The Commission is undertaking a Review of the use of demand-side participation in the NEM, specifically to identify whether there are barriers or disincentives within the existing Rules which inhibit the efficient use of DSP in the NEM.
On 7 December 2009, the Commission published its Final Report for Stage 2 of its three stage Review of DSP. The Final Report presents the Commission's findings and supporting reasoning on whether there are material barriers to the efficient and effective use of DSP in the NEM. The Report concludes that, in the context of the current technology, pricing and demand conditions, the framework does not impede the use of DSP. However, there are a number of aspects where the Rules can be improved to enhance participation of the demand-side in the market. Proposed Rule change are provided in the Final Report.
The Final Report also outlines the issues for consideration for the third stage of the DSP Review.
Background
On 23 October 2007, the Commission wrote to the Ministerial Council on Energy to advise of its intention to investigate the potential for amendments to the Rules in order to better facilitate demand-side participation in the NEM. The objective of the Review is to identify whether there are barriers or disincentives within the Rules which inhibit efficient DSP in the NEM.
As a result on 3 March 2008 the Commission released the Statement of Approach for its Review of DSP in the NEM, which it's the Terms of Reference for the Review.
In undertaking its functions, the Commission identified a range of issues relating to the effective participation of the demand side in the electricity market. While the Commission has sought to address demand-side participation issues as they have arisen in its work program, the primary focus of this work has not been directed expressly to demand side participation.
In that context, under its policy development role, the AEMC is conducting a Review of DSP in the NEM under section 45 of the NEL which authorises the Commission to conduct reviews into the operation and effectiveness of the National Electricity Rules.
The Commission's work program consists of the following stages:
- Stage 1 - Considered DSP in the context of the Commission's current work program in order to develop recommendations that can be considered in the context of the relevant Rule change proposals and Reviews (this stage is now complete);
- Stage 2 - A review of the Rules more broadly in order to identify where there may be barriers to the efficient integration of the demand-side in the NEM and to develop proposals for Rule changes to reduce or remove them where efficiency would be improved; and
- Stage 3 - in recognition of ongoing reforms in the sector, this stage will seek to identify any additional, or remaining, barriers to efficient DSP in the NEM and to develop proposals for Rule changes to reduce or remove them where efficiency would be improved.
Review Stage 1
Stage 1 of the Review considered DSP in the context of the Commission's work program, specifically:
- The Congestion Management Review;
- The Reliability Panel's Comprehensive Reliability Review; and
- The National Transmission Planner and related projects.
NERA Economic Consulting were engaged by the AEMC to undertake an assessment of DSP in the context of the above workprogram. The Commission, on 3 March 2008 released the draft NERA recommendations report for public comment. 16 submissions were received.
On 16 May 2008, the Stage 1 Final Report was published (NERA recommendations report).
The Commission has responded to the recommendations of the Stage 1 Final Report in each of the Commission's relevant projects as appropriate. On 16 June 2008 the Commission wrote to NEMMCO to request that it consider two particular matters as part of NEMMCO's NSCS review in response to a recommendation from the Stage 1 Final Report.
Review Stage 2
Stage 2 of the Review tests whether the current Rules and market frameworks create impediments to DSP and identifies ways of reducing or removing any identified impediments.
Stage 2 of the Review focuses on the following five aspects of the NEM as identified in the Review's Terms of Reference:
- the economic regulation of networks;
- network planning;
- network access and connection arrangements;
- wholesale markets and financial contracting; and
- using DSP for reliability purposes.
On 13 November 2008, NEMMCO (now the Australian Energy Market Operator) gave a presentation at the offices of the Australian Energy Market Commission entitled Operating Price Responsive Load in the NEM. The focus of the presentation was directed towards the existing mechanisms that energy-price responsive load can use to optimise their dispatch in the NEM. The members of the Demand-Side Participation Reference Group and demand-side aggregators were invited to attend the presentation.
On 14 August 2008 the Australian Energy Market Commission released a report by CRA International entitled The Wholesale Market and Financial Contracting: AEMC Review of Demand-Side Participation (DSP) in the National Electricity Market (NEM).
Stage 2 Issues Paper
On 16 May 2008 the Commission published an Issues Paper for Stage 2 of the Review.
The purpose of this Issues Paper was to identify the areas of the Rules that may be limiting demand-side participation in relation to the above five aspects of the NEM and to seek comments about:
- whether the issues we identified are appropriate;
- how material the issues are; and
- potential ways impediments or disincentives can be addressed within the Rules.
On 2 July 2008 the Australian Energy Market Commission released a report by The Brattle Group entitled Demand-Side Bidding in Wholesale Electricity Markets. This report focuses on the international experience of demand-side bidding in wholesale electricity markets.
Stage 2 Draft Report
On 29 April 2009 the Commission published its Draft Report for Stage 2 of the Review. The Draft Report presented our draft findings and supporting reasoning on whether there are material barriers to the efficient and effective use of DSP in the NEM. The Draft Report steped through the different ways in which the regulatory framework might facilitate or inhibit DSP. Submissions to the Draft Report were due 5 June 2009.
The Commission also published an accompanying report by ROAM Consulting and Synergies Economic Consulting on a standing reserve for reliability purposes. The report investigates whether the use of a standing reserve would improve the efficiency of supplying reserve in the NEM.
Stage 2 Final Report
On 7 December 2009, the Commission published its Final Report for Stage 2 of the Review. The Final Report presents the Commission's findings and supporting reasoning on whether there are material barriers to the efficient and effective use of DSP in the NEM. The Report concludes that, in the context of the current technology, pricing and demand conditions, the framework does not impede the use of DSP. However, there are a number of aspects where the Rules can be improved to enhance the position of the demand-side. Proposed Rule change are provided in the Final Report.
Review Stage 3
A number of prospective developments are likely to increase the scope for more active DSP in the energy market. In particular, the roll-out of smart grids and smart meters across the NEM will enable two-way flows of energy and information providing greater capacity for active management of energy by consumers or their agents.
On the basis of our preliminary analysis of the implications of more interactive power and data flows between the demand-side and supply-side, we have concluded there is a need for a further stage of the review to identify and address the implications of these developments for regulatory frameworks.
We intend to work closely with the Ministerial Council on Energy and their Standing Committee of Officials to further develop the scope of this work program and an appropriate terms of reference. We will also consult with interested stakeholders during this scoping stage. Following these consultations, we intend to publish a terms of reference with a view to commencing Stage 3 of the Review in March 2010.
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