The Australian Energy Market Commission (AEMC) has released a draft determination that encourages electricity distribution networks to find lower cost solutions to managing their systems. The draft sits in line with proposals from the Total Environment Centre and COAG Energy Council.

The determination modifies the existing demand management incentive scheme which is part of the regulatory framework governing how networks manage their spending.  Examples of demand management include using batteries and local generation, as well as providing payments to customers who are willing to change the way that they use electricity.

Managing electricity use in these ways can help reduce levels of peak demand, which may reduce the need for significant investment in network capacity.

AEMC Commissioner, Neville Henderson, has called for submissions on today’s draft rule which he said would strengthen incentives for distribution businesses to pursue demand management projects as an efficient alternative to network capital investment.

“This rule change forms part of the program of reforms recommended by the Commission to support and encourage demand side options as part of our Power of Choice Review.

“The Demand Management Incentive Scheme would complement other reforms that have already been implemented or are currently being progressed, and would be an important part of the existing incentive based network regulatory framework,” he said.

The key features of the draft changes to the National Electricity Rules, which are broadly consistent with proposals from the Total Environment Centre and the COAG Energy Council, include:

  • Separate provisions for a Demand Management Incentive Scheme and a Demand Management Innovation Allowance.
  • Separate objectives for the Scheme and Innovation Allowance specifying what these must aim to achieve.
  • A new set of principles to guide the Australian Energy Regulator in developing and applying both the Scheme and Innovation Allowance to help achieve their objectives.

The new rules would also clarify that the Australian Energy Regulator may take into account the net economic benefits delivered across the supply chain by a demand management option when designing the financial rewards under the scheme.

Under the draft determination, the new rules would require the Australian Energy Regulator to develop and publish the scheme and allowance mechanism in accordance with the distribution consultation procedures by 1 December 2016.

Submissions to the AEMC’s draft determination are due by close of business on Thursday 9 July and a final determination is expected in August.

The report and further information is available at www.aemc.gov.au.

Power of Choice

The AEMC’s Power of Choice Review recommended a market wide reform program designed to facilitate consumer participation in energy markets.  The Commission has already put in place a number of building blocks to implement the plan:

  • New cost-reflective network pricing arrangements requiring network companies to structure their prices to better reflect individuals’ consumption choices.
  • Better consumer access to their electricity consumption information.
  • Draft rules to remove the networks’ effective metering monopoly and allowing new competitors to offer metering services to consumers.
  • Reducing the barriers to connect embedded electricity generators to distribution networks.

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