Click on titles in red to download copies of documents.
Supply to Sydney CBD and Inner Suburbs: Final Cost Effectiveness Analysis Executive Summary (February 2000) [pdf 96kb]
This report was prepared by the consultancy firm National Economic Research Associates for the transmission network service provider TransGrid and the distribution network service provider EnergyAustralia.
Among other issues, the report investigated the possible role of demand management as an alternative to building a major new transmission line to supply the Sydney Central Business District. EnergyAustralia is required to undertake such investigations under the environmental conditions of its electricity distributor's licence.
The consultants analysed 14 options for augmenting the supply to the Sydney CBD. The option which ranked highest most consistently was network augmentation followed by demand management. The consultants also concluded that it may be more cost effective to defer constructing a second 330kV cable into the Sydney CBD in 2009/10 through demand management programs or through contracting with cogeneration plant.
The conclusions of this report eventually led to the establishment of the Demand Management and Planning Project to identify and investigate the potential for reducing the demand for electricity in the inner Sydney region. The DM&P Project is currently being carried out jointly by the EnergyAustralia, TransGrid, and the NSW Government Department of Infrastructure, Planning and Natural Resources.
Epping/North Ryde Demand Side Management Scoping Study (April 2000) [pdf 5724kb]
The Sustainable Energy Development Authority (SEDA) and EnergyAustralia entered into an agreement to explore the potential for demand-side management as an alternative to augmentations of the transmission and distribution network in the Epping/North Ryde area of Sydney. This report presents the results of an investigation to evaluate and quantify a range of possible demand-side management measures. This investigation was also required under the environmental conditions of EnergyAustralia's electricity distributor's licence.
Survey of Demand-side Participation in the National Market (September 2000) [pdf 1274kb]
The National Electricity Code Administrator (NECA) commissioned PHB Hagler Bailly to conduct a survey of market participants to ascertain the current level of, and attitudes to, demand-side participation in the National Electricity Market. This report presents the findings from this first demand-side survey. Based on feedback from the survey respondents, the report also provides a brief assessment of mechanisms that could be implemented for enhancing demand-side participation in the market.
NECA Code Change Panel: Demand-side Participation Consultation Paper (September 2000) [pdf 578kb]
The Code Change Panel of the National Electricity Code Administrator (NECA) recommends changes to the National Electricity Code which governs the operation of the Australian National Electricity Market. In this report, the Panel proposed draft changes to the Code which would improve the accuracy of demand forecasts; and make the arrangements for demand-side bidding, which already exist in the Code, more attractive to end-use customers.
NECA Code Change Panel: Demand-side Participation Report (November 2000) [pdf 267kb]
In this report, the Code Change Panel considered comments from interested parties on the draft changes to the National Electricity Code which were detailed in a previous Consultation Paper listed and recommended revised changes to the Code.
NSW Code of Practice: Demand Management for Electricity Distributors Second Edition (May 2001) [pdf 93kb]
This Code of Practice was developed by a working group from the electricity industry supported by the New South Wales Ministry of Energy and Utilities. This is the second edition of the Code; the first edition was issued in October 1999. In September 2004, a third edition of the Code further strengthened its provisions.
The purpose of the Code is to provide guidance to electricity distributors in implementing the requirement in the NSW Electricity Supply Act 1995 to investigate and report on demand management strategies when it “would be reasonable to expect that it would be cost-effective to avoid or postpone the expansion [of a distribution system] by implementing such strategies”.
The innovation in this second edition of the Code is the introduction of a market-based procurement process for demand-side options for electricity system support (including demand management, embedded generation and storage options) and their evaluation at the same time and in the same manner as supply-side options.
The approach in the Code is focused not just on the network, but rather on the electricity system as a whole. Constraints that arise within the distribution network can be addressed by changes in customer behaviour, by changes in equipment used by customers or by installation of small-scale generation at a local level, as well as by augmentation of the distribution network. These options could be devised and implemented by customers or third parties or by the distributor itself.
Review of Arrangements for Development of the Electricity Network (June 2001) [pdf 138kb]
This document was developed by a New South Wales inter-governmental working group established in November 2000 to report to the Minister for Energy on the effectiveness of existing electricity network planning arrangements in encouraging network developers to consider all options for ensuring a reliable electricity supply, including demand management.
The working group was convened by the Ministry of Energy and Utilities (MEU) and included representatives from The Cabinet Office, the Sustainable Energy Development Authority (SEDA), Treasury and, initially, the Independent Pricing and Regulatory Tribunal (IPART).
The working group found that the electricity industry in NSW was making progress and gaining experience with the development and implementation of alternative approaches to network augmentation. The new (second) edition of the Demand Management Code of Practice for NSW Electricity Distributors, which was then under development, was expected to further advance the process of changing the outlook of the NSW distributors towards demand management.
However, the working group felt that the extent to which further progress and experience can be acquired was likely to be restricted without a number of issues being addressed. The report recommends that while the new DM Code should be adopted, other measures are required to progress these issues.
