The Australian Energy Regulator (AER) is requesting views from stakeholders of a draft incentive scheme that encourages electricity distribution businesses to actively manage demand on their networks.

Electricity distribution businesses have generally focused on increasing capacity in order to meet the demands on their networks. This often involves meeting network demand by investing in expensive assets, the cost of which is passed on to consumers.

Effective demand management can defer or limit the need to invest in these assets, delivering substantial savings to consumers who might otherwise pay for unused capacity.

“There has been an increasing recognition that electricity networks need to better consider the demand-side of the equation in addressing network constraints. We are committed to driving this change in focus. We believe our demand management incentive scheme will be an important part of the solution,” AER Board member, Jim Cox said.

The AER’s proposed incentive scheme is the product of extensive collaboration with stakeholders.

“The AER welcomes the level of stakeholder assistance in shaping this new incentive scheme. Network businesses are demonstrating genuine interest in ways they can better integrate demand-side solutions into their business practices. Consumer groups have supported encouraging electricity distribution businesses to do more on the demand-side,” Mr Cox said.

The AER has also been leading several complementary reforms to support other parties in providing value from the demand-side, including reforms to provide price signals that better reflect the drivers of network costs.

The AER has also initiated a new ‘replacement expenditure’ rule that will require network businesses to provide more information about their plans to retire and replace assets. Under a separate process, in July 2017 the AER also released its first user-friendly Distribution Annual Planning Report template to better assist non-network business in developing demand-side solutions to address network constraints.

In tandem with its proposed incentive scheme, the AER is consulting on proposed improvements to its current research and development fund ― the demand management innovation allowance. The improved allowance will have a greater focus on encouraging electricity distribution businesses to share project learnings across the industry and with consumers.

The AER invites people to submit their views and suggestions on the draft incentive scheme and innovation allowance to by 12 October 2017. This will assist the AER in finalising these instruments by December 2017.

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