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‘Vital development’: Market to pay big users to cut power gets green light

While households and small energy users are excluded for now, the AEMC said it would review the need for consumer protections over the next 12 months to determine how they could participate in the future.

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The AEMC’s determination, which will be subject to further rounds of public feedback, was greeted with approval from consumer advocates – particularly the Australian Competition and Consumer Commission (ACCC) – but more warily by generators and some analysts. State and federal governments also welcomed the move.

Major users said they would need to see more detail. However, the head of one of the nation’s largest electricity users who declined to be named as the company was in “sensitive” contract talks, said the start of a market that rewarded firms for curbing demand during “extreme peaks” could avoid some of the worst of the price hikes.

The delay of the introduction for another three years, though, “does seem a bit long”, the company chief said.

Rod Sims, the ACCC chair, provided some of the strongest endorsements, saying the new mechanism would be “a vital development in the reform of the national electricity market”.

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“A demand-response measure allows the electricity system to be more efficient, limiting the need for additional generation and, importantly, constraining the power of generation businesses, both leading to lower prices for consumers.”

Dan Cass, an analyst with the Australia Institute, described the plan as “a big win”, and in line with overseas moves: “The three biggest electricity markets in the world – China, America and the European Union – are pursuing similar reforms and Australia must keep up.”

However, Bruce Mountain, director of the Victoria Energy Policy Centre, warned that the complexity of such mechanisms meant there would be “no panacea” to the sector’s wider woes of soaring prices and increasingly uncontrolled supply as coal-fired plants falter and renewables expand.

The biggest challenge would be determining what a participant’s baseline demand is and therefore how much it is giving up during peak period.

“The incentives for gaming the system are huge and the oversight needs are large,” Dr Mountain said. “These things don’t spontaneously exist – it’s very complex.”

The Australian Energy Council, which represents big generators such as AGL and Origin,  echoed some of those concerns.

“It is difficult to set accurate baselines, which are critical, and to minimise the added costs to settlement arrangements with new third-party demand response providers becoming involved in the market settlements,” Sarah McNamara, AEC’s chief executive, said.

Energy ministers were generally welcoming of the changes, though Victoria’s Lily D’Ambrosio noted “this proposal is something the AEMC has been resisting for too long”.

“It’s well overdue, and shows how far they have to go in keeping pace with changing customer preferences and new technologies.”

Matt Kean, NSW’s Energy Minister, said he “strongly” supported the proposal “being introduced as soon as possible”.

“Increasing competition in the market will help reduce the demand in peak times, drive down prices and ultimately help keep the lights on,” he said.

Queensland has already been paying households for allowing their air-conditioners to be remotely powered down when demand surges, a service that now counts some 100,000 participants across the state.

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