Demand Side Management: Evaluating Market Potential in NSW (July 2001) [pdf 240 kb]
This report presents the findings of two studies commissioned by the NSW Sustainable Energy Development Authority to assess the potential of demand side management (DSM) in New South Wales. The focus of the studies is on the potential for reducing peak load in order to defer electricity network augmentation. However, the technologies covered will also be applicable for addressing generation constraints and to varying degrees encouraging energy efficiency and reducing greenhouse gas emissions.
The studies were commissioned to improve the awareness of the potential for DSM in New South Wales, and to improve the understanding of the costs of different DSM technologies, and of other issues involved in using the DSM measures. Residential DSM technologies were given a particular focus, as to date limited attention has been paid to DSM in the residential sector.
The reports have three primary focuses:
(1) to identify the most prospective sources of DSM in NSW;
(2) to estimate the practical potential for DSM in NSW; and
(3) to obtain indicative costs for various DSM measures, in order to better understand the potential for these technologies as cost effective alternatives to network augmentation.
The first study, “An Assessment of Demand Side Management Opportunities in NSW”, by Charles River Associates (CRA), gives a top down assessment of the practical potential of different DSM technologies on a statewide basis, both for commercial/industrial loads and some domestic loads, by way of a desktop analysis based on CRA’s prior DSM experience. The study also documents the costs of various options and some implementation issues for each technology. Finally, it outlines existing and previous DSM programs implemented in Australia to date, both network and generation load focused.
The second study, “An Assessment of Residential Demand Side Management Technologies and Programs”, by Mark Ellis & Associates, was commissioned in order to improve the understanding of the costs and potential of residential demand side management options. The study estimates cost to the consumer and to the facilitator (for example, an electricity network seeking to defer new network investment) for each DSM technology, and also gives estimates for peak load reduction and energy savings achieved. The study also gives an indication of the current penetration of each technology and an estimate of the likely take-up rate over 3 years if promoted.
The version of the document available here is a summary of the conclusions of the two reports and does not contain the full texts of the reports.
Electricity Demand Side Management Study: Review of Issues and Options for Government (September 2001) [pdf 334kb]
This report was commissioned from the consultancy firm Charles River Associates by the Victorian Energy Networks Corporation (VENCorp).
The overall objective of this project was to assist VENCorp in providing the Victorian Government with a definition of the relevant issues regarding the role and status of demand side participation in the electricity market in Victoria; and a range of practical options available to Government to facilitate the proper functioning of demand side participation.
The consultants stated that from its inception, the NEM has viewed demand response as an important contributor to efficient market function. The assumption was that price signals would let customers decide – on entirely individualised terms – as to when reducing their electricity consumption would be more strategically economical for them than continuing to consume.
The consultants concluded that the level of demand response achieved to date represents only low hanging fruit. Significant additions totalling at least a doubling of the current amount is likely to become available as the market matures, assuming that market signals are allowed to continue to function and that the barriers identified in the report are addressed.
The design of the NEM envisaged that demand response would provide a check on the market power of suppliers and reduce the need for investment in low duty-cycle generation plant, thereby contributing to security of supply. The consultants concluded that, to achieve these goals, levels of demand response in the order of 500 MW will be required. Although it was impossible to quantify the impact that any Government policy initiative or program will have on the amount of demand response available in the market, the consultants recommended a range of initiatives as comprising sufficient facilitation to bring forward an effective amount of demand response.
Sydney CBD Network Augmentation Conditions of Consent (January/March 2002) [pdf 734kb]
These Conditions of Consent were applied to the land use planning approval of two electricity network augmentation projects to improve supply to the Sydney Central Business District (CBD):
- EnergyAustralia ‑ 132kV Electricity Cable, Sydney CBD to Surry Hills, approved 9th January 2002; and
- TransGrid ‑ 330kV Underground Electricity Cable, Picnic Point to Sydney CBD (Haymarket), approved 5th March 2002.
The Conditions required the establishment of the Demand Management and Planning Project to identify and investigate the potential for reducing the demand for electricity in the inner Sydney region. The DM&P Project is currently being carried out jointly by the distribution network service provider EnergyAustralia, the transmission network service provider TransGrid, and the NSW Government Department of Infrastructure, Planning and Natural Resources.
The Conditions include specific provisions in relation to the activities to be carried out by the DM&P Project. These require the Project to:
- prepare an inventory of the existing standby generation facilities in the CBD and inner Sydney region and develop a strategy demonstrating how each standby generator could best be called upon at times of stress on the supply network;
- evaluate the major facilities in the inner Sydney region that offer opportunities for:
- power factor correction;
- interruptible loads; and
- energy demand reduction, including improvements in equipment efficiency, cogeneration and energy management controls;
and prepare a summary business case for each site where opportunities exist.
- support the implementation and promotion of demonstration projects where relevant to the objectives of providing practical and accurate information on the opportunities for demand reduction.
Distributed Energy Solutions: Cost & Capacity Estimates for Decentralised Options for Meeting Electricity Demand in NSW (February 2002) [pdf 203kb]
This report was prepared by the NSW Sustainable Energy Development Authority (SEDA) for the Inquiry into Demand Management held by the Independent Pricing and Regulatory Tribunal of New South Wales (IPART) during 2002.
