The ‘wholesale demand response’ - what it could mean for your energy bill and why retailers don’t want it

On Tuesday the Australian Energy Market Commission (AEMC) held a hearing to address a new proposal from energy companies, Engie and Simec Energy about introducing a wholesale demand response mechanism in Australia. 

According to the International Energy Agency (IEA), in 2018, the use of demand response systems increased by 4% globally and has had a successful uptake by China, the US and the EU. 

While no decision has been made as of yet, it could make a difference to the energy bills of households across the country. To help get you up to speed, we’ve broken down what the demand response is all about and why some would prefer it didn’t come to life. 

What is the demand response?

The wholesale demand response is a technology that allows energy customers to profit from their energy habits through a contract with a third party. This could be as simple as a household reducing its electricity usage during peak energy times and being rewarded with either cash or a credit, which can be put toward lowering their total electricity bill. 

And with this new knowledge, it’s hoped that a customer will then go onto to use other energy management technologies that can help cut costs even further. 

The pro-competition rule 

To effectively make use of the demand response, ‘a pro-competition rule’ needs to be put in place within the National Energy Market (NEM). Having a this pro-competition rule would see all customers benefiting from lower wholesale electricity prices during peak periods when prices are high. 

Are there any other benefits to the demand response? 

Aside from reduced electricity bills, adopting a demand response model can help reduce the country’s reliance on expensive generators that are used when electricity demand is high.

Is everyone on board for implementing the demand response? 

Not everyone. Unsurprisingly, energy retailers aren’t too keen on implementing the demand response, as they typically benefit from demand peaks. At the moment the big three energy retailers dominate 65% of the retail electricity market and introducing the demand response creates a new source of competition. 

Another body that has disapproved of the demand response proposal is the Australian Energy Council (AEC). In fact, they’ve proposed an alternative model that would create a new market category, known as the ‘Demand Response Aggregator’ (DRA), where new or existing retailers are the DRA. 

Under this model, customers wouldn’t have the freedom to enter a contract through a third party unless they had permission from their retailer. Energy retailers then act as ‘gate-keepers’ and negotiate with the DRA who acts on behalf of the customer.  

The Australian Competition and Consumer Commission (ACCC) has rejected this idea on the basis that it is uncompetitive and isn’t in the best interests of energy customers.

So as the country anticipates the decision about whether a demand response system is to be introduced, Aussies can still do their bit to ensure they’re getting the best bang for their buck by heading over to our energy comparison tool to compare a range of plans in their area.