Market Review: Completed
Overview
In July 2010, the Ministerial Council on Energy (MCE) provided its response to the AEMC's Stage 2 Final Report for the Review of Demand-Side Participation (DSP) in the National Electricity Market (NEM). The MCE response noted its support of the final review recommendations, including the proposed Rule changes to enhance participation of demand-side and the need for a further review to consider the implications of developments in smart grid and smart meter technologies in the NEM. The MCE also indicated that the Stage 3 DSP Review should also consider a number of other issues specifically related to the operation and effectiveness of price signals and energy efficiency obligation schemes. The MCE full response can be found here.
Stage 3 DSP Review
The Stage 2 DSP Final Report outlined and recommended that there were a number of issues that were likely to require further consideration in a Stage 3 of the DSP Review. Specifically, that a number of prospective developments are likely to increase the scope for more active DSP in the energy market. In particular, the roll-out of smart grids and smart meters across the NEM will enable two-way flows of energy and information providing greater capacity for active management of energy by consumers or their agents.
On the basis of preliminary analysis of the implications of more interactive power and data flows between the demand-side and supply-side, it was concluded there is a need for a further stage of the review to identify and address the implications of these developments for regulatory frameworks.
Given the MCE's response for additional matters for consideration outside the National Electricity Rules (Rules), the AEMC is currently working with the MCE and their Standing Committee of Officials to further develop the scope and finalise a Terms of Reference for the proposed Stage 3 DSP Review. Following the Terms of Reference from the MCE, it is intended that we will publish a consultation paper to seek stakeholder views on the issues considered important and relevant to the Stage 3 Review.
Background
On 23 October 2007, the AEMC wrote to the MCE to advise of its intention to investigate the potential for amendments to the Rules in order to better facilitate demand-side participation in the NEM. The objective of the Review was to identify whether there are barriers or disincentives within the Rules which inhibit efficient DSP in the NEM.
In undertaking its functions, the AEMC had identified a range of issues relating to the effective participation of the demand side in the electricity market. It is noted that while the AEMC sought to address demand-side participation issues as they arose in its work program, the primary focus of the work was not directed expressly to demand side participation.
In that context, under its policy development role, the AEMC conducted a Review of DSP in the NEM under section 45 of the NEL which authorises the Commission to conduct reviews into the operation and effectiveness of the National Electricity Rules (Rules).
On 3 March 2008, the AEMC released the Statement of Approach and Terms of Reference for its DSP Review.
The AEMC work program for the Review consisted of the following stages:
- Stage 1 - considered DSP in the context of the Commission's current work program in order to develop recommendations that can be considered in the context of the relevant Rule change proposals and Reviews (this stage is now complete); and
- Stage 2 - a review of the Rules more broadly in order to identify where there may be barriers to the efficient integration of the demand-side in the NEM and to develop proposals for Rule changes to reduce or remove them where efficiency would be improved (this is now completed).
- Stage 3 - potential need for a further review with the purpose to identify any additional, or remaining, barriers to efficient DSP in the NEM and to develop proposals for Rule changes to reduce or remove them where efficiency would be improved.
Stage 1 DSP Review
Stage 1 of the Review considered DSP in the context of the AEMC work program, specifically:
- the Congestion Management Review;
- the Reliability Panel's Comprehensive Reliability Review; and
- the National Transmission Planner and related projects.
NERA Economic Consulting were engaged by the AEMC to undertake an assessment of DSP in the context of the above workprogram. On 3 March 2008, the AEMC released the draft NERA recommendations report for public comment. 16 stakeholder submissions were received.
On 16 May 2008, the Stage 1 Final Report was published (NERA recommendations report).
The AEMC responded to the recommendations of the Stage 1 Final Report in each of the AEMC relevant projects as appropriate. On 16 June 2008, the AEMC wrote to the Australian Energy Market Operator (formally NEMMCO) to request that it consider two particular matters as part of AEMO's Network Support and Control Services Review in response to a recommendation from the Stage 1 Final Report.
Stage 2 DSP Review
Stage 2 of the Review tested whether the current Rules created impediments to DSP and identified ways of reducing or removing any identified impediments.
Stage 2 of the Review focused on the following five aspects of the NEM as identified in the Review's Terms of Reference:
- the economic regulation of networks;
- network planning;
- network access and connection arrangements;
- wholesale markets and financial contracting; and
- using DSP for reliability purposes.
On 13 November 2008, AEMO gave a presentation at the AEMC offices entitled Operating Price Responsive Load in the NEM. The focus of the presentation was directed towards the existing mechanisms that energy-price responsive load can use to optimise their dispatch in the NEM. The members of the Demand-Side Participation Reference Group and demand-side aggregators were invited to attend the presentation.
On 14 August 2008, the AEMC released a report by CRA International "The Wholesale Market and Financial Contracting: AEMC Review of Demand-Side Participation (DSP) in the National Electricity Market (NEM)".
Stage 2 DSP Review - Issues Paper
On 16 May 2008, the AEMC published an Issues Paper for Stage 2 of the Review.
The purpose of this Issues Paper was to identify the areas of the Rules that may be limiting demand-side participation in relation to the above five aspects of the NEM and to seek comments about:
- whether the issues identified were appropriate;
- the materiality of the issues; and
- the potential ways impediments or disincentives could be addressed within the Rules.
On 2 July 2008, the AEMC released a report by The Brattle Group entitled Demand-Side Bidding in Wholesale Electricity Markets. This report focuses on the international experience of demand-side bidding in wholesale electricity markets.
Stage 2 DSP Review - Draft Report
On 29 April 2009 the AEMC published its Draft Report for Stage 2 of the Review. The Draft Report presented the draft findings and supporting reasoning on whether there are material barriers to the efficient and effective use of DSP in the NEM (i.e. Rules). The Draft Report stepped through the different ways in which the regulatory framework might facilitate or inhibit DSP. Submissions to the Draft Report closed on 5 June 2009.
The AEMC also published an accompanying report by ROAM Consulting and Synergies Economic Consulting on a standing reserve for reliability purposes. The report investigates whether the use of a standing reserve would improve the efficiency of supplying reserve in the NEM.
Stage 2 DSP Review - Final Report
On 7 December 2009, the AEMC published the Stage 2 DSP Final Report. The Stage 2 DSP Final Report presented the Commission's findings and supporting reasoning on whether there are material barriers to the efficient and effective use of DSP in the NEM. The Stage 2 Final Report concluded that, in the context of the current technology, pricing and demand conditions, the Rules do not impede the use of DSP. It was recommended that there are a number of aspects where the Rules could be improved to enhance the position of the demand-side in the NEM. These proposed Rule change were provided in the Final Report. The Final Report also outlined the issues for consideration for the Stage 3 of the DSP Review relating to implications of developments smart grids and smart technologies in the NEM.