Australia Demand Response Mechanism

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When the National Energy Rules change with effect from 24th October 2021, for the first time it will be possible to bid demand response into the wholesale Australian market. Demand response will then compete for dispatch with peaking generation at times of tight supply.

The Demand Response Mechanism will facilitate demand response at times of tight supply in addition to what is currently being provided under existing arrangements. The focus will be on large users who are able to provide significant volumes of demand response and have loads capable of being controlled for scheduling.

A new market participant category, a demand response service provider (DRSP) will be introduced. The rule places obligations on DRSPs that replicate those applied to scheduled participants and sets out a process for having baseline methodologies determined and applied to wholesale demand response units. It also provides for DRSPs to be settled in the wholesale market for the wholesale demand response they have provided at the prevailing spot price.

The large customer will enter into an agreement to provide demand response with a DRSP and will be paid by the DRSP.

The DRSP offers wholesale demand response into the market and receives dispatch instructions. If dispatched, the DRSP is paid at spot prices and shares the benefit with the customers. The Australian Energy Market Operator (AEMO) issues dispatch instructions to wholesale market participants, including the DRSPs, and will dispatch the least costly combination of generation and demand response.

This rule will increase the capacity of wholesale market resources and may allow DRSPs to be dispatched ahead of more expensive peaking generation resulting in lower spot prices. The scheduling obligations make the demand response more reliable for AEMO.

The rule also requires a DRSP to pay a retailer, using a pre-determined reimbursement rate, for the amount of demand response provided by their customer, covering the amount of energy the customer would have otherwise purchased from the retailer if it had not provided demand response, and for which the retailer remains liable in the wholesale market.

The introduction of the wholesale demand response mechanism is expected to place greater competitive pressure on retailers to offer demand response products to consumers in competition with DRSPs. This would lead to more price responsive demand being facilitated outside the mechanism.


Martin Shippen

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