COAG’s Energy Security Board releases discussion paper on two-sided energy market

On the 20th of April, the COAG Energy Council released a discussion paper exploring what a two-sided market in Australia could look like.  Over on WattClarity, our CEO (Paul McArdle) noted that this discussion paper was one of two discussion papers released at the same time.

A ‘two-sided market’ would see the demand side of the supply and demand balance also:

1)  Actively involved in the price setting process for electricity; and

2)  Actively involved in dispatch (i.e. receiving dispatch instructions to consume).

At the moment the NEM is essentially a ‘one-sided market’ where:

1)  the supply side (i.e. generators) are involved in setting the price, and responding to dispatch instructions (with exclusions for Non-Scheduled plant, and partial exclusions for Semi-Scheduled Generators); but

2)  with the exception of a few Scheduled Loads:
(a)  energy users are not* actively involved in the price setting process (i.e. the AEMO just estimates their likely consumption as part of the dispatch process); and
(b)  energy users do not* receive dispatch instructions from AEMO.

*  note that, whilst the energy users are not currently involved in the ways envisaged in a fully two-sided market, there are innovations that have grown (some forms of Demand Response which we have been involved with) that have seen large energy users grow progressively more active in the wholesale market.

The discussion paper notes a number of things, including the following:

1)  The creation of this market would require (and facilitate) the unlocking of data with respect to consumption that has traditionally been hidden ‘behind the meter’. The advantages of increasing the visibility of this data could ultimately improve and maintain power system reliability and security over the long-term.

2) As ‘behind the meter’ participation is expected to increase over time – through the uptake of solar panels, electric vehicles, smart devices, home storage and other forms – the importance and value of accessing this data increases as well. In its current state, the limited accessibility of this data makes it difficult for the AEMO to forecast demand, and in turn, plan for supply.

3) The proposed changes would allow consumers and those who participate on their behalf to actively respond to spot price increases and decreases, significantly easier and to a greater extent to what is possible under the current system.

4) While the ESB argues it’s introduction has the potential to bring forward numerous benefits to the industry and consumers, a two-sided market would require material changes to participant behaviour and would signal significant regulatory reform – perhaps one of the most significant in the history of the NEM.

In October 2019, Paul McArdle previously posted these thoughts on the proposed introduction of a Negawatt Dispatch Mechanism by the AEMC.

1)  Whilst some might confuse this with a ‘two sided market’ it’s important to understand that this is not the case (and that a two-sided market would be different in a number of important aspects);  and

2)  how it couples with the already proposed move to 5 minute settlement, and whether these changes reflect positive steps in our broader energy transition.

The COAG Energy Council’s discussion paper on ‘two sided markets’ is here.  Note that they are asking for submissions by Monday 18th May 2020.

Further discussion on the topic will continue, and a detailed analysis report from the COAG Energy Council, the Energy Security Board and others is expected to be released by the end of 2020.