Power companies will soon be paying you to cut your energy use - ABC News (Australian Broadcasting Corporation)

Late morning, as the temperature rises, Peter Casey reaches for the remote and turns on the air conditioning at his home in suburban Brisbane.

The units installed on the walls of his apartment look the same as any other air conditioners, but there is a difference.

They're fitted with "PeakSmart" technology.

It allows the electricity network company to send a signal that turns the air conditioning down for a short while during times of peak demand when the network is feeling the strain.

"We cycle down the compressor, which is what creates the cooling part of the air conditioner," says Peter Price, an executive general manager at Energy Queensland.

"It cycles down for 20 minutes. The fan still runs, blowing out cold air. Customers don't know that we've done that, but it pulls down the peak demand enough to make a difference."

Mr Casey got a rebate that covered about half the cost of installing the air conditioners, and he's a happy customer.

"We've not noticed a thing," he tells the ABC.

"The air conditioner works exactly the same as it has before. It's not noticeable when they've activated it, so if the room's cool it stays cool.

Demand management keeps the lights on and bills down

PeakSmart air conditioners are installed in about 100,000 households.

They're a key part of Queensland's "demand management" initiative, which more than 1.2 million, or 55 per cent, of electricity customers in the state have enrolled in.

It has helped the state avoid blackouts when the mercury has soared.

"It's on those very days when you have this massive peak demand that demand management really comes in to its own," Mr Price explains.

"Without demand management we wouldn't be able to keep customers connected."

Demand management has allowed the state to avoid spending huge sums — likely in the billions — on network upgrades, which would then be passed on to customers through higher power bills.

"The fact is that without demand management prices would have been higher than they are today," says Mr Price.

Queenslanders have also adopted demand management schemes that allow the energy network to shift the heating of off-peak hot water systems and pool cleaners to the middle of the day, when Queensland's high penetration of rooftop solar means there is an abundance of energy supply.

Big energy users are also involved, including Stadiums Queensland, which operates a series of sports and entertainment venues including Lang Park, home of the Brisbane Broncos NRL team, and the home grounds of the North Queensland Cowboys and the Gold Coast Titans.

Photo Suncorp Stadium is saving money by cutting down its power use at peak demand times.

ABC News: Nic MacBean

With a subsidy that covered more than half the up-front cost, it introduced technology that maximised the efficiency of its electricity use and cut its very heavy peak-demand load during events, netting big savings and taking pressure off the electricity network.

"The benefits flow from our bottom line, our triple bottom line, to patrons because we can reinvest the savings," says Stadiums Queensland environment and property project officer Kate Harding.

Demand response is coming, nationwide

Soon the rest of the nation will get a taste of what the Sunshine State has pioneered, but in an even more sophisticated form.

'Wholesale demand response' is coming, and it's set to revolutionise the electricity system.

"It will be the biggest reform ever in the history of the National Electricity Network," says Dan Cass, the energy policy lead at The Australia Institute.

Photo Dan Cass says demand response is the biggest change the national electricity network has ever seen.

ABC News: Peter Healy

Put simply, demand response gives consumers the choice to turn down or turn off their electricity use in response to a signal to do so.

In effect, consumers will get paid for cutting electricity consumption at times of high demand, and they will sell their reduced demand into the electricity market, though not as individual consumers.

The way it will work is that households and businesses will sign up with companies known as "demand response service providers", which will bring together large numbers of consumers willing to cut their power use when electricity prices are high.

These businesses will bid the reduced demand into the wholesale electricity market as a substitute for increased power generation, and then reward their customers by crediting or rebating their electricity bills.

Demand response will compete with electricity generation, which the Australian Competition and Consumer Commission says will likely push down power prices.

Demand response could allow coal plants to close early

The flow-on benefits are enormous.

Most of the time Australia does not need all of the electricity that its mix of coal, gas, solar, wind and hydroelectricity is capable of supplying.

Effectively, the nation builds massive overcapacity compared to electricity demand in ordinary times to avoid power disruption on a small minority of extreme days when there is huge demand.

Photo Coal power stations, like Liddell in NSW, are reaching the end of their lives.

ABC News: Kerrin Thomas

By encouraging consumers to avoid consumption during peak times on the network, demand response can defer or eliminate the need to spend on new capacity to generate and transmit electricity — costs that make up a huge component of power bills.

It may also allow existing, polluting power plants that contribute to climate change to be retired early without threatening the stability of the electricity network.

Snowy 2.0 will speed coal's demise

Power companies make big profits when electricity prices soar, and so do power stations, often gas plants and hydro which supply expensive "peaking" electricity to meet spikes in electricity demand.

Demand response offers the potential to keep supply and demand in balance at a lower cost.

It also provides a way of enacting an emergency cut to consumption to keep the network stable without forcing blackouts on people or businesses.

Demand response is already being trialled and implemented by power companies and new "demand response providers".

Enel X for example, a global pioneer of electricity demand response, is working on a trial with the Australian Renewable Energy Agency to create a "demand response power reserve" that brings together a portfolio of industrial and commercial businesses in NSW and Victoria willing to cut electricity consumption when the network is under strain.

More than 10,000 customers of the small energy retailer Powershop have opted in to a program where they cut their electricity usage during times of peak demand in return for a $10 credit on their bill.

How long until these exceptions become the norm?

A rule change to extend and encourage demand response is currently being developed by the Australian Energy Market Commission, which sets the rules for the national electricity market.

It was due to unveil new rules for a "wholesale demand response mechanism" today, but it has delayed the announcement for several months while it works with the Australian Energy Market Operator (AEMO) on the details and lines up the reform with a raft of other similar changes being envisaged by the Energy Security Board for the Council of Australian Governments.

Meanwhile, customers are going it alone, putting in their own "demand response" using smart meters that let them assess their electricity use — and cost — in real time.

Photo Smart meters are being rolled out so household energy use can be measured in real time.

ABC News

As more household appliances become "smart devices", programmed to power down in response to a simple signal, it is possible millions of Australians will be voluntarily signing up to schemes that cut consumption during peak periods.

The end point of all these technological innovations and policy reforms will be when millions of consumer devices, solar systems, batteries and factories are aggregated into virtual power plants. These will sell electricity and all the reliability services the grid needs.

Again, Queensland is already in the lead.

It has a prototype already operating, the 44 MW Yurika power station, spread across multiple sites in that massive state.

AEMO says there are now 10 others in development around Australia. And, unlike most other changes in the energy system, these developments have bipartisan support.

Peter Casey says it's time schemes like the one he's involved are rolled out nationwide.

"Every air conditioner sold in Australia should be sold with this capability," he says.

"You tick the box, get the saving, help the network.

"It should just be what we do."