Australia’s renewable energy transformation is accelerating, and we need new forms of power capacity to ensure the reliability of the power grid while balancing the natural variability of renewable power.
The Wholesale Demand Response Mechanism (DRM) has been created to allow energy users to offer Demand Response (DR) into the wholesale electricity market (and to get paid for doing so). Many businesses across Australia are well-suited to offer DR, and they are seizing this new opportunity to significantly improve their bottom line while supporting a cleaner and more competitive future for Australia.
Enel X is the market leader in Demand Response, and it offers a comprehensive service through its Virtual Power Plant (VPP) platform that helps businesses maximise what they can earn from the DRM.
What is the Demand Response Mechanism?
The Demand Response Mechanism will allow eligible energy users to earn revenue by reducing or switching off their power use when the grid needs capacity. They can then offer this flexible capacity to the wholesale energy market, like how generators currently offer to supply energy.
The role of the Demand Response Mechanism
The National Electricity Market (NEM) balances the supply of and demand for electricity in real-time. Depending on this balance, the market produces a different ‘spot’ power price every five minutes of every day.
When demand is very high relative to the available supply, the spot price will spike, and the Australian Energy Market Operator (AEMO) will typically issue a ‘Lack of Reserves (LOR)’ notice indicating that the power grid is under stress.
The DRM allows qualifying DR resources to offer their energy capacity into the NEM as a new source of power supply during these critical times. This will help AEMO improve the reliability of the system, while allowing DR providers to earn the spot power price whenever they are utilised. For DR resources that offer themselves to the market as a last line of defence for the power grid, they can expect to be utilised primarily during summer evenings for only a few dozen hours each year.
The business opportunity
The cost of power in the NEM is highly concentrated in critical hours. Today, more than 20% of the total annual cost of power occurs in the most expensive 40-60 hours each year. The DRM allows businesses to capture this concentrated value, which will translate into a material reduction in the annual cost of powering their business. And as coal stations retire and renewable power continues to grow, the value of DR could very well continue to increase.
Unlike past mechanisms such as the Reliability and Reserve Trader (RERT), the DRM is a fixture of the NEM, meaning businesses can count on an ability to participate and earn revenue year after year. And with the model offered by Enel X, this will include guaranteed minimum annual revenue regardless of the actual spot power prices each year.
The DRM allows businesses to offer DR to the market while still buying their power through a traditional fixed price supply contract. This means you can participate in the DRM without taking on any new risk or volatility in the price you pay for power. And the DRM works independently from your retail contract, allowing you to keep earning money from DR regardless of who your retail supplier is each year.
While DR is valuable, your core operations come first. When done properly, your participation in the DRM can be designed around your operational priorities. Put simply, the market will take what you can give it. At Enel X, we first seek to understand your operations, and then to design a DRM plan which will maximise your earnings subject to your operational limits.
Our DRM service offering
While valuable, the DRM is going to be quite complex. AEMO requirements will include unique market registrations, dedicated SCADA connections, real-time market bidding and dispatch procedures, and detailed performance measurement and compliance rules.
We approach the DRM the same way we approach everything we do – with a mission to make it easy for businesses to access this new energy opportunity. To do so, we offer a turnkey service that manages all aspects of DRM participation.
Our DRM service includes
- Technical and operational DR evaluation
- Revenue planning and business case
- Metering and controls (at our expense)
- Connection to our VPP platform
- 24/7 bidding and dispatch management
- Market compliance and risk manacement
- Trading and co-optimisation of DR value
Our VPP platform
Our VPP platform lies at the heart of what we do. It allows us to orchestrate a network of distributed energy resources in real-time so that we can sell a variety of services to support the power grid. Our platform has operated for more than 15 years, and manages the largest VPP built from commercial and industrial energy assets in the world today, with 6 GW under management. Locally, Enel X operates the largest VPP in Australia (BNEF), with more than 200 business customers across diverse sectors.
Why businesses work with us
Businesses work with us because they trust our proven track record as the market leader. We have been at the forefront of DR in Australia for more than a decade, and no one can match our experience or our achievements. Our runaway success in bringing businesses value from FCAS over the past four years shows that we can deliver results where others can’t (or won’t).
Businesses also work with us because they value our unique approach to the DRM. Put simply, we offer a practical and flexible model that allows your business to get the most out of the DRM. This includes:
- Guaranteed minimum annual earnings regardless of the actual spot power prices each year
- Flexible structures that allow you to dictate when and how often your DR will be used
- An opportunity to use your DR in other programs (such as FCAS) at the same time as the DRM
- Access to the DRM without any capital expenditures or changes to your retail power contracting
- An ability to connect the DRM to your broader energy strategy, including how it can support your renewable energy purchasing, and how it might connect to new technology categories like energy storage and electric vehicles
Finally, businesses work with us because we make this easy, and because we deliver results. We welcome the opportunity to speak about how we can make the DRM happen for your business.