The report comprises a compendium and accompanying spreadsheet which together provide a summary assessment of costs, potential capacity and greenhouse gas emission reduction benefits of 35 generic demand management technologies available in NSW. A number of these technologies are well suited to regional areas.
The compendium provides background information on the capacity, capital costs, and generation costs, including assumptions and sources where possible, on each of the 35 options. Emissions information, Green Power/MRET potential and information on other cost offsets are included in the compendium to illustrate how the gross cost of generation may be offset by other economic, environmental and financial benefits.
Key data for each option have been transferred from the compendium into the Excel spreadsheet summary to generate further information and offer a summarised comparison of option costs. The spreadsheet provides an indication of annual total energy generation potential for demand management options in NSW and a range of costs for demand management.
The ‘generation’ costs indicated in the compendium and spreadsheet represent an average cost of generation (or avoidance of electricity use in the case of energy efficiency and DM options) across what can be a very broad price range. Within the total possible generation potential, there will be significant capacity at lower and higher cost than the average indicated.
Mechanisms for Promoting Societal Demand Management (February 2002) [pdf 458kb]
This report was prepared by the consultancy firm Energy Futures Australia for the Inquiry into Demand Management held by the Independent Pricing and Regulatory Tribunal of New South Wales (IPART) during 2002.
The report defines societal demand management as DM options which are not financially viable to one or more stakeholders but which result in an overall benefit to society. Typically, societal demand management reduces the adverse impacts associated with energy production, supply and use, either by reducing the quantity of energy required to provide a given level of energy service (ie energy efficiency) or by using energy sources and technologies which have comparatively low levels of adverse impacts (eg renewable energy technologies).
The report brings together information about a number of mechanisms that promote societal demand management, drawing on experiences overseas and across Australia. It includes analysis of the advantages and disadvantages of the various types of mechanisms. The report recognises that some demand management programs have already been implemented in New South Wales and proposes broad recommendations for continued and enhanced use of demand management options. Areas for further investigation are also identified.
Benefit Cost Assessment of Demand Side Participation in the National Electricity Market (February 2002)
This report was prepared by the consultancy firms Firecone and ACIL Consulting for the National Energy Market Minister’s Forum following a request from the Council of Australian Governments.
The report assesses the benefits and costs of various types of demand side participation (DSP) in the Australian National Electricity Market, including:
- active demand reduction by end use customers;
- direct load control;
- embedded generation, including cogeneration, standby generation and other plant located in the distribution network.
DSP can provide substantial benefits by deferring or reducing capital expenditure in electricity networks. This tends to rely on embedded generation as the most firm type of DSP. DSP also provides shorter term benefits to the networks by reducing losses, reducing out-of merit generation and increasing reliability.
There are substantial impediments to providers of DSP realising the benefits they create. Network pricing does not provide price signals on network congestion and requirements for future capital expenditure. Increased use of DSP will rely on regulatory intervention to identify the role of DSP in minimising the cost of network expansion and to ensure that the potential providers of DSP are aware of, and can gain an appropriate share of, those benefits.
Demand-Side Participation – Final Determination (May 2002) [pdf 71kb]
This report was published by the National Electricity Market Management Company (NEMMCO) as the final response to a consultation process on demand side participation in the National Electricity Market (NEM) managed by the National Electricity Code Administrator (NECA).
In September 2000 NECA published its draft changes to the National Electricity Code to make the arrangement for demand side bidding in the NEM more attractive to end use customers, and to improve the accuracy of demand forecasts. Following the corresponding consultation, NECA produced a final report in November 2002 detailing the final Code changes. The final Code changes aim to provide for an improved framework for demand-side bidding, by making the process more attractive to end-use customers.
This report provides details on how NEMMCO proposes to implement the Code changes in operating the National Electricity Market.
Demand Management for Distributors: Discussion Paper (August 2002) [pdf 2630kb]
This Discussion Paper was published by the Office of the South Australian Independent Industry Regulator (SAIIR).
The purpose of the paper is to provide a basis for consulting with distributors, primarily ETSA Utilities, and the wider community on the possible framework for meeting the electricity distributors’ statutory demand management obligations. The paper identifies the statutory demand management provisions for electricity distributors in South Australia and provides an overview of some of the options available to meet these requirements, including a summary of the advantages and disadvantages of these options.
Final Report from the IPART Inquiry into the Role of Demand Management and Other Options in the Provision of Energy Services (October 2002) [pdf 635kb]
During 2002, at the request of the Premier of New South Wales, the Independent Pricing and Regulatory Tribunal (IPART) undertook, an Inquiry into the opportunities for demand management (DM) in New South Wales. The key question posed by the Inquiry was whether DM options that can meet customers’ energy needs at lower cost, and perhaps with lower environmental impact, are being bypassed in favour of ‘build and generate’ options—and if so, what can be done to encourage the greater use of DM.
The report defines three broad types of DM:
- Environmentally driven DM - those activities with a focus on reducing energy consumption and greenhouse gas emissions.
- Network driven DM - those activities with a focus on solving network capacity constraints and reduce the cost of network services.
- Retail market driven DM - the focus is on reducing costs to end users and reducing retailers' exposure to high wholesale market pool prices.
