How are consumers benefiting from system efficiency?

System efficiency offers new benefits as electrification and renewable energy transform leading energy markets

The electrification of heating and cooling, road transport and industrial processes is driving higher peaks in electricity demand, increasing its hourly, daily and seasonal variability. At the same time renewable energy is taking on an increasing share of electricity production, thereby increasing variability on the supply side.

System efficiency – provided through new digital technologies that enable improved management and control as well as energy savings – is helping the consumer manage this increase in variability on both the supply and demand side. System efficiency helps bring down consumer bills and other costs as more straightforward energy efficiency opportunities become exhausted. 

Flexibility – the ability to rapidly adjust supply or demand in response to a signal such as price – is today sourced primarily from the ability to turn thermal generation supply up and down, as well as from large-scale hydropower and, increasingly, battery storage. However, as variable renewable energy penetration deepens, displacing thermal units, more flexibility is needed on the demand side from consumers adjusting when and how much electricity they consume.

Flexibility increases electricity security and offers the opportunity to reduce costs, by allowing users to take advantage of low-priced electricity and by preventing system operators from having to make costly network reinforcements. At a time when consumers globally are already suffering from high electricity prices and consumer bills, demand flexibility can help boost competitiveness and the affordability of energy.

Time-of-use tariffs are a key tool to unlocking flexibilityencourage flexibility, and are becoming more widespread as governments search for ways to align consumer behaviour with increasingly variable electricity supply. For instance, India has announced that starting in 2024 it will strengthen time-of-use tariffs to encourage consumption during hours when solar production is at its peak, and penalise consumption in the evening when supply is low and demand peaks.

Efficiency is evolving to a convergence of delivering energy savings, flexibility and localised renewables

Even though it accounts for a relatively small share of overall national electricity demand, South Australia is recognised as a global leader in terms of its high share of electricity coming from renewables. For example, in December 2022 wind and solar contributed over 85% of South Australia’s electricity demand, surpassing the previous record of 76% achieved in December 2021.

As part of this transformation, South Australia has also become a leader in the use of technologies that support systems efficiency to help manage increased price variability and other grid pressures. For example, following a 2016 statewide blackout, grid resilience has been improved using measures such as virtual power plants and battery storage, while and solar capacity has increased more than fourfold, to 3.1 GW as of September 2023.

As more countries move to implement their net zero goals, the experience from South Australia offers an important case study on the evolving role of energy efficiency in jurisdictions with extremely high levels of renewable energy penetration.

Net electricity demand and wholesale prices in South Australia, hourly, January 2016 and 2023


Today, distributed PV has a visible impact on daily net electricity demand in South Australia, with rooftop solar currently installed in around 40% of homes. This has also changed the nature of wholesale prices throughout the day, with a deepening valley during midday hours, when self-consumption peaks and demand on the grid drops drastically. The changes have been so great in the region that negative wholesale prices were recorded for more than 120 days between January and September 2023. This has also led to curtailment of solar generation at times, as well as lower feed-in tariff prices for exports to the grid.

While swings in demand and prices can present challenges, they also represent an opportunity for customers to significantly reduce their monthly bills by shifting their consumption towards solar peak hours. The South Australian Government has moved to encourage more flexible devices to facilitate this. For instance, under the new Technical Regulator Guideline, the state has mandated that air conditioners installed after 1 July 2023 must be demand response ready

Next generation micro-grids offer system efficiency to lower costs and improve reliability for consumers

Operating in this dynamic environment, several companies are adapting their business models to take advantage of system efficiency. For example, a produce supplier in South Australia invested in solar panels and batteries to better manage the plant’s energy bill and to improve resilience in case of grid failure. The creation of this microgrid allows the business to be self-sufficient in its energy supply and reap the benefit of net savings on its energy bills.

Similarly, the University of Queensland in Australia installed the state’s largest behind‑the‑meter battery, with 1.1 MW capacity and 2.15 MWh storage. By joining Enel X’s Virtual Power Plant, the university earned more than USD 47 000 in the first quarter of operations, while supporting renewable integration and grid balancing.

Smaller residential consumers are also beginning to gain access to wholesale markets for the first time, helping to spread the benefits of flexibility even wider. For instance, the Tesla Virtual Power Plant project in South Australia installs solar panels and home batteries in social housing properties.

