Will the RRO have the inadvertent effect of killing a form of Demand Response?

Frequent readers of the articles we post here (and over on WattClarity® and elsewhere) will understand how we’ve been a keen supporter of Demand Response in the NEM for almost 20 years:

Back in January 2019 I posted this summary of some of the highlights our our journey in facilitating Demand Response with a growing number of large industrial energy users.   We’re continuing to find large energy users seeking us out for how they see we can help them with visibility of market pricing in response to their adoption of more sophisticated energy procurement arrangements (including various forms of spot exposure, or even exposure to other market parameters).

For a number of months, we’ve been heavily focused on the collaborative completion of our Generator Report Card, which was released on 31st May 2019 – since that time we’ve been playing catch-up.

Two of the market changes that have been progressing in parallel with our analytical work (and both of which might have significant implications for demand response in the NEM) have been the following:

Change #1)  We understand that the AEMC will shortly (even as soon as this week) be publishing their Draft Recommendations about a centralized “Negawatt Dispatch Mechanism” to facilitate another form of Demand Response in the NEM, following the receipt of 3 different proposals submitted towards the end of 2018:

In the interests of clarity readers should note these concerns we previously raised here about the possibility of enshrining Negawatts in the Rules.

We’ll post more about that rule change (or at least the draft) when we know more – or you could keep your eye out here, on the AEMC Website.

Change #2)  In parallel with this, we’ve noted the work being spearheaded by the ESB for the introduction of a “Retailer Reliability Obligation” (RRO).

Energy sector junkies (like me) might remember that the RRO was (along with Emissions Obligation) intended to be one half of a whole “NEG” approach to managing emissions reduction and reliability of electricity supplies as we work through this energy transition.  The RRO had its roots (sort of) back in the recommendations of Finkel Review (though back then I think that the suggestion was that the obligation was to be placed on the generator and not the retailer).

However the rabid right of the LNP killed off any focus on emissions at the same time as the political career of our most recent ex-PM was ended, which means we’re left with the RRO as an orphaned “one half of a whole”.   The ESB has been working it through the implementation since that time to the point where the RRO came into effect on 1st July 2019 (i.e. for distracted people, like me, that means it’s already operational).

Unfortunately we’ve been otherwise focused and so have not paid this attention that this deserves – so have  been busily trying to review what seems to be a never-ending listing of rules, draft/final guidelines, and other documentation – starting with the ESB’s Final Rules Package dated 3rd May  (though I note it was apparently only published on 5th June here on the COAG Energy Council website).

A concern has been raised with us, about the impact that the RRO might have on one form of demand response that delivers for the NEM currently.   Some wonder whether it would go so far as killing Demand Response in that form?

Readers should keep in mind that:
1)  Of the dozens of energy users we serve with our variety of our software (energy users whose aggregate peak demand would be 100MWs-1000MWs in all five regions), a sizeable portion of this load has various forms of spot exposure, with the incentive therefore to curtail at times of high price.
2)  This is a form of demand response (though we also note that others who advocate their own flavours of demand response don’t like it so much and have been active barriers (yep, strange but true)).
3)  The concern is that the requirement to contract if triggered at T-3 (i.e. as much as 3 years ahead of delivery, and even if the actual demand turns out to be only as large as 50% POE – i.e. “average weather”?!) under the RRO would seem to greatly reduce, if not eliminate, any incentive to take spot exposure, and hence curtail when spot prices are high.  Isn’t that a bad thing for delivering consumption that is sensitive to spot pricing – and hence ensuring efficient balance between supply and demand?

It’s only early days for me in digesting all the documentation that’s been published (even finding it all is not as simple as it perhaps should be!) but I can understand the concern, and undertake to post more over on WattClarity here when I have a clearer view of what it means for energy users like the growing number we serve.

On the upside for us, my first read (as far as it has reached) speaks of added complexity in the NEM (in the same sort of multi-dimensional framework we’re making clearer with tools like “Forecast Convergence” in ez2view) so it would seem to mean trickier problems and more clients to serve in the NEM given our focus on “making complexity understandable” – hence continued growth in client base and revenue.

However I do wonder why we seem to be increasingly shooting ourselves in the foot, in terms of this ongoing energy transition … (one of the topics that prompted our 530-page Generator Report Card, for instance).

That’s all for now…