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Demand, response: Energy Market Commission acts on energy users' call for reform

New electricity market rules to reward industrial energy users for cutting demand at peak times would be a win for all energy users, Australian Industry Group Chief Executive Innes Willox said today.

"The retirement of old generators and the growth of cheap but variable renewables mean our electricity system needs flexible capacity more than ever. Today most of that flex comes from gas-fired generators, but gas is increasingly pricy. We need a mix of other flexible resources too, and demand response – when energy users reduce or shift their consumption to take pressure off the grid – is a terrific option to reduce prices and prevent involuntary outages. It can be much cheaper to briefly idle equipment on the demand side, rather than build capacity on the supply side that will be idle most of the time.

"Australia’s demand response potential could create value for everyone, but it has gone largely untapped. One big reason is that in our biggest electricity market the only ways for energy users to make money from demand response have been by taking full exposure to the volatile spot price of electricity – unattractive unless you are a very sophisticated player – or by contracting with their energy retailer.

"Ai Group and Australia's industrial energy users have been calling for action to unlock demand response for many years. While a wholesale demand response mechanism seemed all but agreed by COAG in 2012, by 2015 it had fizzled out. The Finkel Review listened to energy users and revived the recommendation. Now the Australian Energy Market Commission has also listened and made a draft determination that appears to deliver what Finkel and energy users have sought.

"The draft rule would shake up the electricity market and turbocharge demand response by letting energy users work with third party aggregators. There is a lot of nuance in the proposed design, which takes elements proposed by energy users and makes changes intended to protect small users and minimise transition costs, and we will take time to study it. Our initial reaction, however, is very positive. Energy users demanded, and the AEMC has responded. There is much work to do before a final rule change commences in July 2022, but we are finally back on track," Mr Willox said.

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