The Australian Energy Market Commission is set to approve the creation of a wholesale demand response mechanism for large-scale energy users, with the publication of a second draft determination on the rule change as it nears final sign off.
The AEMC expects the introduction of demand response trading will allow the electricity market to evolve into a more flexible market, delivering better outcomes and lower prices for all users.
Large industrial and commercial energy users will be able to trade their demand under the mechanism, allowing them to be paid to reduce their consumption, that will help maintain a reliable energy system, particularly during periods of peak demand.
“Wholesale demand response is potentially a much more affordable way to ensure a secure and reliable energy supply than other sources of peaking generation such as gas or pumped hydro. It can be used to address sudden drops in supply or spikes in demand,” AEMC chair John Pierce.
“What has been missing until now is the ability to equip consumers with the technology to respond (such as through advanced metering) and giving them a way of revealing the prices that would cause them to alter their consumption pattern. Our new draft rules create the opportunity for large energy users to be part of the solution.”
However, the AEMC said that it would be cost-prohibitive and too complex to introduce a demand response mechanism that includes small energy users, setting a minimum 5 megawatt demand threshold that will see like households and small businesses excluded.
The AEMC also said that small users were unable to provide a sufficient level of certainty over their demand response, and that extending the mechanism to households and small businesses would likely drive up costs and increase the complexity of their electricity purchases.
“But the changes won’t get in the way of smaller consumers adapting their energy use in response to their environment,” Pierce added. “There are many government and retail schemes, trials and programs under way doing exactly that and these will continue.
“Eventually, the best way for small consumers to get the full value of demand response via efficient use of their pool pumps, electric vehicles and household batteries and appliances will be within a two-sided market. We aren’t there yet but with increasing digitalisation this is where we are headed and as part of our role on the Energy Security Board, we are working on a two-sided market design.”
Large energy users, including industrial users and datacentres, are currently able to offer to reduce demand through the Reliability and Emergency Reserve Trader (RERT), when it is activated during periods of predicted supply shortfalls.
The AEMC has published a proposed set of rule changes, to be made to the National Electricity Rules, that would outline the requirements of a demand response provider, and the requirements for the kinds of loads that can be traded through the new mechanism, and how an appropriate demand “baseline” would be determined.
The new mechanism would allow large-users to regularly offer to trade reductions in demand to the market on a day-to-day basis and a new form of electricity market participant, a “demand response service provider” will be established, to recognise such traders.
The proposal to establish a wholesale demand response mechanism had been submitted to the AEMC jointly by the Public Interest Advocacy Centre, Total Environment Centre and The Australia Institute. A separate rule change request had been submitted by the Australian Energy Council South Australian government and have been considered jointly.
While the groups welcomed the draft determination from the AEMC, saying it was a step forward for the market, they expressed disappointment that households would not be included.
“Reducing peak demand on the grid is more important than ever as summers get hotter and coal plants close. Introducing demand response in 2021 shows the Commission is serious about keeping down energy prices and preventing blackouts as energy supply gets tighter,” Head of Energy Policy at the Public Interest Advocacy Centre Craig Memery said.
“Household demand drives high energy prices and households are eager to participate in demand response”, the Total Environment Centre’s Mark Byrne said.
“Excluding them from the mechanism reduces its effectiveness and is unfair.”
“The fact that the issue of household participation is still not resolved is disappointing, especially when the rule change was proposed by groups representing household consumers,” The Australia Institute’s energy policy lead Dan Cass added.
“There has been no cost-benefit analysis of household participation so the Commission cannot claim that excluding households will reduce costs and promote the National Electricity Objective.”
A separate issues paper has been released by the AEMC into the increasing influence digitisation is having on the electricity market, including how an increasing number of energy users can act as both buyers and sellers of energy.
The AEMC said that it had made changes to the proposed rule change, since the first draft determination released last year, following feedback from the Australian Energy Market Operator (AEMO), which would simplify implementation.
The AEMC expects to deliver a final determination on the wholesale demand response rule change by June 2020, with the rules expected to be in force by October 2021, in time for the 2021-22 summer.
“AEMO has worked in collaboration with the AEMC to develop a design to support the cost and time efficient introduction of a wholesale demand response mechanism in time for summer 2021-22, AEMO EGM for emerging market and services Violette Mouchaileh said.
“Wholesale demand response is an important mechanism to reward consumers and improve the security of the electricity system.”
The Energy Security Board is currently developing advice on a post-2025 design for the National Electricity Market, in light of the changing technologies and consumer expectations within the market, which is likely to include a ‘two-way’ market proposal that would establish a single market to trade electricity supply and demand.
This work is set to be considered by the COAG Energy Council, when the Energy Security Board presents an update on the post-2025 design work at a meeting of the council to be held next week.