Energy retailers protest wholesale demand response mechanism

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The Australian Energy Market Commission (AEMC) held a hearing in Sydney on Tuesday to consider objections to its draft proposal to reward large energy consumers for reducing their power usage at times of peak demand. The network rule maker received two requests for a hearing, from Engie and Simec Energy.

Under the draft rule released for consultation mid-July, big energy consumers would be able to offer demand response direct to the wholesale market in the same way that generators currently do. Many industry bodies have been calling for the wholesale demand response mechanism, including the Total Environment Centre, The Australian Institute and the Public Interest Advocacy Centre; the Australian Energy Council and the South Australian Government. Energy retailers, meanwhile, have been critical of the proposal.

In a letter to AEMC, Simec Energy warns the new rule is likely to create an economic burden or levy on all host retailers and create “perverse incentives”, which can lead to additional regulatory costs. The company also suggests it would be better to wait for the transition to 5-minute settlement in the National Electricity Market in 2021 before any changes were made to the way the market operated.

Engie’s request to the AEMC for a hearing has not been published.

The hearing comes as The Australia Institute, one of the proponents of the rule change, releases new research showing that the world’s major electricity markets are opening up to demand response competition to benefit consumers with lower prices and help maintain reliability.

“The rest of the world is charging ahead with energy market modernisation and Australia is now poised to make a major reform that will put us at the leading edge,” said Dan Cass, Energy Policy & Regulatory Lead at The Australia Institute.

Demand response is being introduced in major markets such as the USA, EU and China, where similar patterns of support and opposition have been observed, the research states. It also finds demand response will be vital for helping maintain reliability and security of supply when AGL’s Liddell power station closes in 2023.

“The big energy retailers want to prevent competition. They want to be the gate-keepers and decide whether or not their customers participate in emerging, digital energy markets,” Cass said. “The ACCC has rejected the AEC gate-keeper model, because it is anticompetitive and would harm the interests of energy consumers.”

“Progressing this reform and allowing everyone, including big industrial users and regular households, to engage in demand response as soon as possible will reduce energy costs and emissions while also improving reliability,” he added.

The AEMC will continue the development of the potential demand response rule change, with the draft determination due by mid-September.