Major reform: Wholesale demand response

Flickr/ Scott Lewis

In June 2020, PIAC’s energy and water consumers’ advocacy program had a major win, with the Australian Energy Market Commission (AEMC), the rule-maker for the National Energy Market (NEM), making its final decision to introduce a demand response mechanism into the energy wholesale market.

The mechanism allows people to be paid to use less electricity when demand is high and supply is tight, instead of relying on the traditional approach of turning on more expensive generators. This lowers energy prices, helps prevent blackouts and supports the transition to a renewable power system, and fundamentally transforms the energy market, as centralised electricity generators face direct competition from demand side options in the wholesale market for the first time.

A demand response mechanism for Australia’s wholesale energy market has been proposed since 2002 in the Parer Review, and more formally in the AEMC’s Power of Choice Review in 2012, when demand response reform efforts began in earnest. PIAC pushed for the reform during the last decade, playing a key role in it being supported by COAG energy ministers and recommended in landmark reviews such the Australian Competition and Consumer Commission’s Retail Electricity Price Inquiry, the Chief Scientist’s Independent Review into the Future Security of the National Electricity Market (the Finkel Review), and the AEMC’s Reliability Frameworks Review. In 2018, PIAC joined the Australia Institute and Total Environment Centre to formally lead the charge for the reform with a joint rule-change proposal to the AEMC.

Throughout this time, demand response reform faced persistent resistance from energy retailers and generators seeking to protect their own interests, consistently playing down the benefits of the reform and making unsubstantiated claims of the cost of implementation.

Following PIAC’s joint rule-change proposal in 2018, the Australian Energy Council, the body representing energy retailers and generators, made its own proposal advocating for demand response to be kept in the hands of retailers, thereby limiting its effectiveness. In 2019, while the AEMC was considering the reform, energy gentailers, Engie and Simec, took the unusual step of demanding a public hearing with the rule-maker to argue against what PIAC and others had proposed. Other retailers claimed they were now offering demand response products, though PIAC research showed these were in the form of limited trials that most energy users could not participate in. Most recently, energy businesses used the COVID-19 pandemic as a reason to push for the deferral of demand response changes.

The AEMC’s decision in favour of a wholesale demand response mechanism reflects years of strong and strategic advocacy from PIAC and other stakeholders, involving direct engagement with the rule maker and other energy market bodies, working with other consumer and community organisations and allied businesses, and campaigning publicly on the merits of the reform.

After lodging the joint rule change proposal, PIAC was a key participant in numerous technical and consumer working groups working with the AEMC and other market bodies to develop the best model for the mechanism, as well as making extensive detailed submissions which were influential in the AEMC’s final detailed design of the mechanism.

PIAC also led multiple joint submissions on the rule-change to the AEMC, bringing together groups such as the Australian Council of Social Services, Consumer Action Law Centre, and Tenants Union, innovative energy service providers such as Enel X and Reposit, and other energy consumer organisations such as Energy Users Assocation Australia, Major Energy Users and Australian Industry Group, to support the reform and advocate for improvements to the AEMC’s two draft decisions.

In March 2020, following the advent of the coronavirus pandemic, PIAC led 15 other groups to successfully call on the AEMC not to acquiesce to the demands of energy businesses to delay the reform due to the COVID-19 crisis.

PIAC also led a media campaign to promote the reform with extensive multimedia coverage of various stages of the rule-change process in major outlets including the Sydney Morning Herald, ABC, The Guardian, Australian Financial Review, RenewEconomy, The Australian and others.

The AEMC’s final decision in favour of a demand response mechanism represents a win for all people and businesses who use energy in Australia. It is a fundamental shift in how the market operates, ensuring large energy retailers and generators won’t continue to profit from their market dominance unchallenged by more cost effective demand side options, and helps pave the way for the retirement of old, coal-fired generators and the better integration of more renewable energy.

More information on the reform can be found at the Australian Energy Market Commission website.

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