AEMC proposes new approach to wholesale demand response

demand response

The Australian Energy Market Commission (AEMC) has released proposals to open up the wholesale electricity market so large consumers can be more easily paid for reducing their demand in the power system.

The wholesale demand response mechanism draft rule, released today for consultation, would allow non-retailers to offer demand response directly into the wholesale market for the first time.

AEMC Chairman John Pierce said changes would be put in place as quickly as possible to help take the pressure off the power system by meeting our electricity needs through the lowest cost mix of demand response and supply.

The draft rule is in response to different 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.

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Last year the AEMC’s Reliability Frameworks Review recommended the facilitation of more demand response in the wholesale market and called on stakeholders to request new rules to make this happen. These requests followed that call for action.

“This draft rule is all about large commercial and industrial consumers in the wholesale market who can now participate directly in the wholesale market by offering in demand reductions. These are times in which those consumers have agreed not to consume electricity or consume less or later,” Mr Pierce said.

“Taking demand pressure off the power system is a substitute for generation and helps tackle rising wholesale prices at peak times reducing electricity costs for everyone.

“Most simply, demand response is a consumer choice to turn down or turn off their electricity use in response to a signal to do so.

“So if wholesale prices are higher, there is more incentive for demand response. It makes sense to manage demand for electricity if we are going to deliver reliable energy at the least possible cost,” he said.

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Energy Minister Angus Taylor welcomed the draft rule, saying it would put demand response on a more even footing with generation in the wholesale market, increasing competition, leading to lower prices for everyone.

Mr Pierce says if adopted, this new approach to wholesale demand response would mean:

  • commercial and industrial electricity customers can decide to reduce their consumption at peak times and sell this demand reduction into the grid via a new third party demand resource service provider
  • as prices peak, they will be told to turn off and the aggregrator will bid their demand reduction into the market
  • if generation available to meet our needs is more expensive than the demand reduction available, the demand reduction would be ‘used’ first in place of generation, saving everyone money.

“This puts demand response on equal footing to generation for the first time.”