BULLETIN
Energy Market Reform Working Group
ENERGY MARKET REFORM
BULLETIN TWENTY EIGHT / AUGUST 2014
DEMAND RESPONSE MECHANISM (DRM) COST BENEFIT ANALYSIS
CONSULTATION PAPER
The Demand Response Mechanism (DRM) was a
recommendation of the Australian Energy Market Commission
(AEMC) in the 2012 Power of Choice review.
The DRM was intended to facilitate large energy users to act as
though they were non-scheduled generators in the wholesale
market, and receive reimbursement for reducing energy demand
in response to high price events. It was proposed to support an
increase in demand side participation by large energy
consumers, contribute to a reduction in wholesale market prices
and defer generation and network investment in the long term
interest of consumers.
In January 2013, the Standing Council on Energy and
Resources (SCER, now COAG Energy Council) directed the
Australian Energy Market Operator (AEMO) to develop a DRM
rule change proposal for submission by 15 December 2013.
Recent changes in the market may have impacted on some of
these benefits. When the AEMC analysed a possible DRM,
peak and average electricity demand were assumed to increase
at a steady growth rate. Additional energy infrastructure, such
as generation and network assets, would hence be required to
meet this growth. The DRM could assist in providing a cheaper
option to meet system reliability requirements, resulting in
economic benefits by deferring investment in this energy
infrastructure. Since that time, energy demand has shown a
trend of flattening and declining. As such, there is a lower
projected need for capital investments in additional energy
infrastructure.
Cost benefit analysis of the DRM
At the 13 December 2013 SCER meeting, ministers noted the
change in market circumstances since the completion of the
Power of Choice review. While continuing to recognise the value
of demand side reform, ministers agreed to ask AEMO to defer
lodgement of the rule change proposal and request officials to
undertake further work on the DRM, including a cost benefit
study, and report back to ministers.
Consultation Paper
Cost benefit analysis and market modelling requires the
development of complex and detailed assumptions, and
identification of relevant data. These inputs need to be
reasonable and realistic to ensure the modelling generates
sensible outcomes.
This DRM Consultation Paper outlines the potential
methodology and data sources which Oakley Greenwood will
draw upon to undertake their analysis. Interested parties are
encouraged to consider Oakley Greenwood's preferred
approach and to provide submissions which address the specific
questions posed, along with any general views on the paper.
Please note the Consultation Paper is for consultation purposes
only and does not represent the final views of the COAG Energy
Council or the Commonwealth, state or territory governments.
Submissions on the consultation paper are now invited and
should be provided to the COAG Energy Council Secretariat by
5.00 pm (AEST) Friday 12 September 2014.
Electronic submissions are preferred and can be sent to:
[email protected]
Stakeholders who wish to provide hard copies by post may do
so by addressing their submissions to:
Manager, COAG Energy Council Secretariat
Department of Industry
GPO Box 9839
Canberra ACT 2601
All submissions will be made available from the Council website
unless stakeholders have clearly indicated that a submission
should remain confidential, either in whole or in part.
25 August 2014
In May 2014, officials contracted Oakley Greenwood to
undertake further analysis of the DRM, including market
modelling.
Secretariat
GPO Box 9839
Canberra ACT 2601
Telephone: (02) 6243 7788
[email protected]