How demand-responsive water heaters can unlock Australia's electricity grid
Water heaters are batteries Australia already owns. A simple certificate can pay them to help the grid.
Based on the Demand Response Certificate white paper by Dr Dean Clift and Alastair McDowell. Dean Clift works part-time for Rheem Australia; EnergyAE models water heaters for many manufacturers. No product is promoted here.
Australia's energy transition is constrained not by supply, but by peak demand.
A day in the life of a water heater
The timing problem
Why the grid's costly hours are the evening ones, and why today's water heaters add to them.
NSW supply and demand across a day
Source: AEMO, NSW 2025.
Expensive ways to meet the evening peak
Peaking generation
Gas plant that runs a few hundred hours a year.
Grid-scale batteries
Storage built to shift solar into the evening.
Network upgrades
Poles, wires and substations sized for the peak.
There is a cheaper solution.
Solution: demand-responsive water heaters
Water heater = cheap thermal battery that can shift load away from morning & evening peaks to midday solar
Batteries and today's incentives
Australia already pays for home batteries. Water heater incentives pay for how much energy is saved, never for when.
Incentives drive massive uptake: home batteries
More than 500,000 home batteries in about 13 months, paid through STCs in the SRES.
Thermal and electric batteries
| Home battery | Demand-responsive water heater | |
|---|---|---|
| What it shifts | Any household load, or export | Its own hot water, about 5 to 6 kWh a day |
| Storage | 20 to 30 kWh usable on average | About 13 kWh of heat in a 250 L tank |
| Cost per kWh | About $208 of incentive | About $92 of extra hardware |
| Wear | Capacity fades with use | Water and steel: no capacity loss |
Incentives drive massive uptake: water heaters
2025 may still rise: certificates can be created up to 12 months after installation. Source: CER.
Today's energy efficiency incentives do not account for time-of-use
The certificate counts the annual total. The time of day never enters it.
Simplified illustration: EnergyAE simulation, AS/NZS 4234:2021 zone 3, against an electric heater at 97% with no standing losses.
For the grid, when a water heater runs can matter more than how efficient it is.
Demand response certificates
A simple certificate, calculated the same way as STCs, that pays for when energy is used.
Barriers to demand response today
The benefits are well evidenced in theory and in early field trials. Uptake is still minimal.
- Households don't know demand response can save them money
- Few aggregators can control water heaters at scale
- Few tariffs pass on five-minute wholesale prices
- Little pays households for deferring network upgrades, beyond overnight controlled load
- Smarter controllers add cost that nothing pays back
(MWh a year) × 10 years
- Uses the same AS/NZS 4234 simulation as STCs
- One new input: AEMO five-minute spot prices
- A plain timer heats by the clock, so it earns nothing
- Proposed: electricity bought at $0 or below is not counted against STCs
TRNSYS: transient system simulation
How a product would be assessed
Manufacturer designs the control
Any strategy, using only what the heater can observe.
Modeller simulates a year
The product's AS/NZS 4234 TRNSYS model, plus AEMO spot prices.
DRCs counted and checked
Demand response electricity, the $0 test, Legionella and 45°C delivery.
Regulator audits and approves
The same path STC claims follow today.
Manufacturers already hold these models for STCs, so applications could open within three months of a scheme starting.
How it was tested
14 water heaters, simulated for a year in TRNSYS on six control tiers: electric tanks, R290 and CO2 heat pumps, 180 L and 320 L, with and without a 3.6 kW element.
| Tier | Control | Link to the heater |
|---|---|---|
| T0 | Thermostat, no demand response | None |
| T1 | Timer: heats 10am to 4pm and 9pm to 7am | None |
| T2, T3 | Element on when prices are negative or low | One-way signal |
| T4, T5 | As T3, weighted by how full the tank is | Two-way, reads the tank |
Demand response certificates by water heater
Any tank with an element earns about 20 DRCs. A plain timer earns none.
Wholesale electricity cost: efficiency plus timing
Timing cuts the wholesale cost of the same water heater by a quarter to almost half.
Benefits of a demand response certificate scheme
Households
- Lower upfront cost for flexible appliances
- Lower bills on tariffs that reward timing
- Lower wholesale prices for everyone
- No change in behaviour required
Networks
- Better use of existing assets
- Better reliability
- Faster electrification
The grid and generators
- Lower peak demand and grid stress
- More midday demand for solar, less curtailment
- Network upgrades avoided or deferred
Retailers and aggregators
- New retail plans that pass on wholesale prices
- The critical mass large aggregators need
Three decisions for regulators
What is a DRC worth, and who funds it?
The white paper suggests aligning its value with the network cost avoided.
How do DRCs stack with STCs, VEU and ESS?
Proposed: electricity at $0 or below is left out of STC energy use.
Which control tiers qualify?
No link, a one-way signal, or two-way control that reads the tank.
The same day, replayed
Demand-responsive water heaters can unlock Australia's energy grid
Reduced grid stress, deferred network infrastructure, maximised renewable utilisation, lower household energy bills.
Alastair McDowell · Director, EnergyAE
alastair.mcdowell@energyae.com · energyae.com