Energy guide: The lowdown on ‘wholesale demand response’

Managing demand while keeping energy prices low has been an ongoing issue for the national energy market (NEM) over the years. In August last year, the Australian Energy Market Commission (AEMC) proposed a new scheme that had the potential to tackle both concerns, called the ‘wholesale demand response’. 

Almost a year later, the AEMC has announced it will be moving forward with its new scheme, with the wholesale demand response kicking off in October 2021. But how will this new program work, who does it involve and more importantly, will it drive down energy bills? 

This guide sets out to answer those questions and more! 

The wholesale demand response is an idea put forward by the AEMC, which is hoped to improve the grid’s reliability during peak demand, while keeping costs low. It works by asking larger energy customers, such as farms or factories to reduce their electricity consumption during periods of high demand. 

In return, these customers will receive compensation for their efforts in the form of credits on their electricity bill. 

As mentioned, one of the major benefits of the wholesale demand response is to increase grid reliability and better manage electricity demand. However, there are other other benefits to the scheme, like reducing the country’s reliance on generators. 

When electricity demand is at its highest, the NEM will often turn to electricity generators to increase its supply to prevent blackouts. However, this is reportedly a more costly option, compared to the wholesale demand response. 

The AEMC said:

“It is potentially a much cheaper way to address sudden spikes in demand than sources of peaking generation such as gas or pumped hydro. In effect, it is an affordable new tool for managing energy security and reliability.”

Another benefit is that it will increase competition in the NEM. According to the AEMC’s Wholesale Demand Response Mechanism report, retailers participating in the scheme are expected to compete to offer demand response products to its customers. The aim is to increase the level of ‘consumer choice’ and ‘price responsive demand’ being conducted outside the wholesale demand response. 

For the time being, yes. As we mentioned, the wholesale demand response is only limited to customers with massive electricity consumption. This is due to the fact that these customers have a more predictable consumption level, as they generally operate on fixed hours that can be scheduled in. 

Smaller residential customers aren’t suitable for the wholesale demand response scheme because of their inconsistent electricity usage. For instance, even though households may have larger loads of electricity being used for things like pool pumps and household batteries, it becomes difficult to predict their energy consumption because of varied use. 

The two-sided market 

Although smaller energy customers are unable to participate in the wholesale demand response, they will be contributing to a desired ‘two-sided market’. This refers to the idea where consumers of all sizes are able to actively buy and sell electricity. 

And because not all energy customers use the same source of electricity, a two-sided market would mean other electricity sources, like hydro, solar and wind would be distributed within the grid. 

Since the wholesale demand response is expected to increase competition between retailers as well as manage demand, Energy Minister, Angus Taylor says this will contribute to lower energy bills.

In a recent statement, he said:

“The benefits of wholesale demand response will flow through to all households and businesses through lower electricity bills and improved network reliability.
“Lower electricity costs on small businesses and industry means Australians have more money to invest, expand and grow jobs – and this is particularly important as businesses recover from COVID-19."

But just because your household can’t participate in the wholesale demand response, you can still make a difference to your energy bill by switching to a better value plan.

All you need to do is enter your postcode below, answer a few quick questions about your energy usage and you’re on your way!