The AEMC is asking for stakeholder feedback on a draft rule to help electricity transmission businesses develop innovative demand management projects that reduce costs for consumers. 

We have proposed giving transmission businesses access to an incentive mechanism - the demand management innovation allowance (DMIA). The mechanism would provide funding for transmission businesses to undertake research and development on demand management technologies and new ways of operating like demand response, as an alternative to building poles and wires. The allowance would be a one-off payment for projects with the potential to reduce long term network costs, which would ultimately flow through to consumers as lower network prices.

The DMIA currently applies to distribution businesses, and would be extended to transmission network service providers under the draft rule. 

The Australian Energy Regulator (AER) would be required to develop the mechanism, including guidelines on how it would be applied and the level of the innovation allowance. Transmission businesses would need to publish reports on the results of their demand management projects – encouraging knowledge sharing of innovative non-network solutions. 

The rule change proponent, Energy Networks Australia, also requested that a demand management incentive scheme (DMIS) be applied to transmission businesses. The DMIS would involve ongoing incentive payments to transmission businesses through the AER’s five yearly revenue determination process.  

However, the Commission is not satisfied that the benefits of applying the DMIS to transmission businesses would outweigh the upfront costs to consumers. For example, if the DMIS is implemented, transmission businesses would receive incentive payments for undertaking non-network options they would already have been required to adopt under the regulatory investment test for transmission (RIT-T).

Also, transmission businesses are already using a range of demand management solutions, as highlighted in many stakeholder submissions. While transmission networks may face upfront, transitional costs when developing non-network options, the Commission’s view is that ongoing incentive payments to transmission businesses are not needed as these mostly one-off costs can be funded through AER revenue allowances or other sources of funding – such as from the Australian Renewable Energy Agency (ARENA) or the proposed demand management innovation allowance.

Submissions on this draft rule determination are due by 24 October 2019.

This work is part of the AEMC's system security and reliability action plan.

Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817