Based on the evidence presented to it during the course of the Inquiry and the case studies of DM projects in NSW and elsewhere, the Tribunal concluded that there are substantial cost effective opportunities to use DM in NSW that are currently being overlooked.
In the right circumstances, DM can be cost-effective. It can deliver network and retail market benefits, by providing ‘peak’ and/or ‘base’ load capacity and displacing or deferring the need for investment in generation and network capacity. Ultimately this should benefit end-users through lower total energy bills. It can also deliver environmental benefits, by reducing energy-use-related greenhouse gas emissions. End-users will be better placed to make comparisons if they are given the necessary information and support with regard to externalities and demand side services.
IPART recognised that there are significant barriers to the implementation of demand management in New South Wales, particularly those related to the immaturity of the market for DM and lack of industry experience. IPART’s recommendations are aimed at encouraging and facilitating the implementation of efficient and effective DM programs in the short-to medium term, to increase industry’s experience with, and confidence in, DM options.
Towards a Truly National and Efficient Energy Market (November 2002) [pdf 1070kb]
This document (known as the Parer Report) is the final report from the review of energy markets commissioned by the Council of Australian Governments (COAG).
One of the issues examined during the review was demand side participation in the National Electricity Market (NEM). The review Panel concluded that the low demand side involvement in the NEM is attributable to three factors:
- in the short term the demand for electricity is inelastic - there are natural limits to the demand management capability likely to be available;
- residential consumers with the most ‘peaky’ demand face no price signals regarding their use of electricity - these consumers account for around half the load in many markets;
- consumers who offer to curtail demand cannot gain the full value of what they bring to the NEM - this is due to the current market mechanism.
There are few effective measures for stimulating the demand side to influence pool prices, or the need for generation, in the NEM. This is where the immediate policy focus needs to be.
The report proposes several policy measures which could be implemented to increase demand side user participation in the NEM, including:
- mandating a roll–out of interval meters for all NEM households as soon as possible;
- removing retail price caps and introducing full retail competition into all markets as soon as practicable, but in any event within the next three years;
- introducing a ‘pay–as–bid’ mechanism for demand reduction into the NEM dispatch and market systems.
Responses to the Parer report were released by the Ministerial Council on Energy in December 2003 and August 2004.
Demand Management for Distributors: Position Paper (January 2003) [pdf 260kb]
This Position Paper was published by the Essential Services Commission of South Australia (ESCOSA).
The paper reviews the seven submissions received on an earlier Discussion Paper on demand management. The Position Paper presents ESCOSA’s proposed strategy for improving the transparency and robustness of ETSA Utilities’ regulatory demand management obligations.
DM Programs for Integral Energy (August 2003) [pdf 278kb]
This report was prepared by the consultancy firm Charles River Associates for the distribution network service provider Integral Energy.
The purpose of the report is to:
- review Integral’s involvement in the consideration and use of demand management to defer the need for electricity network system augmentation and reduce overall network costs;
- provide an inventory of the DM programs that Integral has undertaken to date or is planning to implement in the near term, as well as the status of each; and
- highlight additional program designs that Integral has identified from a review of international experience as having the potential to provide further assistance in the company’s efforts to defer network augmentation.
Demand Management for Electricity Distribution Networks: Electricity Industry Guideline No 12 (September 2003) [pdf 494kb]
This Guideline outlines how the Essential Services Commission of South Australia (ESCOSA) requires ETSA Utilities to meet its obligations to report and consult on its system constraints and demand management plans.
ESCOSA wishes to encourage all customers and interested parties to participate in the process of determining the ways in which emerging constraints in ETSA Utilities’ network are addressed. ESCOSA believes that this will require ETSA Utilities to regularly disclose sufficient information about where constraints are likely to emerge and to seek and evaluate alternatives put to it from customers and other interested parties. This Guideline seeks to assist that process.
This Guideline sets out requirements for ETSA Utilities to:
- publish an Electricity System Development Plan (including Sub-transmission and Regional Development Plans) annually and maintain a Register of Interested Parties;
- undertake consultation in accordance with this Guideline in relation to Eligible Major Network Projects and develop and maintain expertise in system support options;
- consider non-network alternatives before commencing an Eligible Major Network Project; and
- annually report its compliance with this Guideline and other DM obligations.
Reducing Regulatory Barriers to Demand Management (November 2003) [pdf 1063kb]
This report was prepared by Sinclair Knight Merz for the NSW Independent Pricing and Regulatory Tribunal (IPART).
The report examines options for integrating the costs of demand management into the regulatory framework for NSW electricity distributors, and studies the feasibility of, and develops a framework for congestion pricing for distribution networks. The report also seeks to address disincentives and regulatory barriers to the uptake of demand management by the four NSW Distribution Network Service Providers (DNSPs).
Based on analysis of the financial impacts of demand management on DNSPs, the report found two areas that must be addressed to provide appropriate financial treatment for DNSPs pursuing efficient DM initiatives – funding of DM costs, and correction of any lost revenues arising from consumption volume impacts of DM under a simple weighted average price cap. The report found that DM implementation costs should be funded from the reduced or avoided distribution costs that are achieved through the implementation of DM, and identifies two possible mechanisms that correct the possible disincentives and align the financial drivers for DNSPs with the economic benefits arising from demand management.
