The Australian Energy Market Commission (AEMC) has published a new rule in the National Electricity Market (NEM) to help lower energy costs and improve electricity reliability during peak demand.
The final rule was published to support wholesale demand response in the NEM.
The new rule will give smelters and other important large energy users greater control over their energy use, and will allow users to be paid when they lower their demand during system events.
This reform – called ‘the wholesale demand response mechanism’ – encourages large consumers to reduce their electricity consumption in the short term in response to wholesale market price signals.
It works by scheduling this demand into the market in the same way an electricity generator’s supply would be scheduled in. This new way of operating recognises that not using electricity should routinely attract a market value and creates another tool to help balance energy supply and demand.
The AEMC said the reform offers a much cheaper way to address sudden spikes in demand than sources of peaking generation such as gas or pumped hydro. In effect, it is designed to be an affordable new tool for managing energy security and reliability.
Federal Minister for Energy and Emissions Reduction, Angus Taylor, said, “This reform will help avoid spikes in electricity demand that can increase prices, and can cause unexpected blackouts.
“This is a great opportunity to strengthen energy-intensive industries, like smelters, by rewarding them for the role they play in making the grid affordable and reliable.
“The benefits of wholesale demand response will flow through to all households and businesses through lower electricity bills and improved network reliability.
“Lower electricity costs on small businesses and industry means Australians have more money to invest, expand and grow jobs – and this is particularly important as businesses recover from COVID-19.”
This rule represents a significant reform for the NEM, making wholesale demand response possible.
Demand response is reducing, or changing the timing of electricity used in response to market conditions. By capitalising on the potential of large energy users to shift their electricity consumption, the wholesale demand response mechanism can help to manage pressure on the grid.
The mechanism is due to commence on 24 October 2021.
For the AEMC’s final rule and determination, click here.