Demand response allows electricity consumers to reduce their electricity demand for a period of time in exchange for a payment.
Sometimes there are substantial, short-term increases in electricity demand. Changes like these may trigger the need for additional investment in New Zealand's electricity transmission network – a cost that is passed on to all New Zealanders.
Managing such peaks in demand can be an alternative to that investment, and we are testing the capability of the market to provide demand response as a way to carry out this management.
By helping us lighten the load, we'll get the power needed to the right place.
Demand response events
Electricity consumers who are signed up to our programme receive a signal from us that announces a demand response event. The signal specifies a time period and a price point.
If those electricity consumers choose to participate in the event, they respond to the signal indicating they will participate. Typically, participants use their standby generator to provide the power they need for the time of the demand response event, instead of consuming power from the national grid.
We've put together some information on energy curtailment strategies that could be used by participants in different industry groups:
As part of applying to the programme, participants can discuss with us and contractually agree on other payments that we may provide (the Establishment Fee and Availability Fee). These partially cover costs such as setting up systems to operate for demand response, and having people available to manage your participation in demand response events.
After the demand response event, the amount of electricity the participant didn’t use is calculated and a payment is made by us into the participant's bank account.
Most demand response events are held on weekdays, typically in the late afternoon to early evening when power use peaks. Events are generally between one and two hours, but sometimes last for up to four hours.
By developing the market for demand response, we hope to establish a sustainable framework so that when we need demand response – during a heat wave or a cold snap for example – we can have confidence demand response will be there when we need it.
Benefits of demand response
Managing peak demand levels is an alternative to transmission investment. There may be a situation where we forecast that the network will need new investment in five years because electricity demand in the region is predicted to grow substantially. We could defer this investment if we use demand response at peak times, slowing down the peak load growth in a region. Less transmission infrastructure means lower electricity costs for end consumers.
It's a win-win situation where consumers get compensated for their involvement and see lower charges long term, while helping us manage demand on the grid.
Lower costs to all consumers
Any reduction in peak demand can result in reduced grid and generation investment. Less transmission and generation infrastructure means lower electricity costs for end consumers.
Increased reliability of service
If we can switch off non-essential load or turn on standby generation in response to transmission or generation failures, we can maintain electricity supply to customers' essential services.
Reducing our carbon footprint
Continuing to expand the current grid will substantially increase the footprint of the grid – and we'd like to limit this where possible.
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