Demand-management system proposed for energy market

A proposal by the Australian Energy Market Commission (AEMC) will open up the wholesale electricity market to allow easier payment to large consumers reducing their demand on the power system. The wholesale demand-response mechanism draft rule, released for consultation, would allow non-retailers to offer demand response directly into the wholesale market.

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 electricity needs through the lowest cost-mix of demand response and supply.

“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,” 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 explained.

Implementation of the proposed system would enable new businesses to work with consumers to sell their demand reductions into the wholesale market in a similar way to scheduled generation, and be settled in the market at the price available at that time.

“Right now, only retailers can offer this service,” Pierce said.

“New businesses wanting to enter the market, and some consumers, say retailers haven’t done enough to encourage demand response. On the other hand, retailers say change is underway and that adding new players will end up costing consumers more.

“We are addressing both of these concerns while promoting innovation and protecting small consumers from being put at risk.

Pierce provided a snapshot of how wholesale demand response will work:

• Commercial and industrial electricity customers can reduce their consumption at peak times and sell this demand reduction into the grid via a third-party demand resource service provider.
• As prices peak, customers will be told to turn off and the aggregrator will bid their demand reduction into the market.
• If generation is more expensive than the demand reduction available, the demand reduction would be ‘used’ first in place of generation.
   

Demand response service providers would have largely the same obligations as scheduled generators in terms of providing information to the wholesale electricity market. AEMO would set a baseline against which the value of demand would be calculated and paid.

“Technology is developing fast and changing the economics of the market. It won’t be long before digitalisation gets to the point where a truly two-sided market is possible. That’s a market where consumers actively manage their decisions to consume or not consume.

“The mechanism we have designed takes advantage of these technological advances. We want to start opening up the system so when technology is mature enough there is a clear runway for widespread demand side participation to take off.”

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