The Chairman of the Australian Energy Market Commission, Dr John Tamblyn, today released the Statement of Approach for a Review of demand-side participation (DSP) in the National Electricity Market (NEM).
The Review will focus on three key questions:
1. Can measures that facilitate DSP improve the efficiency of investment in, and operation of, electricity services in the NEM?
2. Are there obstacles or disincentives to efficient DSP in the NEM?
3. Where obstacles or disincentives are identified, how can the National Electricity Rules be changed to reduce or remove them in order to facilitate efficient DSP in the NEM?
Most electricity customers do not face retail tariffs which reflect the actual costs of the power they are using at the time they are using it. As a result, customers are not making consumption decisions based on the electricity prices which reflect an interaction between supply and demand. Demand-side participation, for the purpose of the Review, is interpreted as the ability of consumers to make decisions regarding the quantity and timing of their energy consumption which reflects their value of the supply and delivery of electricity.
According to Dr Tamblyn, since the AEMC was established in 2005 it has identified a range of issues relating to the integration of demand-side actions in the energy markets.
"We are concerned about the possibility of sub-optimal investment in alternative demand side solutions, compared with other investments in generation and networks.
"The removal of any impediments to effective demand-side participation may boost market efficiency. Therefore, under its policy development role, the AEMC has decided to investigate the role of demand-side participation in the context of furthering the National Electricity Objective. "
The AEMC has formed a reference group of expert individuals to assist in considering issues relevant to the Review.
Dr Tamblyn said the Review will be conducted in three stages and is due to make recommendations to the Ministerial Council on Energy by the end of 2008.
- Stage 1 will review demand-side participation in relation to the AEMC's current program of Reviews (specifically the National Transmission Planner Review, the Congestion Management Review and the recommendations from the Comprehensive Reliability Review). Stage 1 will develop recommendations that can be considered in the context of the AEMC's work program.
The AEMC has engaged NERA Economic Consulting to undertake an assessment of DSP in the context of this Stage of the Review. The draft NERA recommendations report is released today for public comment. The closing date for submissions on the NERA report is 28 March 2008.
- Stage 2 will review 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; and
- Stage 3 in recognition of ongoing reforms in the sector, this stage will seek 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.
Review outputs
The AEMC will respond in Stage 1 to NERA's draft report recommendations.
The NERA draft report identifies impediments to the take-up of demand side participation in the NEM and makes a number of recommendations which point to:
- the desirability of improving the volume and quality of information about the likely feasibility of non-network alternatives compared to network investments;
- potential timing concerns about the application of the regulatory investment test;
- the desirability of having the regulatory investment test adopt clear definitions of costs and benefits to take into account differences in risk between alternative options; and
- the desirability of having retailers provide information on contracted demand response on a confidential basis to the National Electricity Market Management Company (NEMMCO).
The AEMC in stages 2 and 3 will make a report to the Ministerial Council on Energy outlining any recommendations for changes to the Rules.
Stage 1 timing
3 March 2008 - Draft NERA recommendations report
28 March 2008 - Close of submissions to NERA report
16 May 2008 - Final NERA recommendations report
Stage 2 timing
April/May 2008 - Scoping paper
September 2008 - Draft Review report
December 2008 - Final Review report
First half 2009 - Recommended Rule packages
In addition to the Review, on 6 November 2007 the Commission also received a Rule change proposal from the Total Environment Centre (TEC) related to DSP. The Rule proposal from TEC seeks to facilitate the increased use of demand-side resources by placing requirements and incentives on supply side participants to investigate and then undertake demand side solutions. The Commission intends to co-ordinate its assessment of the issues which are relevant to the Review and the Rule proposal to ensure analysis and outcomes are considered in an integrated manner.
"We invite all interested parties in the market, industry and community to read the Statement of Approach and the draft NERA recommendations released today and to participate in the Review to ensure robust outcomes," Dr Tamblyn said.