These two mechanisms are:
- an incentive mechanism that allocates both the DM implementation costs and avoided distribution cost benefits to DNSPs, allowing them to fund demand management initiatives, and retain a share of the net value created. This provides a positive financial incentive to DNSPs to pursue cost effective demand management alternatives;
- a cost recovery mechanism that allocates both the DM implementation costs and avoided distribution costs to end-users, with DNSPs recovering DM costs from end-users and passing the benefits through as reduced tariffs. This transfers the risk and benefits of demand management to end-users, insulating DNSPs from positive or negative financial impacts, but also removes the financial incentive for DNSPs to pursue DM.
The incentive mechanism is preferred on the basis that it provides a stronger incentive to DNSPs to pursue demand management options, and is consistent with the broader incentive regulation framework adopted by IPART. Lost revenues due to volume impacts must be corrected by an explicit adjustment to DNSP revenues under either mechanism.
Towards a National Framework for Energy Efficiency - Issues and Challenges (November 2003) [pdf 1143kb]
The development of the National Framework for Energy Efficiency is a joint initiative of the federal and State governments in Australia through the Ministerial Council on Energy.
The purpose of the National Framework is to achieve a step change in Australia’s energy efficiency with the objective of unlocking the significant economic potential associated with increased implementation of energy efficient technologies and processes to deliver a least cost approach to energy provision in Australia. Developing the National Framework will help identify major areas of inefficiency and areas for improved coordination and cooperation across jurisdictions in the delivery of energy efficiency policies and programs.
The principal aim of this discussion paper is to seek the views and ideas of stakeholders in industry, government and the community on how to effectively address the key energy efficiency barriers, challenges and opportunities outlined in the paper.
Driving Energy Efficiency (November 2003) [pdf 686 kb]
This Discussion Paper was developed by the industry association the Australian Business Council for Sustainable Energy (BCSE).
The purpose of the paper is to move away from marginal improvements in energy efficiency and propose more ambitious policy measures, including ten first steps to an energy efficient future. The paper is not intended to be prescriptive but rather to spur policy debate and focus attention on the need for concerted action towards ambitious targets. The paper also forms the basis on which the BCSE can work with its members to develop a blueprint to harness the potential of energy efficiency and develop a vibrant energy services industry in Australia.
Report to COAG on Reform of Energy Markets (December 2003) [pdf 237kb]
Following the completion of the Parer report, the Ministerial Council on Energy (MCE) directed its Standing Committee of Officials (SCO) to consider three factors that would facilitate greater end user participation in the Australian National Electricity Market (NEM). They were:
- the scope to facilitate a demand side response pool in the NEM;
- the costs and benefits of interval metering in the NEM; and
- alignment of retail price caps with supply costs and periodically review of the need for price caps in jurisdictions where full retail competition is operating.
This December 2003 report was prepared by the MCE as a response to the Parer report. Responding to the proposals in the Parer report on user participation in the NEM, the MCE recommended to COAG that:
- in all jurisdictions where full retail competition is operating, each jurisdiction should align their retail price caps with costs, and periodically review the need for price caps;
- the MCE should examine options for a demand-side response pool in the NEM, and consider the costs and benefits of introducing interval metering.
Further work on these issues was carried out by the MCE User Participation Working Group.
Demand Management Activities Applicable to Electricity Networks (February 2004) [pdf 1030kb]
This report was prepared by the consultancy firm Energy Futures Australia for the Demand Management and Planning Project.
The DM&P Project is concerned with demand management activities to achieve a specific purpose – deferring or avoiding expansion of the electricity supply network in the inner Sydney region. This is ‘network-driven’ demand management, which aims to reduce demand on the electricity network in specific ways which maintain system reliability in the immediate term and over the longer term defer the need for network augmentation.
The majority of this report comprises a survey which reviews and summarises a sample of relevant demand management activities undertaken in Australia and internationally over about the last 20 years. The survey focuses on activities which may provide ideas for demand management programs which could be undertaken to relieve constraints in the inner Sydney region electricity network, and more generally in localities throughout New South Wales where there are local network constraints.
The survey showed that demand management options can effectively achieve load reductions on electricity networks. These load reductions can be targeted to occur:
- across the whole of the electrical load curve, or only at the time of the network system peak; and
- generally across the network in a particular geographical area, or restricted to one or more specific network elements such as certain lines or substations.
If the load reductions achieved through demand management are sufficiently large and appropriately targeted they may relieve network constraints and consequently may be able to defer requirements to build network augmentations.
All types of demand management activities can be used to relieve network constraints. However, whether a particular demand management activity is appropriate and/or cost effective in a particular situation will depend on the specific nature of the network problem being addressed and the availability and relative costs of demand-side resources in that situation.
Treatment of Demand Management in the Regulatory Framework for Electricity Distribution Pricing 2004/05 to 2008/09: Draft Decision (February 2004) [pdf 255kb]
This draft decision was prepared by the NSW Independent Pricing and Regulatory Tribunal (IPART) in relation to its 2004 review of electricity distribution pricing.
