuring carbon emissions, a kWh of electricity used in peak solar periods has the same footprint as electricity used in a wind and solar drought.
While price signals for electricity may encourage greater use of renewable energy, the current framework for determining the level of renewables associated with grid electricity itself does not encourage consumers to align their electricity demand with the output of renewable generators. There is significant variation in the carbon intensity of the electricity grid. Instead, “using more renewable energy” revolves around buying and surrendering more large generation certificates.
So, what’s the right way to measure the impact of demand management on emissions intensity? Using annual averages of emissions intensity does not adequately recognise the variability of grid emissions.
One option is to use a long-run marginal emissions intensity. The long-run marginal approach accounts for the feedback loop between demand management (as well as EVs and storage) and renewables
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4
Scope 2 greenhouse gas emissions are the emissions released to the atmosphere from the indirect consumption of an energy
commodity. For example, 'indirect emissions' come from the use of electricity produced by the burning of coal in another
facility.
5
This methodology has been being consulted on by the Federal Department of Industry, Science, Energy and Resources
(DISER). See: https://consult.industry.gov.au/2022-nger-scheme-proposed-updates
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investment.6 A recent study of the British grid found that the long-run marginal emission rate was the best measure of the long-term impacts of load shifting. The study also found that moving loads into periods of high renewable output had a positive influence on new renewables being added to the system.7
Another option would be to use average emissions intensity for each dispatch interval. That is, looking at the grid-emissions intensity for all the generation on the grid every five minutes, and matching this to energy use. The average grid emissions intensity varying throughout the day has been noted as a good proxy8 for more complex metrics like the long-run marginal emissions intensity. This means it is easier to calculate and should be manageable for governments and industry to implement.
To strengthen the links between carbon footprints and energy productivity, we recommend the government:
+ Extent the official NGERS reporting of grid carbon emissions intensity to provide data on how
carbon intensity from the grid changes over the course of the day, every day of the year.
+ Update the Climate Active electricity accounting standard to allow the use of carbon intensity
measures that vary through the day. If not through updated NGERS data, Climate Active should
allow the development of methods using more dynamic metrics, as long these metrics are
transparent and subject to scrutiny.
Conclusion
Demand flexibility is the best tool we have for smoothing out the energy transition. It will reduce total costs, increase reliability, and allow us to move faster. We look forward to working with the
Government on the development of this strategy.
If you have any queries about this submission, please contact me on (02) 9161 9068 or at
Declan.Kelly@flowpower.com.au.
Yours sincerely,
Declan Kelly
Regulatory Policy and Corporate Affairs Manager
Flow Power
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6
Defined as the change in carbon emissions relating to a unit change in electricity demand, where structural change in the
electricity system is explicitly considered (i.e., demand-side interventions dynamically interact with power stations
commissioning and decommissioning, and with system operation).
7
Gagnon, P, Cole, W, ‘Planning for the evolution of the electric grid with a long-run marginal emission rate’, iScience, 25.
8
ElectricityMap, Marginal vs average: which one to use in practice?, accessed 6 June 2022, available here.
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