The Wholesale Demand Response Mechanism Rule Change

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On 18 July 2019 the Australian Energy Market Commission issued a draft rule determination titled the National Electricity Amendment (Wholesale Demand Response Mechanism) Rule 2019 (the Rule).

The Rule sets out a series of changes proposed by the Australian Energy Market Commission to the National Electricity Rules to facilitate wholesale demand response in the National Electricity Market.

The changes will result in a wholesale demand response mechanism whereby consumers are able to participate directly in the wholesale market and be paid for providing demand response. The Draft rule was made in response to three rule change requests from a range of stakeholders including industry, governments, and consumer representatives. The proponents of the Rule were the Public Interest Advocacy Centre, the Total Environment Centre, the Australian Institute, the Australian Energy Council, and the South Australian Government.

The draft rule allows for AEMO to make the necessary system changes required to accommodate the mechanism with a proposed start date of 1 July 2022.

What is demand response?

Demand-side participation is an umbrella term for all of the actions that a consumer can take to manage their consumption and to respond to different incentives and variables. By definition, it requires the capacity to participate both from a technological and regulatory standpoint. Demand response may include wholesale, emergency, network and ancillary services. Wholesale demand response relates to a consumer altering its usage in a short term and in response to incentives and signals.

The reason for the rule change

Providing wholesale demand response has been difficult to date as consumers have lacked the technology to do so and there has been a lack of regulatory support. A number of State Governments have funded schemes and trials aimed at encouraging wholesale demand response as a method of addressing real and perceived weaknesses within the grid.

Technology has evolved and become cheaper, it is now at the point where it is sophisticated enough to allow consumers to directly participate in the wholesale market. This trend is set to continue as we see the uptake of storage and electric vehicles.

The Australian Energy Market Commission considers that there needs to be changes in the wholesale market to facilitate greater levels of wholesale demand response. It sees the benefits as including:

  • allowing for the deferral of investment in capital intensive networks;
  • allowing for the maintenance of the supply demand balance at a lower cost than is achieved through expensive peaking generation;
  • providing the least cost resource for maintaining the power system within secure limits, for example by responding to and correcting frequency deviations; and
  • providing a low-cost, controllable resource to correct the supply demand balance in place of in voluntary load shedding.

Summary of the draft rule

We will go into further detail on the operation of the draft rule in a future article. The draft rule puts in place number of changes to introduce a wholesale demand response mechanism including to introduce a new market participant category, the demand response service provider (DRSP).

The draft rule places obligations on DRSP that replicate those applied to schedule generators, as much as practicable.  The draft rule provides for settlement in the wholesale market and includes consequential changes to other aspects of the NER.  The rule will establish a central dispatch methodology in a transparent and scheduled manner. The market price will be determined on the basis of dispatch offers and received dispatch targets. Retailers will continue to build consumers based on actual consumption.

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