A rule change to drive innovation and cut costs for customers

21 Aug 2015

Last week the Australian Energy Market Commission made an important final determination to create a new incentive framework for energy network businesses undertaking innovative demand management activities.

Demand side management can play a crucial role in enabling networks to provide the best value solutions for their customers, and energy networks have been supportive of the rule change process that was initiated by the COAG Energy Council and the Total Environment Centre.

The new framework will encourage trials of innovative non-network options that benefit customers through reduced costs over time. There are real savings to be made, with the Australian Energy Market Commission’s Power of Choice review estimating the potential cost savings of peak demand reduction at between $4 to $11 billion over ten years.

Electricity network businesses already deliver innovative projects under the existing Demand Management Innovation Allowance in accordance with demand management objectives. A small innovation allowance currently applies to all electricity distribution businesses and network businesses across eastern Australia have laid out their demand management proposals and projects in regulatory proposals which are now in the process of being assessed and finalised.

However the energy market is moving rapidly, with energy customers making important choices about their energy use through technology and behaviour. Distributed energy resources, including demand management, should be part of the toolkit which networks can draw on to achieve efficient service outcomes for all customers.  The recent Rule Change is an important step to ensure the regulatory framework is responsive to these market developments.

The COAG Energy Council’s Review of Governance Arrangements for Australian Energy Markets is currently underway. One of its primary findings is that a regulatory regime which is not flexible and robust to technology and market developments poses a greater risk to the customer now than in the past. This review process represents an important step in enhancing energy market governance arrangements that will support policy and regulatory reforms that will further drive innovation.

While electricity networks are already introducing initiatives in demand management, the delays in the introduction of the revised Demand Management Incentive Scheme has been a matter of concern.  Providing the best environment to promote innovation to the benefit of customers is a critical priority. Where networks wish to be voluntary ‘early adopters’ of these types of innovation incentive schemes, there should be scope and flexibility for this to occur. The ENA will be taking forward this message to energy policy, and regulators alike over 2015, and is committed to working closely with the AER to assist in its development of a scheme by 1 December 2016.

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