Wholesale demand response mechanism moves forward

A new draft rule has been released for public consultation by the Australian Energy Market Commission (AEMC) to create a wholesale demand response mechanism.

The new rule would allow non-retailers to offer demand response directly into the wholesale market for the first time. This would allow large commercial and industrial customers to be paid more easily for demand reductions in the wholesale market.   

Both the Finkel Review and Australian Competition Consumer Commission’s Retail Electricity Pricing Inquiry recommended that wholesale demand response mechanism be established to improve reliability and reduce wholesale prices.

The draft rule would put demand response on a more even footing with generation in the wholesale market, increasing competition and leading to lower prices for everyone.

The Federal Government has welcomed the draft rule and has encouraged all stakeholders to contribute to the AEMC’s consultation process.

Energy Consumers Australia CEO, Rosemary Sinclair, said that the reform has the potential to deliver greater control and lower bills to consumers.

“Our research shows more than half of all consumers are willing to lower their energy use at peak times and even more are prepared to act with a financial incentive.

“Paying business consumers to lower energy use at peak times will help optimise the existing energy system and bring prices down, and to that extent it provides cost savings to all consumers.

“But we also need to empower individual household consumers to participate in demand response services and bring down their energy costs.

“We understand the need for consumer protections but look forward to quick progress by the AEMC in settling these issues so that households and small businesses can benefit directly.”

The rule change is historic because it was put forward by representatives of consumers, and Ms Sinclair said more of these consumer generated reforms would drive lower costs.

Energy Efficiency Council CEO, Luke Menzel, welcomed the proposed demand response mechanism.

“The Energy Efficiency Council has been fighting for this change for the past decade. It’s great to see that the AEMC has largely agreed with the reforms proposed by a coalition of consumer groups and the South Australian Minister for Energy, Dan van Holst Pellekaan.”

Energy Efficiency Council Head of Policy, Rob Murray-Leach, said the proposed rule change will be a win for businesses grappling with skyrocketing electricity bills.

“The change will allow businesses to be paid if they voluntarily reduce electricity use when prices are sky-high. This won’t just save those businesses a lot of money. It will lower bills for everyone by increasing competition in the wholesale market and making it far harder for generators to charge ridiculous prices for electricity.”

The Australian Energy Council’s Chief Executive, Sarah McNamara, said the energy industry supports demand response, which already occurs between retailers and their customers.

“We are pleased the AEMC has recognised the complexities involved in the system and settlement changes in its proposal.

“This is why the Draft Determination limits its application to large customers, adjusts the settlement design, and provides several years lead-time for what is a major market redesign.

“However the challenge will be to encourage the further development of demand response and manage accurate measurements to ensure the lowest costs to the market and ultimately consumers.

“It is difficult to set accurate baselines, which are critical, and to minimise the added costs to settlement arrangements with new third party demand response providers becoming involved in the market settlements.

“There is no doubt that this rule change and its new settlement arrangements, while an improvement on what was proposed by some parties, will still add complexity to what is an already complex wholesale market settlement arrangement.”

The draft rule change is out for public consultation until 12 September, with a final determination expected by mid November.

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