The AEMC has released proposals to open up the wholesale electricity market so large consumers can be more easily paid for reducing their demand on the power system. The wholesale demand response mechanism draft rule is in response to requests received from the Total Environment Centre, The Australia Institute and the Public Interest Advocacy Centre; the Australian Energy Council and the South Australian Government. 

A broad range of stakeholders have provided feedback on the AEMC’s draft determination and rule to implement a wholesale demand response mechanism, with the majority of stakeholders supportive of this major reform.

The draft determination, published in July 2019, sets out a number of changes to introduce a wholesale demand response mechanism. The draft rule:

  • introduces a new market participant category, a demand response service provider (DRSP)
  • places obligations on DRSPs that, as much as practicable, replicate those applied to scheduled generators, for example, similar information provision obligations
  • sets out a process for having baseline methodologies determined and applied
  • provides for DRSPs to be settled in the wholesale market for demand response
  • makes additional changes to related aspects of the rules, such as the demand side participation information provisions, to improve the integration of the demand side.

The Commission received 37 submissions from a range of stakeholders including consumer representatives, demand response service providers, generators, retailers, network service providers, industry associations, AEMO and the AER. All submissions are published on the project page on our website. 

Submissions generally reflected views that were presented at the public hearing, two workshops and numerous bilateral meetings that the Commission held over the consultation period.

Overview of submissions

The majority of stakeholders were supportive of the Commission’s draft determination. Some stakeholders noted that the draft determination represented an important reform that would allow for a greater number of consumers to participate in wholesale demand response. These stakeholders typically wanted more clarity around how the rules would operate, or suggested improvements to specific aspects of the mechanism. However, a few stakeholders considered that the benefits of introducing the mechanism set out under the draft rule would be outweighed by the associated costs.

Implementation timeframes

The Commission set out an implementation date of 1 July 2022 in the draft rule. Stakeholders had mixed views on this implementation date. A number of stakeholders, particularly consumer representatives, submitted that this date should be brought forward to allow consumers to participate in the mechanism earlier. Some options for how this may occur were set out in submissions, including possible ‘soft starts’ or trials. 

Existing market participants generally did not consider the implementation timeframe should be brought forward. This was due to the need to:

  • manage any associated systems changes amongst broader changes underway, including five minute settlement and global settlement, due to be implemented on 1 July 2021 and 1 March 2022 respectively.
  • allow for adjustment of existing C&I contracts to take account of the mechanism. 

In its submission, AEMO noted that it supported the date set out in the draft rule. It also noted that it was considering reasonable transitional steps that may allow for a limited commencement of the mechanism at an earlier date.

Inclusion of small customers

The draft determination would preclude the participation of small customers in the mechanism while the Commission undertakes a holistic review of consumer protections for small consumers as energy technology changes. This is being undertaken through our 2020 Retail competition review. Stakeholders agreed that this consideration was appropriate. Some stakeholders asked the Commission to make this a priority.

A number of stakeholders considered it is important to include small customers in the mechanism as soon as possible, suggesting that small customers had the greatest potential to participate. Conversely, a number of stakeholders noted that technical and practical limitations make it unfeasible for small customers to participate – at least initially. For example, the ARENA-AEMO RERT trial has demonstrated that common baseline methodologies do not work well for individual small customers. 

It was also suggested that the mechanism should be put in place with large customers first to see how it works, before being extended to small customers. In its submission, AEMO noted that some aspects of the draft rule, including baselines, would be difficult to extend to individual small customers.

Reimbursement rate

Most stakeholders commented on the reimbursement rate set out in the draft rule. In general stakeholders:

  • agreed that the reimbursement rate would mitigate some of the system costs that may have been imposed on retailers
  • wanted greater clarity on the purpose of the reimbursement rate, and how the AEMC arrived at its position in the draft determination.
  • suggested alternative ways the rate can be calculated to better meet the purpose of keeping retailers whole, such as calculating it using forward contract prices; calculating it only over peak spot prices; and calculating it over different periods.
  • noted that the rate is problematic for retailers whose customers are directly exposed to the spot price.

Other matters raised in submissions

A number of additional matters were raised in submissions for the team to consider ahead of the final determination. These include:

  • the accuracy of centrally determined baselines
  • the amount of information provided to retailers and distribution network service providers
  • whether the Commission intended to undertake a cost-benefit analysis before publishing the final determination
  • the obligations placed on demand response service providers.

These rule change requests are being progressed as part of the Commission’s broader system security and reliability action plan

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