In its draft report on NSW electricity distribution pricing from 2004/05, IPART expressed its belief that demand management can play an important role in helping the four NSW Distribution Network Service Providers (DNSPs) to better manage their networks and lower the cost of service provision. Therefore, in determining the regulatory framework for 2004/05 to 2008/09, IPART is seeking to ensure it provides no regulatory barriers to DNSPs undertaking efficient demand management projects.
IPART’s draft decision in relation to the treatment of demand management for the 2004/05 to 2008/09 regulatory period is that:
- the cost building blocks on which DNSPs’ notional revenue requirements are based will be established on the basis of pre-demand management values and will exclude demand management costs;
- DNSPs will be allowed to pass through demand management costs incurred during the regulatory period, up to a maximum value of the avoided distribution costs;
- DNSPs will be allowed to recover foregone revenue as a result of demand management projects during the regulatory period;
- the recovery of demand management costs and foregone revenue will be by way of a D-factor in the weighted average price cap formula.
IPART considers that its draft decision represents a generous treatment of demand management. It believes that this approach is justified in the 2004-09 regulatory period, in light of the emergent nature of the market for demand management solutions and the barriers to adoption that demand management faces. IPART expects that the treatment of demand management will be less generous in future regulatory periods as demand management becomes integrated into the DNSPs’ planning processes.
Peak Demand on the ETSA Utilities System (February 2004) [pdf 303kb]
This report was prepared by the consultancy firm Charles River Associates for the Essential Services Commission of South Australia (ESCOSA).
The report forms part of the investigations carried out for a Distribution Pricing Review carried out by ESCOSA that will set the distribution prices that ETSA Utilities will be allowed to charge customers. One factor that affects the costs faced by a network operator – and hence the revenues it will need to recover from its customers – is the amount of new infrastructure that will be required to meet increases in peak demand.
This study is part of ESCOSA’s investigation of whether, in some instances, options such as the mandatory roll-out of interval meters or the use of demand-side management programs may be more cost-effective than building additional distribution capacity to meet increase in peak demand.
The study identifies the customer types and associated end uses that contribute to peak demands on the distribution network, and those that offer the most potential to provide demand reductions.
Demand Management and the National Electricity Market (February 2004) [pdf 814kb]
This paper was prepared by the consultancy firm Next Energy for the Total Environment Centre (Sydney).
As a vehicle to identify potential enhancements to demand management (DM) in the National Electricity market (NEM), the paper examines two cases where DM options were passed over in favour of expenditure on traditional network augmentation. These cases are the Transgrid/EnergyAustralia transmission augmentation to the Sydney CBD and Vencorp’s augmentation of the Latrobe Valley to Melbourne transmission network. The paper also reviews experience with demand management in the United States.
The case studies:
- explore whether DM was utilised to its full economic potential;
- review the economic, social and environmental impact of under-utilisation on consumers;
- explore why DM measures were not utilised to their full potential; and
- propose solutions to enhance the efficient development and use of DM in the NEM.
Based on the general understanding to date, on the two case studies, and on the US DM experience, the paper’s authors identify four critical steps to achieving effective DM utilisation in the NEM:
- establish an adequate DM funding mechanism;
- test the market for DM prior to adopting network augmentation decisions;
- adopt NEM changes to facilitate specific demand management opportunities;
- implement an intensive national framework for energy efficiency.
Improving User Participation in the Australian Energy Market (March 2004) [pdf 177kb]
The MCE Standing Committee of Officials established a User Participation Working Group (UPWG) to undertake further work on end user participation in the Australian National Electricity Market (NEM). This Discussion Paper was prepared by the UPWG. The paper proposes a set of policy directions as a path to achieve the objective of enhanced user participation in the NEM.
Demand Side Response
The paper identified a number of concerns with the ‘pay-as-bid’ demand side response pool proposed by the Parer report. Demand side response mechanisms enable end users to be financially rewarded when they choose to switch off, or re-schedule their energy usage in response to market signals. The paper considers two potential market-based demand side response mechanisms within the NEM:
• a ‘pay-as-bid’ mechanism that dispatches and pays for demand side response in the physical energy supply market; and
• a demand side aggregation facility that brokers the demand side response from a number of end users and sells this package of response in either the financial or the physical market.
The benefits of both mechanisms include the potential moderation of spot prices and financial returns for end users who provide demand side response. However, a ‘pay-as-bid’ mechanism raises a number of efficiency concerns, including its ability to effectively price and dispatch demand side response in the spot market. The UPWG concluded that an aggregation facility that facilitates demand side response in the financial market appears a more promising mechanism to maximise available value to end users.
The UPWG concluded that interval metering technology coupled with appropriate time-of-use tariffs has the potential to deliver a range of benefits to market participants. Interval meters may encourage consumers to address their energy consumption by moderating electricity load at times of high wholesale spot prices or network congestion. The reduction of peak energy demand may benefit the market in delaying the need for investment in the electricity supply industry and lessening wholesale spot price peaks. Interval meters and associated time-of-use tariffs are potentially more equitable than existing less differentiated pricing arrangements, and more cost-reflective tariffs enable consumers to gain benefits from load shifting.
