The AEMC is currently assessing three rule change requests to enable more wholesale demand response in the national electricity market. Innovations in technology are making it easier for industrial customers and households to provide ‘demand response’ by turning off or reducing power use at very high demand times. This can help keep costs down by avoiding unnecessary investment in peaking generation that is only used for a few days a year.
We have received a large number of stakeholder submissions in response to our consultation paper published in November 2018. The paper considered a range of issues including: the benefits and costs of changing the regulatory framework to introduce a new mechanism; the role of baselines for calculating the quantity of demand response provided; and how local generation and battery storage could be included in the mechanism; and implementation timeframes and costs. A summary of submissions is provided below.
Extending the timeframe for assessing the rule change requests will allow the Commission to consider a number of complex issues raised by stakeholders and the cost implications of different approaches. Several stakeholders also requested additional time for further consultation.
The extra time will also enable our analysis to be informed by demand response trials and studies currently being undertaken by AEMO and ARENA, as well the Distributed Energy Integration Program (DEIP) looking at the integration of distributed energy resources, including virtual power plants.
The draft determination for the three rule change requests will now be published on 19 July 2019.
Summary of stakeholder submissions to consultation paper
The AEMC received 33 submissions from a range of stakeholders including consumer representatives, demand response service providers, generators, retailers, network service providers, industry associations, the Energy Efficiency Council, AEMO, ARENA and the ACCC. All submissions are published on the project page on our website.
Are there barriers to demand response?
Consumer groups and demand response service providers generally felt there are barriers to demand response under the current regulatory framework – for example the requirement for demand response aggregators to have a commercial relationship with a retailer if they want to provide demand response services to consumers.
However, retailers broadly suggested that competition is driving them to develop demand response products, supported by a regulatory framework that provides incentives to offer demand response services to customers. Some retailers gave examples of demand response programs that are up and running.
Costs and benefits of wholesale demand response
There was broad agreement among stakeholders on the benefits of wholesale demand response. Some stakeholders also identified additional benefits, such as reducing the costs of network services and contributing to power system security and reliability.
A number of retailers said updating their systems to accommodate a wholesale demand response mechanism would involve significant costs. They added that aligning the implementation of a demand response mechanism with the start of five minute settlement in 2021 would be unlikely to reduce these costs.
Proposal 1: wholesale demand response mechanism
The wholesale demand response mechanism proposed by the Total Environment Centre, the Australia Institute and the Public Interest Advocacy Centre, which would allow third parties to offer demand response into the wholesale electricity market in a transparent, scheduled manner, was generally supported by stakeholders representing consumers, demand response service providers, regulatory bodies and AEMO.
Conversely, a number of retailers said there is no clear need for a wholesale demand response mechanism. They expressed concerns about potential market distortion, implementation costs, impacts on the contract market and the use of centrally determined baselines under this proposal.
Proposal 2: separate wholesale demand response market
A range of stakeholders highlighted concerns with the South Australian Government’s proposal for a separate transitionary wholesale demand response market, including the proposed method of cost recovery and the way demand response would be valued in such a market.
The proposal raised a number of the same issues as the wholesale demand response mechanism, such as challenges with using centrally determined baselines.
AEMO noted this proposal would not require changes to retailer billing and settlement systems and may therefore be a faster, lower cost option than the wholesale demand response mechanism. However, AEMO also noted that a separate wholesale demand response market may be viewed as an alternative option to a wholesale demand response mechanism, rather than a transitionary mechanism, given the time which would be required to set up such a market.
Proposal 3: wholesale demand response register
The wholesale demand response register proposed by the Australian Energy Council was generally supported by retailers as a way to increase the transparency of wholesale demand response and incentivise competition in demand response products and services without making costly changes to the existing market structure.
Other stakeholders broadly considered that a wholesale demand response register would not facilitate demand response as it would preserve existing barriers to third parties providing demand response. A number of stakeholders also expressed concerns about the enforceability of the obligations which would be imposed on retailers under this proposal.
Other issues raised in submissions
A number of additional issues regarding the proposed mechanisms were raised by stakeholders including:
- the challenge of allocating risks associated with baselines and the potential for gaming baselines
- technical difficulties associated with requiring demand response to be scheduled
- whether embedded generation such as rooftop solar and residential battery storage can be incorporated into a wholesale demand response mechanism
- the appropriate thresholds for participation in a wholesale demand response mechanism, for example whether only customers or aggregated demand response portfolios of a certain size should be able to participate in the mechanism.
Media: Bronwyn Rosser, Communications Specialist, 02 8296 7847; 0423 280 341; firstname.lastname@example.org
The COAG Energy Council recently agreed to progress a recommendation made by the ACCC in its Retail Electricity Pricing Inquiry report to support the development of a mechanism for third parties to offer demand response directly into the wholesale market. The AEMC has also recommended the integration of more demand response through a wholesale demand response mechanism in our Reliability frameworks review. The three rule change requests relate to these recommendations.
- The Public Interest Advocacy Centre, Total Environment Centre and the Australia Institute are proposing a mechanism that would allow third parties, such as demand response aggregators, to offer demand response into the wholesale market in a transparent, scheduled manner.
- The Australian Energy Council is proposing a register for wholesale demand response. This would introduce an obligation for retailers to negotiate in good faith with third parties looking to provide wholesale demand response through a register.
- The South Australian Government is also proposing a wholesale demand response mechanism, as well as a separate, transitory market for wholesale demand response as an interim step.