Today Australia's energy market rulemaking body made a landmark decision that can lower power prices, prevent blackouts, help emissions reduction and put money directly back into the pockets of consumers.
The decision by the Australian Energy Market Commission to introduce a wholesale demand response mechanism is a big win for consumers.
But unfortunately households are set to miss out because, for the time being, the Commission has restricted demand response to industrial and commercial users.
And that's a big win for retailers who have fought to retain control of the demand response market and prevent households from participating through non-retailer providers.
As the head of the Australian Competition and Consumer Commission, Rod Simms, pointed out when commenting on the decision: "The retailers don't want this to happen. Let's be clear; demand management has been in the hands of people who actually don't have much of an incentive to use it."
How it works
Wholesale demand response is a system where energy users are paid to cut their energy use when demand and wholesale prices are high.
On hot days, when everyone has their air-conditioning turned on and demand for electricity is at its peak, more generators are turned on, and wholesalers charge more for electricity.Power prices rise despite reregulation
The decision will allow a new kind of energy market participant — a demand response service provider — to compete against generators in the wholesale market and to provide demand response to consumers who participate.
With demand response, energy users who participate get paid directly, but power prices are lowered for everyone because high priced generation is undercut by cheaper demand reduction. When prices are high, it's cheaper to reduce demand than increase supply.
This means while all consumers will see the benefits of lower wholesale energy prices, only big users will be able to be paid directly to reduce their energy consumption.
This is despite households being the majority of energy users and research by Energy Consumers Australia showing more than half of all consumers are willing to lower their energy use at peak times and even more are prepared to act with a financial incentive.
Only 1 in 23 retailers offer the service
Retailers maintain that people should have to go through them to do demand response and claim that the current arrangements — where they hold the keys to the demand response market — are working well. But are they?
In February 2018, research by the Public Interest Advocacy Centre showed only 1 in 23 NSW retailers offered demand response to residential customers when contacted. That study was repeated one year later. Again, only one small retailer was found to offer demand response.
These results show that even if a household was aware of demand response they would be unlikely to find a retailer willing to do it and if they did they would almost certainly have to change retailers to participate. And if a household wants to use a demand response provider, the provider has to negotiate with the household's existing retailer to provide the service. Retailers are then an unwilling monopoly that demand response providers have to deal with.
The current low levels of demand response in the wholesale energy market show that retailers are not interested in demand response. Research by the Australian Energy Regulator found that wholesale demand response by retailers decreased between 2017 and 2018.
So why are consumers missing out?
The Australian Energy Market Commission's reason for preserving this status quo is that new consumer protections need to be established before new demand response service providers enter the household market.
Excluding households indefinitely is unnecessary. Australian consumer law already provides key protections people need for contracts, and there are household demand response options which pose no risk to quality of life. Some of these options, such as ones that utilise pool pumps and household batteries, are flexible and offer a lot of value to the market and should be included from day one.
The Commission is totally correct in deciding that residential consumer protection issues need to be addressed. But most can be resolved easily, and need not delay delivering the potential benefits of demand response to all.
It says it will review the need for energy-specific consumer protections over the next 12 months, but this doesn't guarantee households will be able to participate in demand response at the end of it.
A blanket exclusion to households accessing demand response is unnecessary. It excludes the people who need it most from reaping all the benefits of this landmark new reform.
In the coming months, as the Australian Energy Market Commission finalises its decision, it should develop a plan to make this good reform a great reform and ensure households can access the benefits when the mechanism is introduced in 2022.
Craig Memery and Anna Livsey are energy consumer advocates at the Public Interest Advocacy Centre.