The UPWG proposed to carry out an assessment of the benefits derived from the existing interval meter stock to provide information on areas where benefits of interval meters can be enhanced and which additional customer classes may benefit from greater application of interval metering technology. However, the UPWG concluded that a wide scale mandatory rollout of interval metering across all customer classes may be premature at this stage of market development.
The UPWG also concluded that low cost, remote activated load control and measurement technology may be a cost effective alternative to interval meters for the small customer classes. The UPWG proposed to further explore this concept.
The UPWG concluded that in those jurisdictions where full retail competition has been introduced, various forms of retail tariff regulation are being applied as a safety-net mechanism to ease the transition to a competitive market for small customers. The UPWG recognised the need for the development of a transparent and predictable process. Enhanced market efficiency should be promoted through the alignment of regulated retail prices with energy costs to reflect growing levels of competition. Such a defined process would also allow for periodic review of the need for retail price regulation as the retail market matures.
The UPWG proposed to develop an overarching set of policy principles, which will guide all governments where full retail competition has been introduced, to ensure transparent decision‑making on retail price regulation issues.
A policy statement based on the work of the UPWG was released by the Ministerial Council on Energy in August 2004.
A Demand Side Response Facility for the National Electricity Market (April 2004) [pdf 1689kb]
This paper was prepared by the consultancy firm Pareto Associates for the Energy Users Association of Australia (EUAA).
In November and December 2002, EUAA carried out a paper trial of a demand side response (DSR) facility for the Australian National Electricity Market (NEM). The facility aimed to:
- register bids from sellers and buyers of demand reductions;
- aggregate individual sellers’ offers;
- match aggregated offers to buyers’ requirements;
- schedule accepted offers for dispatch;
- carry out settlements.
The trial showed that such a DSR facility could work. Material made available to participants in the trial suggested that up to 500 megawatts of DSR capacity in any single NEM region and 1,000 megawatts across the NEM may be required to ensure DSR will reliably affect extreme energy market spot prices. This is about 3.5% of the maximum demand in the NEM.
NSW Electricity Distribution Pricing 2004/05 to 2008/09: Final Report (June 2004) [pdf 2519kb]
This report was prepared by the NSW Independent Pricing and Regulatory Tribunal (IPART) in relation to its 2004 review of electricity distribution pricing.
In its 2002 inquiry into demand management, IPART found that demand management options can be a more cost-effective way to relieve network constraints, and can improve capital efficiency and provide flow-on benefits to end users in the form of lower costs. The 2002 inquiry also identified a range of barriers to the use of demand management options, some of which related to the then current regulatory framework of network pricing.
IPART concluded that distribution network service providers (electricity distributors) undertook few demand management activities in the regulatory period under review.
In determining the new regulatory framework for 2004–09, IPART aimed to ensure that regulatory barriers to demand management were removed, and to neutralise the potential disincentive for demand management created by the change from revenue regulation to a weighted average price cap form of regulation (which links revenue to volumes sold). IPART considered that its final decisions represented a generous treatment of demand management activities. This generosity was warranted, at least in the short term, to help overcome the barriers to the greater use of demand management solutions in supplying network services and to support the emergent market for these solutions.
IPART decided that it would introduce a D-factor into the weighted average price cap control formula that allowed distribution network service providers to recover:
- approved non-tariff-based demand management implementation costs, up to a maximum value equivalent to the expected avoided distribution costs;
- approved tariff-based demand management implementation costs;
- approved revenue foregone as a result of non-tariff-based demand management activities.
IPART also decided to:
- treat DNSP rebates and payments for load reduction as negative prices under the weighted average price cap;
- establish a working group to examine DNSP network planning processes;
- establish a working group to develop a methodology for assessing the economic prudence of energy loss management investment;
- establish a working group on the calculation of distribution revenue foregone as a result of demand management activities;
- accommodate a Government demand management fund, if introduced.
NSW Electricity Distribution Pricing 2004/05 to 2008/09: Final Determination (June 2004) [pdf 479kb]
This is the final determination by the NSW Independent Pricing and Regulatory Tribunal (IPART) in relation to its 2004 review of electricity distribution pricing.
This document includes the detailed formulae developed by IPART to implement its decision in relation to demand management undertaken by distribution network service providers in New South Wales.
Securing Australia’s Energy Future (June 2004) [pdf 2,592kb]
This Australian Government white paper on energy included chapters on “Energy Efficiency” and “Climate Change and Energy”. The white paper stated that to improve Australia’s energy efficiency performance, the Australian Government would:
- improve price signals for demand side management as part of reforming Australia’s energy markets;
- demonstrate the potential benefits of energy efficiency and market reform through major Solar Cities trials;
- expand the range of appliances and buildings subject to minimum energy performance standards;
- continue to improve the energy efficiency of Australian Government agencies;
- increase the availability of information on the energy performance of appliances, buildings and vehicles;
- require large energy users to regularly identify and publicly report on energy efficiency opportunities;
- streamline energy reporting requirements and participation in energy efficiency and greenhouse programmes using the Greenhouse Challenge programme as a single point of entry.
The white paper also announced that a Productivity Commission inquiry would be established to provide further information on the potential benefits of, and policies to achieve, improved energy efficiency.
