WHAT IS DEMAND SIDE PARTICIPATION?

Demand Side Participation (DSP) refers to the decisions taken by energy consumers regarding the manner, volume and timing of their energy consumption with the effect of reducing the overall costs of energy supply across the system.

WHY IS DEMAND SIDE PARTICIPATION DESIRABLE?

Provided that DSP is undertaken in an efficient manner, it offers considerable benefits for energy consumers and the energy market more generally:

  • Lower costs for consumers: DSP enables consumers to reduce their electricity consumption or to shift a proportion of their electricity consumption to off-peak times when prices are cheaper. In turn, this reduces overall electricity costs for the consumer.
  • Lower supply costs: DSP may reduce peak demand – that is, demand for electricity at peak times. If so, efficient DSP may avoid or, at least, defer the need for further investment in generation and network assets that would otherwise be needed to meet peak demand for a few short periods during the year – for example, when temperatures are high resulting in greater use of air conditioners. This avoided investment in infrastructure will lead to lower wholesale electricity and network costs and, ultimately, lower prices for energy consumers.

WHY INTRODUCE A DRAFT RULE?

In light of these benefits and further to the 2012 Power of Choice review, a draft rule has been introduced as part of the Australian Energy Market Commission’s (AEMC) work to encourage greater uptake of DSP.

Currently, the National Electricity Rules (NER) do not provide a process for the AEMO to obtain detailed information about DSP from registered participants. To date, AEMO had conducted voluntary surveys of registered participants on DSP. However, the quality of this information has been limited. This impacts on AEMO’s load forecasts both long and short term.

Features of the draft rule

The draft rule has the following features:

  • registered participants will be required to provide AEMO information on DSP according to DSP guidelines
  • AEMO will develop these guidelines taking into consideration reasonable cost of efficient compliance compared to the likely benefits to AEMO in using the information gained through the process to forecast load
  • AEMO will be required to take into account the information received from registered participants in developing and using load forecasts
  • AEMO will be required to publish, at least annually, the extent to which the information gathered has informed the development or use of its electricity load forecast
  • the scope of information that AEMO may specify must be provided by registered participants under the guidelines.

COMMENTS ON DRAFT RULE TO DATE

Comments on the draft rule to date together with the AEMC’s responses are summarised below.

  • Usefulness of DSP data:
    • Concerns/ comments: The ability to influence load forecasts, usefulness of data in improving load forecasts, limited evidence of benefits associated with the rule and risks associated with the provisions of inaccurate information have been raised.
    • Response: The AEMC has stated that the draft rule will allow access to information not currently available which will lead to improvements to load forecasts. This will improve publishing of forecasts and subsequently better decision making for AEMO and energy market stakeholders. Non-regulatory approaches are believed to be ineffective as they essentially maintain the status quo.
  • Accuracy of information to be provided by AEMO:
    • Concerns/comments: The unpredictable nature of DSP and delineating between inaccurate reporting by registered participants versus normal variations which cannot always be predicted have been raised. Information accuracy obligations may be beneficial in the guidelines but may increase compliance costs. The assessment of any compliance with the guidelines and accuracy obligations have also been raised.
    • Response: The AEMC has stated that the guidelines will specify the methodology for assessing the accuracy of information on DSP. Part of the consultation process may include consideration of data accuracy and this will be coupled with the Rules consultation procedures and consultation with registered participants.
  • Regulatory and administrative burden:
    • Concerns/comments: The additional regulatory and administrative costs (initial and on-going) associated with the compliance with the draft rule and guidelines have been raised. The lack of clarity around the nature of the guidelines has also been raised.
    • Response: The AEMC has stated that registered participants will be engaged in the process to collect their views on possible impacts and to asses any negative implications against benefits associated with gathering information. AEMO will have regard to matters raised where they contribute to the reasonable cost of efficient compliance.
  • Balancing the need for DSP information transparency and confidentiality:
    • Concerns/comments: The level of detail on DSP to be provided to AEMO and disclosure of confidential information have been raised.
    • Response: The AEMC has stated that the National Electricity Law (NEL) places certain obligations on the way in which AEMO may use and disclose protected information. Despite the NEL, under the draft rule, AEMO may publish forecasts in a form that is useful to stakeholders and use information to improve its decisions.
  • Detail to be included in the Guidelines:
    • Concerns/comments: Clarification has been sought around terms within the guidelines, particularly with reference to the use of ‘information’. Suggestions have been put forward around appropriate forecasting methodologies and other parties who may contribute useful information on DSP.
    • Response: The AEMC has stated that specific details and any prescription relating to the requirements, including use of information and forecasting methods to be used, will be contained in the guidelines, not in the draft rule. The scope of information to be provided will be information under the guidelines that falls within the definition ‘DSP information’. The draft rule only requires information from registered participants. Other parties’ information may be included through contractual relationships with registered participants.

TIMELINES FOR IMPLEMENTATION

Submissions from interested stakeholders have been sought on the draft rule by the AEMC.  Following finalisation of the rule, the following timelines for implementation will apply:

  • an 18 month process will be required for AEMO to develop the guidelines
  • a 3 month lead in period will be provided to registered participants to implement and comply with the guidelines
  • a minimum period of three months will be provided between the publication of the guidelines and when they are to commence
  • AEMO will be required to develop and publish the guidelines within 18 months of the commencement of the draft rule.