Power of Choice: AEMC to progress rule change to reform demand management incentive scheme

19 February 2015

The Australian Energy Market Commission today released a consultation paper on reforming the demand management incentive scheme - the next rule change proposal to flow from the Commission’s Power of Choice review.

The Power of Choice review set out a market wide reform plan with a series of recommendations to improve consumer participation in energy markets, including a two part approach to address the issue of demand management.

Under the regulatory arrangements that were in place at the time of the Power of Choice review, the Commission was concerned that distribution networks may not be fully capturing the value of demand management opportunities, as a result of how financial incentives are applied, and how network tariffs are set.

The first part of the new approach recommended in the Power of Choice review required changes to distribution network pricing arrangements, which were finalised by the AEMC in November last year.

Having completed the changes to the distribution network pricing arrangements, the Commission now moves to another aspect of the recommendations, which included revisions to the demand management incentive scheme.

The consultation paper released today builds on the Power of Choice work already completed and draws together two rule change requests received by the AEMC from the Total Environment Centre and the COAG Energy Council, which each sought reform to the application of the demand management incentive scheme.

These reforms intend to provide an appropriate return for demand management projects that deliver a net cost saving to consumers.

The consultation paper provides an overview of the incentives and obligations in the National Electricity Rules to encourage distribution businesses to pursue demand management as an alternative to network capital expenditure.

In particular, it highlights a number of changes to the planning and incentive framework and the incentive regulation framework that have commenced since publication of the Power of Choice review. These changes are expected, over time, to further incentivise distribution businesses to pursue demand management options when these are as efficient as network capital investment.

The consultation paper separates both the demand management incentive scheme and the demand management innovation allowance in its analysis of the issues.

Submissions on the consultation paper close on 19 March 2015.

The AEMC develops strategic priorities for energy market development which take account of stakeholder views. This rule change relates to the AEMC’s consumer and market strategic priorities. 

Consumer priority – effective demand side participation and potential reduction in peak demand

Market priority – clear and transparent regulatory arrangements and an efficient investment environment

For information contact:

AEMC Senior Director, Richard Owens (02) 8296 7800

Media: Communications Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817