Flexible demand can help both properties and the grid, but many people are not sure which loads can be shifted, what control strategies to use and how to integrate them into existing building systems without breaching the lease or causing disruption. And the business case is “unconvincing for many”.
Better Buildings Partnership (BBP) has launched its flexible demand guidance for commercial buildings and an accompanying report to provide a step by step pathway to help buildings implement flexible energy demand strategies.
Authored by the UTS Institute for Sustainable Futures, in partnership with Positive Zero and Buildings Alive, and supported by the City of Sydney, the guide explains how flexible demand in commercial buildings enables building managers to raise energy efficiency by optimising when electricity is consumed based on generation, network or market conditions.
It can help both properties and the grid by shifting the load of energy use into periods with abundant low-cost solar power and low emissions during the day, while reducing demand during peak periods.
The City of Sydney said it commissioned the report to investigate how the commercial building sector can “harness this opportunity”. The guide provides step by step pathways on how to review a building’s energy profile and costs, identify opportunities to shift electricity use, assess potential risks and benefits, and develop a business case for implementation.
The findings are a revelation – not everyone gets it yet
The report said that while industry stakeholders agree that flexible demand is important for commercial buildings, respondents to its survey rated their personal understanding of flexible demand at 3.72 out of five; organisational capability scored only 3.22 out of five.
“Enthusiasm is consistently tempered by uncertainty about execution, tenant impacts and risks. The most significant gaps are not conceptual but practical.”
It said stakeholders are unsure which loads can be shifted, what control strategies to use and how to integrate them into existing building systems without breaching the lease or causing disruption. And the business case is “unconvincing for many”.
Obstacles include fears of lease penalties, reduced energy efficiency ratings, technologies becoming obsolete, changing market conditions, complex energy contracting, and limited in-house expertise. There’s also complexity of implementation, tenant and lease constraints, physical limitations of buildings, demand patterns and perceived lack of rewards.
Then there are risks associated with battery safety and insurance, stranded assets from shifting market conditions, and reputational damage if flexibility programs coincide with service disruptions.
Stakeholders told the authors there were three conditions that must align for it to be worth the uptake, namely: energy procurement arrangements that reward flexibility, smart controls and on-site storage, and sufficient operational capability to manage flexible loads.
But also helpful would be practical guidance for each asset class, credible real-world case studies, simple and automated participation models, and policy and rating frameworks that reward flexible demand rather than accidentally penalising it.
Stakeholders are unsure which loads can be shifted, what control strategies to use and how to integrate them into existing building systems without breaching the lease or causing disruption. And the business case is “unconvincing for many”.
The report adds that stakeholders can see the clear opportunities with energy cost savings or revenue, alignment with electrification and net-zero strategies and positioning as industry leaders.
The case for landlords
When it comes to flexible demand, landlords are driven by a combination of financial, operational, regulatory and strategic factors. These include:
- lower energy costs due to utilising low or negative wholesale prices when solar generation is abundant and reducing peak charges through load shifting, pre-cooling or pre-heating, and on-site storage
- new revenue and incentive opportunities through price and market incentives such as network demand payments, demand response programs, wholesale demand response mechanism (WDRM) and frequency control ancillary services (FCAS)
- reduced electricity and carbon risk as buildings electrify
- lower scope 2 emissions and stronger ESG performance
- improved grid resilience and avoided future costs from system peaks
- better use of existing building assets such as HVAC, electric hot water heating, batteries and EV chargers
- future proofing building operations by positioning the building to respond to evolving policy, market and reporting
The case for stakeholders
Activating flexible demand in commercial buildings requires coordinated action across an interdependent set of stakeholders, the report said. “No single actor controls the conditions for success.”
The implementation of flexible demand relies on engagement at multiple levels across the energy, property and regulatory sectors. Stakeholders include:
- building owners and managers, who play a central role in capital investment, lease structures and decision making
- tenants, who influence outcomes based on comfort and operational demand
- energy retailers, aggregators and virtual power plant (VPP) operators, which determine commercial viability through tariffs, contracts and market access
- networks, which manage connections and demand charges
- market bodies such as the Australian Energy Market Operator (AEMO) and Australian Energy Regulator (AER), which set rules and incentives
- governments and building standards bodies such as NABERS and the Green Building Council of Australia, which also shape incentives and expectations through policy, ratings, and leadership
- investors and lenders, which reinforce these signals through capital allocation tied to energy and emissions performance.
The finance and business case
There is a wide-ranging and evolving set of incentives that underpins the business case for flexible demand in commercial buildings, explicit schemes and emerging regulatory and reporting frameworks, the report said. And rather than relying on a single mechanism, the key to value is understanding how they interact.
Some price based incentives include:
- time?of?use tariffs, dynamic tariffs and wholesale price exposure, which reward buildings that shift load away from peaks towards the middle of the day
- lower peak and network demand charges
- retail contract pricing through load shaping, due to retailers offering better rates to customers with better demand profiles
- buildings with partially firmed corporate PPAs will get more value from helping manage residual price and volume risk
Scheme based incentives, usually mediated through a retailer or aggregator, can provide additional value. These include:
- AEMO markets that pay for flexibility or capacity through the WDRM, FCAS and reliability and emergency reserve trader (RERT).
- network payments due to flexible demand deferring or avoiding network augmentation (network expansion or upgrade).
- NSW Peak Demand Reduction Scheme (PDRS) incentivises capacity reduction during summer peak periods with upfront rebates for technologies such as HVAC controls
- battery incentives and participating in VPPs
Regulatory, reporting and strategic incentives are also becoming increasingly important. These include:
- the transition from large-scale generation certificates to time stamped renewable energy guarantee of origin certificates alongside changes to scope 2 emissions accounting
- updates to the National Construction Code to make buildings “flex ready”
- expected NABERS incentives for flexible demand
