EnergyAustralia responds to the ‘cost benefit assessment of the demand response mechanism’

Ralph Griffiths from EnergyAustralia, has penned this open letter to the Department of Industry on behalf of EnergyAustralia. In his response, he states the key barrier to demand response in the wholesale market currently is “chronic oversupply, low prices and low volatility.”, going on to say that “for the first time in NEM history AEMO’s 2014 ESOO identifies that no new supply is needed in any jurisdiction over the next ten years. There is currently over 7500MW of excess supply.”

The letter also lists several flaws in the DRM – “While we are unable to identify a problem that the DRM would address, the limitations of the design are apparent. Contrary to purported benefits, the DRM would not:
  • Improve the efficiency of wholesale price signals. The NEM is an energy only market. Large customer meters are settled half hourly at the real time cost of supply.
  • Increase the tariff options available to customers. Customers can already access a wide variety of DR products and services through their retailer.
  • Increase competition. Competition in the commercial and industrial sector is intense, with low barriers to entry and many retailers. The market also supports many third party DR service providers.
  • Drive increased network DR. 95% of the potential benefit of increased demand response is network related. To assume the DRM drives the realisation of network benefits is to assume an ongoing chronic failure of network regulation.
The DRM is also unlikely to help the third party DR providers that it targets. In our experience, they are unable to accept either the spot market risk, or the greater risk associated with selling derivatives to firm the spot revenue. The DRM is unlikely to support ‘pure-play’ DRAs and the end result will be a more complicated and expensive status quo.”
The original report compiled by Oakley Greenwood can be found here.

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