AEMC allows “unbundling” of ancillary services for the grid

The Australian Energy Market Commission (AEMC) is proposing to create a new type of market participant who can do deals with energy users to offer demand response as a tool to help maintain power system security.

Releasing its draft determination on the National Electricity Amendment (Demand Response Mechanism and Ancillary Services Unbundling) rule request, the AEMC will now start consultation to facilitate a more competitive ancillary services market.

AEMC chairman John Pierce said demand side participation in Australia’s energy markets, where consumers can choose to change their electricity consumption to avoid periods of high demand and high cost, is already happening.

“There are no barriers to the continued proliferation of demand response that has taken place to date,” Mr Pierce said.

“Market developments and innovation by demand side management providers means large customers, retailers and network businesses can already enter commercial arrangements directly with one another or access a relatively competitive demand-side market. At least 21 businesses are providing a variety of products and services across all major jurisdictions in the National Electricity Market (NEM).

“Retailers and demand-side service providers expect this to increase in the future. The ability of smaller consumers to exercise their demand response is likely to increase as the latest market reforms started by the Power of Choice review start to take effect from 1 July 2017.”

The AEMC’s preferred rule released incorporates aspects of the rule request relating to the need for a more competitive ancillary services market to complement the consumer-driven demand that is already underway.

The draft rule would enable new energy service providers to offer more demand response as ancillary services as an option to help AEMO control electricity system frequency to deliver secure and reliable energy.

Mr Pierce said this draft rule allows the ‘unbundling’ of the provision of ancillary services necessary for a secure power system, from the provision of energy.

The draft determination has decided not to create a new regulatory mechanism for demand response in the NEM as it would have increased costs for consumers and provided no extra benefit.

Mr Pierce said the proposed demand response mechanism was the last of the Power of Choice recommendations from 2012 to be considered and was no longer needed as other more recent reforms were already allowing increasing demand response opportunities.

These reforms include new distribution network pricing arrangements allowing for greater use of pricing structures and new metering services so consumers can access products that value their demand response.

“We have found that the benefits identified in the rule change proposal can be delivered without extensive costs of the mechanism, which could be as much as $120 million,” Mr Pierce said.