Market Review: Completed
On 21 October 2021, the Australian Energy Market Commission (AEMC) published amendments to the compensation guidelines which describe how compensation may be determined following the application of an administered price period. The changes have been made to incorporate the wholesale demand response mechanism (WDRM) rule and fast frequency response market ancillary service rule.
The following amendments have been made to the compensation guidelines:
- added the demand response service provider (DRSP) as a new type of participant that is eligible to make a claim for compensation;
- clarified the types of direct and opportunity costs that can be claimed by a DRSP;
- provided guidance around the need for a DRSP to demonstrate how it has incurred direct or opportunity costs and the factors the AEMC may take into account in assessing a compensation claim from a DRSP;
- clarified that total opportunity costs cannot be larger than dispatch bids or dispatch offers, minus the administered price cap or administered floor price; and
- clarified that compensation may be payable relating to the provision of the two new types of fast frequency response market ancillary services.
In making these amendments to the compensation guidelines, the AEMC has had regard to the National Electricity Objective (NEO).
The AEMC hosted a public webinar on the Review of the compensation guidelines to incorporate wholesale demand response on Friday 23 September 2021. The webinar was attended by approximately 15 stakeholders.
The amended compensation guidelines and WDRM rule will take effect on 24 October 2021.
Under clause 6A.20(e) of the National Electricity Rules (NER), the AEMC gives notice of the making of a final decision on amendments to the Compensation guidelines developed in accordance with clause 3.14.6 of the NER.
Background on the compensation mechanism following administered pricing
Administered price caps and administered floor prices help to reduce volatility and manage risks for market participants, but in some cases they can cause market participants to incur a loss. The NER provide for compensation in some circumstances where these losses occur. Historically, administered pricing events have occurred rarely.
The compensation guidelines
The compensation guidelines support the operation of clause 3.14.6 of the NER. The purpose of the compensation guidelines is to:
- set out how the AEMC may consider whether compensation should be paid and the amount of compensation payable under the NER; and
- provide guidance for potential claimants and the Australian Energy Market Operator on the information required to be provided in support of a claim for compensation.