International Review of Demand Response Mechanisms in Wholesale Markets
Prepared for the Australian Energy Market Commission
The Australian Energy Market Commission (AEMC) is currently assessing proposals that would change the way in which demand response participates in the National Electricity Market (NEM). The AEMC asked the Brattle Group to examine how demand response participates in electricity markets in six jurisdictions outside Australia, in order to draw on lessons learnt from other jurisdictions. This report updates an earlier Brattle study prepared for the AEMC in 2015.
As the electricity industry transforms toward intermittent generation sources, demand response will become increasingly important for balancing the system. Demand response participation is already at least partly enabled within the NEM via a price signal to consume less when the price is high. Although most customers are not currently exposed to or responsive to spot prices, it is possible that more will respond in the future if prices became higher and more volatile or if technological advances enable more response. However, there are several design and regulatory factors that may continue to limit the level of demand response engagement in the NEM. For example, it is not currently possible for DR aggregators to act as a direct link between the NEM and end-use customers without also engaging with the retail provider. As another challenge, even customers that do respond to prices may not be visible to or controllable by the grid operator in such a way that maximizes the value of demand response to the system. For example, these customers cannot be dispatched to meet sudden shortages or to provide other grid services. And if the load is not bidding directly into the market, it can only influence prices but cannot set market prices, so its willingness-to-pay cannot fully inform efficient operating and investment decisions by other market participants.
