Integrating price-responsive resources into the NEM

Rule Change: Completed

Overview

On 19 December 2024, the Australian Energy Market Commission (AEMC) made a final determination for a more preferable final electricity rule (and no retail rule) in response to a rule change request from AEMO.

Our final determination seeks to address the growing amount of unscheduled price-responsive resources by:

Allowing aggregated consumer energy resources (CER), demand response and independent small generators/batteries to be scheduled and dispatchable in the NEM.
Including a short-term incentive payment to drive participation in dispatch.
Introducing a monitoring and reporting functions to understand the forecasting challenges and errors from unscheduled price-responsive resources.

Unscheduled price-responsive resources such as virtual power plants, community batteries, flexible large loads and other price-responsive small resources, are providing opportunities to customers and retailers to reduce their bills.

However, their response is not fully integrated into the planning and operation functions within the National Electricity Market (NEM).

As such, they are not appropriately considered when determining how much energy demand needs to be met, how to meet this demand or the price at which it is purchased.

Energy, security and reliability services could be provided more efficiently if these resources were fully integrated. Over time, this would reduce the total cost of providing consumers with a reliable electricity supply and therefore decrease prices for all consumers.

We had IES adapt its size of the prize modelling to include projected uptake rates of dispatch mode. Our probabilistic assessment is a net benefit of $805m.

This rule change is a key part of a package of reforms to integrate CER. It is the main rule change in the AEMC’s work program that focuses on integrating these resources into the wholesale electricity market.

Consultation paper

The Australian Energy Market Operator (AEMO) proposed a voluntary mechanism to allow unscheduled price-responsive resources, such as virtual power plants, to participate in scheduling processes.

A consultation paper was published in August 2023. Submissions in response to the consultation paper closed on 14 September 2023 and 34 submissions were received.

Update paper

On 14 December 2023, we published an update paper. It provides an overview of work to date and the steps that we propose to take in the first half of 2024 to progress this rule change towards a draft rule.

Benefits modelling

On 15 February 2024, we published modelling of the benefits associated with integrating price-responsive resources. This was updated in June. The findings suggest a potential cost reduction ranging between $1.4 to $1.8b dollars (net present value between 2025 and 2050) through reform to integrate these resources. These substantial figures underscore the significance of progressing with the rule change promptly.

Forum and Technical working group

On 19 February 2024, the AEMC held a public forum to provide an overview of the Commission's work to date on the rule change, including 'size of the prize' benefits modelling that was released on 15 February.

On 21 February 2024, we also commenced our technical working group to consider the design of visibility and dispatch solutions. The slides and minutes from these meetings are available below.