The way we use electricity is fundamentally changing
Businesses have more control over their energy bills than ever before, from shifting when they use energy to take advantage of lower prices, to choosing to invest in their own energy assets, such as backup generation.
We help many Australian energy users provide demand response into different markets. For example, we help our customers earn revenue through supporting grid stability and security through frequency control ancillary services (FCAS) markets and the Reliability Emergency Reserve Trader (RERT) mechanism. Up until now, however, businesses have had limited opportunities to participate in the wholesale electricity market.
The introduction of a new mechanism will mean access to the wholesale market
The Australian Energy Market Commission (AEMC) has announced a proposed demand response mechanism (DRM), which will see the wholesale market in the National Energy Market (NEM) open up to demand side energy users, potentially as soon as July 2021.
This means eligible energy users can offer to reduce or switch off their power use and, if that offer is accepted by the market operator, get paid the wholesale spot price. We fully support this development, particularly because it will place downward pressure on pricing, which will benefit all consumers.
What DRM means for energy users
The new mechanism is yet to be finalised but broadly it will work by allowing third parties to offer demand response into the wholesale market, rather than just a customer’s retailer. This will increase competition by allowing third party providers like us to offer a new type of demand management service to energy customers.
We’ll then be able to offer the customer’s flexible capability – a reduction in demand – into the wholesale energy market, much the same way generators currently offer to supply energy.
The benefits of the DRM
| Direct benefits |
Indirect benefits |
- Lower energy bills, simply by reducing demand
- Additional revenue, for being paid to reduce demand
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- Lower wholesale and network costs as a result of using lower-cost demand response
- A greater understanding of energy consumption
- Improved business competitiveness
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How to minimise the business impact of reducing demand
There are several ways to minimise the impact that reducing demand might have on a business. We currently work with customers in multiple overseas markets to support wholesale demand response, helping them understand how their business can best respond.
This includes:
- Making temporary adjustments to equipment electricity usage like pumps, chillers or compressors and/or
- Switching energy use from the grid to on-site power sources, like backup generators or battery storage.
These processes are generally automated and coordinated seamlessly by our team, with minimal disruption to operations. We also help our customers ‘value stack’ by offering them demand response in multiple power flexibility programs, allowing them to maximise available revenue streams.
The DRM is also good for the grid, the community and the environment
As well as the direct benefits to customers – like lower power bills and extra revenue –participating in wholesale demand response leads to indirect benefits that extend to all energy users.
For example, demand response helps the grid be more resilient and sustainable, particularly in the context of ageing thermal plants and the rapid uptake of renewables which have an impact on system security.
There are also price benefits, with the potential for lower spot prices by introducing more competition in the wholesale market. It’s also a cheaper and more flexible way to meet demand when supply is scarce, especially when compared to the cost of building new generation or network capacity.
Wholesale demand response will drive innovation by encouraging energy providers to compete to provide customers with the products and services they value.
By providing an alternative for generation, wholesale demand response will help support and lower the cost of the transition to a low carbon electricity market.
How the DRM will work
The exact design of the mechanism is due to be decided in June 2020. This table explains how the mechanism could work, based on the AEMC’s draft proposal.
| A new type of market participant will be introduced |
Any company registered as a demand response service provider (DRSP) will be able to participate directly in the wholesale market.
Enel X is planning to register as a DRSP, which means we can bring together our customers’ energy load to give back to the grid.
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| DRSPs will be involved in the central dispatch process |
The AEMC has proposed that offers for demand response will be dispatched by the market operator, similar to how generators are dispatched. This will occur where it’s cheaper to use demand response than generation to meet demand.
Customers will be able to choose when they participate and won’t need to do so for every dispatch period.
DRSPs will have obligations when participating, like complying with dispatch targets and providing information.
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| DRSPs will be paid based on the spot price |
DRSPs will be paid the variable spot price for any wholesale demand response they’ve provided. The revenue they earn will then be shared with customers in line with their agreed terms.
DRSPs will also need to reimburse a customer’s retailer for the costs the retailer incurs as a result of the way that the settlement process occurs.
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| A baseline level of consumption will be established |
A key component of the DRM is working out the baseline level of consumption that would have occurred if the customer had not provided demand response.
This is needed to measure the quantity of demand response provided to the market, which is used to work out how much the DRSP should be paid for. The market operator has been tasked with developing a methodology for establishing baselines, but DRSPs will be able to propose alternative methodologies that might be better suited to their customers.
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