Tesla centrally manages the batteries and solar system, to reach wholesale market scale. It provides frequency stabilisation service and maximises benefits on wholesale markets. In exchange, households are offered a lower electricity rate. From 2020 to 2023, Tesla, with some funding from the Australian Renewable Energy Agency, equipped 4 000 homes through this programme. In 2023, Tesla gained authorisation to install 3 000 more. The company’s goal is to reach 250 MW of rooftop capacity across 50 000 households.

The resulting evidence so far suggests the use of digital tools in large non-residential buildings has delivered benefits (improved energy performance, reduced emissions and bills) almost three times higher than initial costs over a ten-year period. 

To further explore the cost benefits of investing in flexibility, the IEA analysed the case of one large industrial consumer in South Australia that has provided data under condition of anonymity. This consumer invested in a microgrid with solar PV and batteries as part of an energy efficiency and building energy management package. This package includes a 1.5 MW battery which has helped the business take greater advantage of periods when prices are negative by charging batteries during these times and discharging them in the evening when prices tend to be high.

Daily bill of a large commercial energy user on a typical day in South Australia, 2023


Site production, storage and consumption of a large commercial energy user on a typical day in South Australia, 2023


Such digitally enabled building energy management systems, integrated with efficient equipment, have helped provide significant savings on the consumer’s energy bills. For instance, on a typical day in 2023 supplying the plant’s load curve at wholesale price would have cost USD 2 920 if no solar panel or batteries had been installed. Adding solar PV alone would have reduced the bill by 15%, to USD 2 470. By adding a battery and using it to better align consumption with times when solar production is high, the cost dropped to USD 1 860, or a 36% reduction in energy costs. On that day, savings obtained from batteries exceeded those obtained from solar PV.

In addition to saving on energy costs, the use of batteries and solar PV diminish the user’s carbon footprint, by increasing the share of renewable electricity in its consumption. These measures also help protect the consumer against grid outages.  

Demand response schemes are rapidly expanding in many other regions around the world

A multitude of countries are now exploring opportunities for demand response programmes to support consumers. Between November 2022 and March 2023, the UK’s Electricity System Operator launched a demand flexibility service pilot programme that saved a typical participating household up to USD 120 over the course of the programme. In Thailand, the Energy Policy and Planning Office and Metropolitan Electricity Authority initiated a pilot demand response programme for 2023 that aims to reduce the peak load by 19.5 MW through commercial, industrial and residential consumers.

In 2022, Korea launched a new pilot programme for automated demand response, with intelligent appliances able to automatically respond to demand reduction requests. The results showed a 24% improvement in electricity savings compared to consumers’ manual adjustments and paved the way for another pilot programme, which started in September 2023.

The Reynolds Landing Smart Neighbourhood programme by Alabama Power includes the construction of 62 energy efficient homes equipped with smart wall outlets, smart home control panels, smart and energy efficient appliances, triple-pane Low-E glazing, heat pump water heaters, ventilation energy recovery, and wall insulation. Preliminary analysis shows that these homes are generally 35-45% more efficient than Alabama’s typical newly constructed dwellings and can offer space cooling load shedding for around four hours without compromising indoor thermal comfort. In the United States alone, it is estimated that a large-scale deployment of efficient grid-interactive buildings would reduce electricity consumption by 400 TWh and peak demand by 120 GW by 2030.

Some projects are also targeting vulnerable households. In Brazil, Smart City Laguna involves the installation of photovoltaic panels, energy storage systems and digital energy management capabilities in 150 homes in Laguna. A series of sensors registering information from electrical systems will alert residents directly on their mobile phones through the Planet App interface, allowing them to adapt their energy consumption. The project proposes a shared benefits arrangement, reducing final users' bills and offering ancillary services. 

International learning and knowledge building is a valuable enabler as new fields emerge

Given the regional diversity of experience on this topic the IEA, under its Digital Demand-Driven Electricity Networks (3DEN) Initiative, supported by the Italian Ministry of Environment and Energy Security, is working with countries around the world to enhance knowledge and build capacity. 3DEN’s work aims to lead to new and improved policies to support the deployment and use of digital technologies for clean and inclusive energy transitions. Drawing on relevant international trends and best practices, in October 2023, the IEA also published a report on efficient grid interactive buildings that lays out a way forward for countries to improve their policy framework for buildings of the future by increasing energy efficiency and flexibility.