The Australian Energy Market Commission will press ahead with plans to let large customers routinely trade their energy use in the national electricity market because this is a landmark reform that must be prioritised, even with COVID-19.
“We have considered requests to delay this reform, but we think the case for pressing forward is strongest because acting now will help keep the power system reliable and secure ahead of the 2021/22 summer,” said AEMC Chief Executive Benn Barr.
“Despite COVID, we still need to keep prices down, keep the market working efficiently and work to lower emissions in the energy sector.”
Along with the other energy market bodies – the Australian Energy Regulator (AER) and the Australian Energy Market Operator (AEMO) – the AEMC has been working during the pandemic to strike the right balance between easing regulatory pressures on market participants while insulating important and fundamental work on the power system.
This reform – called ‘the wholesale demand response mechanism’ – encourages large customers to reduce their electricity consumption in the short-term in response to wholesale market price signals. It works by scheduling this demand into the market in the same way an electricity generator’s supply would be scheduled in. This new way of operating recognises that not using electricity should routinely attract a market value and creates another tool to help balance energy supply and demand.
It is potentially a much cheaper way to address sudden spikes in demand than sources of peaking generation such as gas or pumped hydro. In effect, it is an affordable new tool for managing energy security and reliability.
It is also important because it is a stepping-stone to Australia achieving a two-sided energy market – where all consumers (large and small) would be able to fully participate by actively trading their energy use as a valuable commodity. This means the grid will eventually see much greater benefit from the distributed energy resources used by households, such as solar panels, batteries and electric vehicles.
“We are taking a sensible, stepped approach to a two-sided market by first allowing larger energy users to routinely trade their energy use in the wholesale market,” Mr Barr said. “Once the two-sided market is up and running, we can retire this wholesale demand response mechanism because it will no longer be needed.
“But taking a stepped approach to consumer participation in the market is cheaper, more practical and safer for households and businesses. If we applied the change to both large and small consumers at once it would involve significant, complex and costly system changes that would end up on household bills.
“Small and large energy users respond differently so it’s more practical – and quicker – to start with the group whose demand is easiest to predict. We can also use this experience to learn valuable lessons about dispatching electricity in this new way.”
The Commission is already working on a two-sided market design as part of the Energy Security Board’s 2025 reforms. In the interim, small consumers can still take part in the numerous demand response trials being run by governments and retailers, including rebate schemes and virtual power plants.
“Reform is important but let’s make sure we do it well – and not in a way that sees households and businesses footing unnecessary bills,” Mr Barr said.
In assessing how delaying the reform would impact on energy businesses, the Commission concluded the biggest impact of the reform burden would fall on AEMO, which is ready and willing to move ahead with the change.
The Commission released its draft rules on wholesale demand response in March. Today we have released our final determination and rules, which take effect in October 2021.
Media: Kellie Bisset, Media and Content Manager M: 0438 490041