Submission to Electricity Commission on Mandatory Use of Extended Water Heating Cuts as an Emergency Measure

Transcription

1 Submission to Electricity Commission on Mandatory Use of Extended Water Heating Cuts as an Emergency Measure From Contact Energy 7 October 2005

2 General Comments Contact generally agrees with the analyses set out in the Concept paper and in the consultation document. We note that the Concept paper is likely to have overstated the amount of electricity savings that could be achieved through water heating cuts, due to the factors outlined in the consultation paper. The consultation paper also highlighted the detriments to the reserves market and the energy market of extended water heating cuts, concluding that the impacts could actually reduce security of supply. This is a serious concern and one that the paper does not address in any detail. In Contact s opinion, this aspect of water heating cuts should be analysed in greater detail to determine if there are net positives in implementing these cuts in the case of a 1 in 60 dry year supply emergency. Contact also notes that mandatory water heating cuts have the potential to change consumers behaviour in other ways, possibly leading to much reduced electricity savings in other areas. In addition, we have concerns about the uneven impact of water heating cuts across households. For all these reasons, Contact submits that the Commission should consider whether there are other options for controllable loads to be developed. For residential electricity demand, we believe better outcomes can be achieved through the encouragement of voluntary electricity savings. 1. Do you agree with the conclusions reached in the Concept technical analysis included in appendix 1 of this paper? As noted in the Concept analysis, there are only two sources of electricity savings regarding hot water cylinders: a reduced rate of heat loss from cooler-than-normal water in the cylinder, and reduced hot water usage, due to consumers running out of sufficiently hot water. Of the two, it is the second where significant energy savings are achievable. The Concept analysis concludes that the potential savings from water heating cuts are likely to be less than 2% of national electricity demand. In our opinion, this conclusion overstates the actual amount of electricity savings that might be achieved. The prospect of running out of hot water is adverse enough that it is likely that significant numbers of people will adjust their consumption patterns accordingly to optimise their usage of the hot water they have under an extended water heating cut. Therefore, the amount of savings realised is likely to decrease with the duration of the cuts. In addition, the paper does not address ways that consumers may compensate for the lack of hot water through increased use of other electrical appliances, as outlined below and in the consultation paper. 2. Do you agree that the potential savings from extended water heating cuts may be significantly reduced by these factors? Contact agrees that there are a number of factors that could significantly reduce the actual electricity savings achieved by extended water heating cuts. In addition to the factors listed, we also consider that it is likely that consumers will alter their hot water usage so as to take maximum advantage of hot water when it is available. As noted in the Concept report, if this alteration means that consumers use their usual amount of hot water as opposed to truncating their usage from running out of hot water then electricity savings will be less than potential. 1 7 October 2005

3 Also, there is a possibility that consumers will use electricity in other ways to make up for the lack of hot water. Consumers may resort to heating water for bathing in their kitchen jugs, or they may increase the use of bathroom space heating to compensate for a cooler-than-desired shower. All these factors will tend to decrease the overall electricity savings achieved. 3. Do you agree that extended water heating cuts may have an adverse impact on the reserves market and/or AUFLS, and that this could reduce security of supply? The consultation paper highlights the possible detriments to the reserves market and AUFLS and concludes that there is therefore concern that water heating cuts could have negative impacts on both the reserves market and (as a consequence) the energy market, and that these impacts could actually reduce security of supply. Contact agrees with the consultation paper and is seriously concerned that extended hot water heating cuts, purported to be a measure to enhance security of supply, could in reality reduce supply security, albeit in a different dimension of security. Contact submits that this aspect of water heating cuts should be analysed in greater detail. In particular, the risks to the reserves market and overall security of supply should be quantified. 4. Do you agree that mandatory water heating cuts may dilute the incentives for residential consumers to achieve voluntary energy savings? Yes. As noted above, we consider it likely that mandatory water heating cuts will not achieve the maximum electricity savings possible either because consumers will resort to other ways to heat water or because they will compensate for the involuntary loss of hot water by increased use of other electrical appliances. Furthermore, it is possible that the incentive to reduce energy consumption voluntarily will be negated because of consumers awareness that the Lines Company is mandated to do it for them through the extended water heating cuts. 5. Do you consider that the Commission should be concerned about the uneven impact of water heating cuts across households? Yes. Contact notes that the impacts of the cuts are uneven not just between large and small households, as outlined in the paper, but also between households with controlled and uncontrolled water heating. 6. Do you agree that there are potential safety issues with water heating cuts? Are there other safety issues that should be noted? Contact agrees that, in a situation where there are extended water heating cuts, consumers will be incentivised to find ways to circumvent the cuts, in potentially dangerous ways. 7. Do you agree that the long-term impact of water heating cuts on the availability of controlled water heating load is an important consideration in examining the appropriateness of mandatory water heating cuts? Possibly. 2 7 October 2005

