The Australian Energy Market Commission (AEMC) will press ahead with demand response plans to let large customers routinely trade their energy use in the national electricity market because this is a landmark reform that must be prioritised, even with COVID-19.
This reform–called ‘the wholesale demand response mechanism’–encourages large customers to reduce their electricity consumption in the short-term in response to wholesale market price signals. It works by scheduling this demand into the market in the same way an electricity generator’s supply would be scheduled in. This new way of operating recognises that not using electricity should routinely attract a market value and creates another tool to help balance energy supply and demand.
The AEMC says it is potentially a much cheaper way to address sudden spikes in demand than sources of peaking generation such as gas or pumped hydro. In effect, it is an affordable new tool for managing energy security and reliability.
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It is also important because it is a stepping-stone to Australia achieving a two-sided energy market – where all consumers (large and small) would be able to fully participate by actively trading their energy use as a valuable commodity. This means the grid will eventually see much greater benefit from the distributed energy resources used by households, such as solar panels, batteries and electric vehicles.
Along with the other energy market bodies–the Australian Energy Regulator (AER) and the Australian Energy Market Operator (AEMO)–the AEMC has been working during the pandemic to strike the right balance between easing regulatory pressures on market participants while insulating important and fundamental work on the power system.
Federal Minister for Energy and Emissions Reduction Angus Taylor said this reform will help avoid spikes in electricity demand that can increase prices and cause unexpected blackouts.
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“This is a great opportunity to strengthen energy intensive industries, like smelters, by rewarding them for the role they play in making the grid affordable and reliable,” Minister Taylor said.
“The benefits of wholesale demand response will flow through to all households and businesses through lower electricity bills and improved network reliability.
“Lower electricity costs on small businesses and industry means Australians have more money to invest, expand and grow jobs – and this is particularly important as businesses recover from COVID19.”
The final determination and rules take effect in October 2021.