Submission to the AEMC Reliability Frameworks Review directions paper

PIAC lodged a submission to the Australian Energy Market Commission’s (AEMC) directions paper for its Reliability Frameworks Review. The review contemplates changes to market design to support other reforms in delivering long-term reliability of the energy system. In particular, the directions paper puts forward three potential options for the design of a wholesale demand response mechanism.

PIAC strongly supports the introduction of a mechanism for wholesale demand response (DR) independent of energy purchasing arrangements. Further, any part of the energy system that does not fully employ DR where it is cost effective, cannot be considered to operating efficiently. PIAC considers its use in the wholesale market is considerably lacking.

Of the different options put forward in the directions paper, PIAC supports Option 1. PIAC’s understanding is that Option 1 will transfer the value of wholesale DR to a third party, rather than the retailer, which is able to submit bids into the wholesale market. It would be compulsory for retailers to permit their customers to participate in this process. PIAC supports this as it separates retail energy supply from the provision of wholesale demand response. This reduces the barriers to entry for new parties and, by bidding into the wholesale market, DR will play a role in setting the dispatch price and help drive more efficient wholesale prices.

PIAC considers that Option 1 could be enhanced by: also allowing small customers to participate via an aggregator; developing an appropriate framework for scheduling wholesale demand response; and aligning its implementation with the 5-minute settlement rule change in 2021.