Recent developments that could lead to changes in the regulation of the Australian NEM

28 Sep 2012Archived News Climate Change Matters

Widespread concern about rising electricity prices has led to a fresh look at the options available to improve the ability of electricity users to exercise more control over their electricity consumption.  There are three reviews underway which could open up opportunities to participate in the National Electricity Market (NEM).  Energetics provides a summary of each and key dates to note.

AEMC "Power of Choice Review"

The Australian Energy Market Commission (AEMC) is currently undertaking a review to determine what amendments to the National Electricity Rules could better facilitate demand side participation. The AEMC is currently completing the Stage 3 of this review and has released a draft report setting out the draft recommendations resulting from this review.

In summary, the main proposed changes of interest are:

  •  Rewarding DSP in the wholesale market: there is currently no mechanism for a consumer who reduces their demand at a time of high wholesale prices to be paid the spot price and hence receive the full benefit of their demand response. The AEMC proposes establishing a new demand response mechanism that allows consumer, or third parties on consumers’ behalf, to directly participate in the wholesale market and to receive the spot price for the change in demand. This would put demand response on the same footing as supply-side resources and greatly increase the attractiveness of offering demand response in the NEM.
  • Unbundle services at the connection point: currently only retailers can contract with a consumer at any connection point of that consumer. Retailers generally have limited interest in demand response, which restricts the ability of demand-side proponents to monetise the value of their demand-side participation. To enable the participation of demand response providers in the wholesale market, the AEMC proposes the introduction of arrangements to allow consumers to sell their demand-side participation and any electricity generated from distributed generation to parties other than their retailer by introducing a new category of market participant which can offer “Demand-side participation energy services” to consumers.
  • Gradually phasing in time varying network tariffs: at the moment, many consumers pay the same network tariff during peak and off-peak periods. The AEMC proposes introducing time varying network tariff. With these tariffs, consumers would have a greater financial incentive to reduce their demand during the network peak times, which might increase their willingness to engage in demand response activities
  • Enabling technology (metering): currently most meters in the NEM, except for very large electricity users, are accumulation meters and do not distinguish between peak and off-peak electricity consumption, nor have any communication capabilities (these are ‘Type 6’ meters). The AEMC proposes introducing minimum specifications for all new meters in the NEM installed for residential and small business consumers requiring interval read capability and remote communications. Similar to the previous point, this would increase the financial incentive for such consumers to reduce their demand in peak times. This is unlikely to significantly increase the attractiveness of offering demand response products in the short term due to the long time it will take to change over a significant number of meters; however, it is proposed that the installation of these meters be accelerated for residential and small business consumers whose annual consumptions is above a defined threshold
  • Change incentives for distribution network businesses: the AEMC proposes reforming the current demand management and embedded generation connection incentive schemes targeted at network businesses to encourage greater demand for demand-side participation. This would include actions which decouple the revenue of network businesses from the amount of electricity consumed by including an allowance for foregone revenue under the demand-side participation incentive scheme

Submissions can be provided to the AEMC by 11 October 2012. Power of Choice - Stage 3 DSP Review (Australian Energy Market Commission website).   

Senate Select Committee on Electricity Prices

Following recent large increases in electricity prices, the Australian Senate established a Select Committee on Electricity Prices on 23 August 2012 to inquire into and report on:

  • identification of the key causes of electricity price increases over recent years and those likely in the future; 
  • legislative and regulatory arrangements and drivers in relation to network transmission and distribution investment decision making and the consequent  impacts on electricity bills, and on the long term interests of consumers;
  • options to reduce peak demand and improve the productivity of the national electricity system;
  • investigation of mechanisms that could assist households and business to reduce their energy costs;
  • investigation of opportunities and barriers to the wider deployment of new and innovative technologies, including:
    1. direct load control and pricing incentives,
    2. storage technology,
    3. energy efficiency, and
    4. distributed clean and renewable energy generation.

It is possible this inquiry will lead to further electricity market regulation reviews to facilitate greater demand-side participation, particularly in relation to part (b) above. View submissions received by the Select Committee on Electricity Prices, including Energetics'.)  A report on this inquiry will be released by 1 November 2012. More information on the Select Committee on Electricity Prices.

AEMC review of distribution reliability outcomes and standards

The AEMC commenced this review in June 2012 to investigate the distribution reliability outcomes and standards across the NEM. Currently distribution reliability outcomes are set separately for each NEM jurisdiction; the AEMC is considering the development of a nationally consistent framework.

Distribution reliability outcomes includes reliability performance standards, which refers to the level of average services standards that a distribution network services provider (DNSP) is required to meet. Currently these standards are stricter in NSW, Qld and SA than in the ACT, Tas and Vic. There is a push to establish national standards that are more in line with Victoria. This would reduce the investment required of DNSPs in jurisdictions outside Victoria, and reduce the level of reserve capacity in distribution networks. With a lower reserve capacity, there is greater incentive to prevent periods of high demand that could lead to outages in the network; this therefore might increase demand for demand response products by DNSPs.

A draft report on the outcomes of this report is due for release in November 2012. Review of Distribution Reliability Outcomes and Standards - National Workstream (Australian Energy Market Commission website).

We believe that the proposed rule changes under the AEMC’s review of Demand Side Participation and other recent developments could greatly increase the attractiveness of offering demand response products in the NEM.

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Gilles Walgenwitz

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