New modelling results showcased by the Australian Energy Market Commission (AEMC) show substantial cost savings of up to two billion dollars (net present value) between 2025 and 2050. These savings are attributed to the effective integration of price-responsive resources, including virtual power plants, into the National Electricity Market (NEM).
Chair Anna Collyer says the recent analysis is set out in a paper ahead of a public forum for stakeholders next week and follows a rule change request by the Australian Energy Market Operator (AEMO) to improve its ability to forecast electricity supply and demand.
“As more households and businesses invest in newer technologies such as batteries, rooftop solar, electric vehicles, and home energy management systems, these consumer energy resources (CER) will play a vital role in the shift to a net zero energy system.
“Similarly, traditional assets such as hot water heaters and pool pumps will continue to play their part in how the energy system performs and transforms,” Ms Collyer said.
As a result of the rapid uptake of CER, energy companies are increasingly combining these resources to form Virtual Power Plants (VPPs), which are actively responding to price signals in the national electricity market (NEM).
Additionally, there are commercial and industrial resources such as chillers and hydrogen electrolysers, which could be price-responsive and significantly impact the energy market in the future.
Currently, these resources are not fully integrated into the NEM’s planning and operation functions. By making them more visible, AEMO proposes it could more accurately determine how much energy demand needs to be met and how to meet this demand.
It’s of the view that better integration of these resources could lead to more efficient network and wholesale market services, reducing the overall cost of providing reliable electricity to consumers, ultimately leading to lower prices.
New modelling by the AEMC, published today, marks the next step in our exploration of solutions to allow these resources to participate in the wholesale electricity market.
Ms Collyer explained by comparing the anticipated market operations between 2025 and 2050, the modelling explored two potential reform cases against the current scenario, wherein price-responsive resources, such as VPPs, function invisibly within the NEM.
"Positively, the findings revealed a net present value of $1.5 to $1.9 billion dollars in potential cost reductions resulting from the proposed rule change. These cost reductions encompass lower generation costs, lower emissions, reduced emergency supply requirements and a decreased reliance on additional resources to rectify imbalances in the system.
“Furthermore, the integration of these resources is anticipated to significantly increase market competition and put downward pressure on prices", she said.
Modelling indicates the benefits would start to arise as integration occurs and grows, if the rule change is made.
The next step in this rule change request involves a series of detail design decisions, informed by technical working groups and stakeholder engagement. This will inform the AEMC’s formulation of a draft rule and determination, expected to be published in the second half of the year.
The paper will delve into design solutions that not only unlock these benefits but also serve as an incentive for widespread participation.
A public forum on February 19th will offer stakeholders an in-depth overview of the AEMC’s work to date, including the benefits modelling.
Background:
On December 14th, the AEMC published an update paper for the rule change, signalling our commitment to undertaking benefits modelling to provide better insights into where and when the benefits arise.
The AEMC sets the rules for the National Electricity Market (NEM) and provides independent expert energy advice to Australia’s State and Federal Governments. It is strongly focused on providing a framework for a reliable electricity system and affordable electricity prices, particularly in light of current cost of living concerns.
It is currently working on reform that aims to unlock the full potential of consumer energy resources for the benefit of both the customer who invested in those assets and also for the benefit of all customers through the resulting improvements to the operation of the overall system.
View the project page for more information and contact details.
Media: Jessica Rich, 0459 918 964, media@aemc.gov.au.