Market system on way to reward business cuts to electricity demand

Reward structures for businesses which cut electricity demand at crucial times has been backed by the State Government and leading business groups.

Intercast and Forge at Wingfield is among companies trialling demand reduction. Picture. Greg Higgs.

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Reward structures for businesses which cut electricity demand at crucial times has been backed by the State Government and leading business groups.

The structural changes to the electricity market are under review by rule-making body, the Australian Energy Market Commission.

“Because of events over the past few years, quite a few businesses have become more savvy and sophisticated in how they manage their energy, especially at peak demand,” Business SA senior policy adviser Andrew McKenna said.

“So if they can be rewarded for that at the same time as the price would be reduced across the system for reserve trading and peak generation, then that’s a positive outcome.”

The Australian Industry Group also backs change.

“A wholesale demand response mechanism is badly needed and many years overdue,” Australian Industry Group director SA Stephen Myatt said.

“The power system stresses of this summer would have been much easier and cheaper to manage with a larger more mature market for demand response.”

The AEMC is concurrently reviewing three rule-change scenarios on how a demand market would operate.

The first would see third parties able to offer demand response into the wholesale market in a transparent, scheduled manner.

The second, proposed by the SA Government, would be a transitionary arrangement where a separate market was established.

The third would establish a register of users willing to react when needed, especially large companies.

The first proposal has the support of consumer groups and some regulatory bodies.

It would allow third parties to aggregate responses so that small businesses and even households could participate.

However it is opposed by retailers, which favour the third option.

SA’s suggestion has not won much support.

Rather than a trading platform, demand response so far has mostly either been confidential contracts between retailers and companies or trials in the form of subsidies to businesses which withdraw demand.

In 2017, the Australian Renewable Energy Agency awarded 10 projects funding totalling $28.6 million for a three-year trial.

The NSW Government added $7 million to fund projects in that state.

Recipients included Adelaide company Intercast and Forge which received $324,000 and big retailers EnergyAustralia and AGL.

In a separate program, the State Government is currently evaluating tenders for demand management trials in SA

Mr McKenna said Business SA would support a structured and formal market process which helped limit the need for additional investment in the system.

But it should not push businesses into unnecessarily curtailing their activities.

“It’s got to be win-win,” he said.

“It should save the market more broadly and be a positive financially for the business.”

Mr Myatt noted that a previous attempt in 2012, fizzled in the face of retailer resistance.

A technical working group convened by AEMC met last week and raised issues including:

• HOW to quantify and assign costs and benefits of demand response.
• REDUCING barriers for retailers whose primary focus would be demand.
• THE impact on different types of consumers.

The commission expects to publish a draft determination on changing market rules by July 19.

Separately, the COAG Energy Council is investigating whether it should be mandatory for certain large electrical appliances such as air conditioners to be enabled with a demand-response mechanism.