New rules will allow consumer energy to compete with coal and gas, make solar visible and power cheaper

Virtual power plants, community batteries, flexible industrial loads and price-responsive small resources could soon compete directly with coal and gas power plants and big batteries, as part of proposed energy market rule changes that promise to slash the cost of electricity.

In a draft determination published on Thursday, the Australian Energy Market Commission says the reforms would allow consumer-owned resources to bid into the spot market, set prices, receive dispatch instructions and earn revenue for grid services.

Indeed, the AEMC says, once these as-yet untapped resources are officially recognised and can participate in dispatch, “they will be as technically capable as any other generator and should be eligible for schemes such as the Capacity Investment Scheme.”

This would be to the benefit of all, the market rule maker says, with recent modelling indicating that VPP market participation, alone, could result in cost savings of $834 million between 2027 and 2050, thanks to the more efficient provision of energy security and reliability services.

“By making price-responsive behaviour visible, we’re allowing the market to operate more efficiently. It’s like giving the system a pair of glasses – suddenly, it can see and respond to consumer actions that were previously invisible,” says AEMC chair Anna Collyer.

“This improved visibility will lead to more efficient generation use, lower system costs, and potentially reduced energy prices for all consumers. It’s a win-win that doesn’t require changing behaviour, just smarter market operation.”

And the wins could be significant. According to modelling by IES, if resources like aggregated home solar and batteries were “perfectly integrated,” this could represent a net present value of between $1.4 – $1.8 billion to 2050.

This would come from efficiency gains made up of lower FCAS requirements, lower use of scheduled generation, lower generation costs and less need for emergency reliability measures.

On the flip-side, modelling by the Australian Energy Market Operator – which requested the rule change – estimates the cost of failing to integrate these resources at between $1.8 billion and $4.4 billion through investment in additional grid-scale storage.

The AEMC’s draft rule proposes the establishment of a “dispatch mode” that allows currently unscheduled price-responsive resources to be scheduled and dispatchable in the NEM, either in aggregations or individually.

It also proposes a time-limited incentive scheme to drive participation in the mechanism in its early years. This would entail AEMO conducting tenders to pay participants to enter dispatch mode in the first five years of the mechanism.

As an alternative option, the AEMC is also calling on the Australian Renewable Energy Agency (Arena) to consider setting up a trial grant program for early entrants.

Once underway, the AEMC proposes introducing monitoring and reporting obligations for AEMO and the AER to evaluate the effect of price-responsive resources on the accuracy of AEMO’s short-term demand forecasts and the broader impacts of this on the energy market.

It is proposed that “dispatch mode” would start on November 05, 2026, with the tenders for early participation beginning in February 2027. AEMO and AER would publish their first annual monitoring and reporting publications in late 2026.

For now, however, the AEMC is inviting stakeholders to provide feedback on the draft determination, over a consultation period that will run until September 12, with a final determination expected by the end of the year.

A problem and an opportunity: What the AEMC says

“There are a wide range of energy resources (for example, batteries) that enable consumers or parties acting on their behalf to respond to spot prices.

“The increasing number and magnitude of these unscheduled resources is a significant opportunity for consumers, retailers and the broader electricity system.

“However, this responsiveness isn’t currently effectively integrated into the NEM. It is not directly considered when determining the level of demand, how best to meet this demand or the spot price.

“Energy, security and reliability services could be provided more efficiently if these resources were fully integrated.

“By explicitly including unscheduled price-responsive resources in dispatch, AEMO will no longer need to forecast their actions, therefore reducing demand forecast errors and their consequential inefficiencies.”