4 Care is needed to ensure that the long term value of load management is not undermined by excessive water heating cuts. When consumers elect to go onto controlled hot water heating, they make the decision based on the savings to be made from lower tariffs and the knowledge that, provided their hot water cylinder is large enough, they will rarely experience loss of hot water (based on the maximum control periods specified by the Network for the controlled water heating network/retail price product). However, if consumers become aware that they may be faced with extended hot water cuts from time to time beyond the maximum control periods they have agreed to contractually (thus losing hot water supply), they will have an incentive to move away from controlled hot water to uncontrolled hot water or gas hot water heating. This will then have a detrimental effect on the long term amount of controllable hot water load available for higher value uses (e.g. network & transmission system security). There is already evidence of a shift of this nature where the price differential is insufficient, indicating that continuous availability of hot water is both an economic and lifestyle decision. Contact suggests however that the impact of very limited emergency driven (occurring only in the event of a 1 in 60 dry year event) water heating cuts is only likely to have a material effect on consumers water heating decisions in the year or two following their use that is, while the impact of the cuts is still fresh in consumers minds. Improvements to price differentials between controlled and uncontrolled tariffs should more than counteract this effect. Investigating changes to profiling to enable the profile of controlled meters to be distinguished from uncontrolled and thus to allow different wholesale market prices for each profile should be a high priority in this context. 8. Do you agree with the conclusion that, despite the limited potential and the acknowledged downsides of using water heating cuts as an emergency measure, they may have value as a last resort measure in extreme circumstances? Contact agrees that water heating cuts may still be able to play some role in the event of an extreme energy shortage that is, in a 1 in 60 dry year event. We recognise that, in the event of such an extreme supply shortage, extended water heating cuts may be one of the only alternatives to a situation of rolling blackouts. However, we submit that it would be unwise to pursue this option if the outcome was a material increase in the risk to real-time system security. As the analysis has shown, the maximum possible savings that water heating cuts can achieve is less than 2% of national demand and actual savings will almost certainly be less than this, due to altered consumption patterns. At the same time, the use of water heating cuts can have detrimental effects on other aspects of the electricity market, such as the reserves market and AUFLS. Therefore, as noted above, we believe that the effect of extended water heating cuts on the reserves and energy markets should be investigated in greater detail before the option can be considered a realistic way of managing a 1 in 60 dry year supply shortage. In addition, the Commission should investigate the extent to which water heating cuts are implementable in practice, given that the ripple control receivers are aged assets and may be prone to failure or, in some cases, bypassed. 9. Do you agree that, before water heating cuts are used as an emergency measure, the Commission should be convinced, at the time, that the use of water heating cuts will have a material affect on the potential to avoid rolling blackouts? 3 7 October 2005

5 As outlined above, the analysis in the consultation paper has shown water heating cuts may be ineffective, inequitable, and possibly to have a negative overall effect on security of supply. Contact submits that further analysis should be performed to quantify more precisely the potential benefits and costs of implementing extended water heating cuts. Only if this analysis shows that the potential benefits of water heating cuts outweigh the detriments should this option be considered feasible in a 1 in 60 dry year supply shortage. 10. Do you agree with the Commission s overall conclusions? In general, yes although note that we believe further analysis needs to be done before extended water heating cuts can be considered a viable option in a 1 in 60 dry year supply shortage. 4 7 October 2005