User Participation Policy Statement (August 2004) [pdf 254kb]
This policy statement was developed by the Ministerial Council on Energy and resulted from the work carried out by its User Participation Working Group. It is also a response to the Parer report. The policy statement considered two issues in particular:
- market mechanisms to promote demand side response in the NEM; and
- the role of interval metering technology.
Market Mechanisms to Promote Demand Side Response
The MCE concluded that the current low level of end user participation in the NEM reduces effective competition and dilutes the benefits of market reform for energy consumers. Direct participation in the NEM should enable energy users to capture a greater share of the economic return achieved from reducing their energy consumption during high priced periods and network congestion. A market-based approach should allow buyers and sellers to capture the optimal value of the demand response at least-cost.
The MCE considered that a flexible and accessible market-based demand side aggregation mechanism is an attractive proposition, as it creates a secondary market to flexibly manage delivery and payment for demand response products rather than requiring additional structural changes to the existing spot market mechanism. It is also a structure that would be accessible by a broader cross-section of energy users.
The MCE agreed not to proceed with work on the Parer report’s ‘pay-as-bid’ demand response bidding proposal. Preliminary work revealed a number of challenging design and implementation issues with no guarantee of higher levels of demand response in the NEM. A number of structural and compliance issues impose an additional element of market risk and undermine its usefulness as a mechanism to induce direct end-user participation in the wholesale spot market. As such, the proposal does not appear to present the most efficient or least-cost approach to improving overall user participation levels.
The MCE also stated that it will consider the need for further work to investigate the feasibility of a short term forward market in facilitating demand side bidding in the wholesale market. A number of markets use a multi settlement approach, where demand side and supply side both bid and settle in a day ahead market, otherwise known as a short term forward market. A voluntary short-term forward market has the potential to:
- assist demand side response by providing a framework for demand side resources to have greater certainty regarding the benefits that could be gained from load reduction; and
- assist the market to arrive at an efficient balance between committed generation and expected demand.
Role of Interval Metering Technology
The MCE stated that peak demand and load, which are increasingly driven by the growing penetration of air conditioners and other energy-using equipment in Australian households, are costly issues for the national energy market. Metering, complemented by remotely activated load control technology, other energy management technologies and the right price incentives, can:
- moderate demand and load by assisting consumers to voluntarily manage their energy use;
- increase user participation;
- defer investment in new generation and network capacity; and
- contribute to a more effective energy retail market.
The MCE recognised the important role of interval metering and load control technologies in developing a more efficient energy market with stronger user participation and improved energy use management and endorsed further deployment of advanced interval metering technology as a long-term goal for the efficient development of the retail market.
The MCE agreed that all NEM jurisdictions which have not done so, should review the use of interval meters and assess the relative benefits of an interval meter rollout by 2007.
The MCE also agreed to commission a study to identify low cost load control technology and other technologies that could assist consumers in voluntarily managing their energy use.
Demand Management for Electricity Distributors: NSW Code of Practice (September 2004) [pdf 733kb]
This is the third edition of the Code. The first edition was issued in October 1999 and the second edition in May 2001. This third edition was prepared by a working group comprising representatives from the New South Wales electricity industry, the NSW economic regulator, electricity users and environmental and consumer groups, facilitated by the NSW Department of Energy, Utilities and Sustainability.
While the first two editions of the Code were purely advisory, the third edition has been formally issued in accordance with Clause 6 of the Electricity Supply (Safety and Network Management) Regulation 2002. This requires electricity distributors in the State of New South Wales to take the Code into account in the development and implementation of their network management plans. In particular, the network management plan must specify where it or its implementation departs from the provisions of the Code and, if so, what arrangements are in place to ensure an equal or better outcome.
The Code requires electricity distributors in New South Wales to:
- publish information that makes transparent the underlying assumptions and decision-making process relating to investments that expand their distribution networks;
- publish detailed information regarding the need for network expansion in a way that enables interested parties to identify likely locations of forthcoming constraints;
- use a formal process to determine whether demand management investigations are warranted for identified emerging constraints, and publish the results;
- carry out demand management investigations that provide opportunities for market participation;
- analyse demand management and network expansion options on an equal basis according to the published methodology and assumptions and publish the result of those determinations;
- implement demand management options where they are determined to be cost effective; and
- prepare and publish reports on these activities annually.
Important changes in the third edition of the Code, as compared with the second edition, include:
- greater focus on transparency and disclosure, including specification of a range of tables and maps to be produced by distributors as part of the planning and procurement process;
- specification of recommended processes for procuring network support through demand management, including negotiable and standard offers;
- outlining of matters to be taken into account in analysing the relative costs and benefits of the demand management and network options.
Draft Guidelines on the Application of the Tribunal’s 2004 Demand Management Determination (December 2004) [pdf 479kb]
These draft Guidelines refer to the determination on demand management by the NSW Independent Pricing and Regulatory Tribunal (IPART) in its 2004 review of electricity distribution pricing.
A key component of IPART’s determination was the introduction of a number of incentives to promote network demand management. IPART’s determination provided what it considered to be relatively generous incentives to electricity distributors to undertake demand management; IPART considered that this level of incentive was required, at least in the short-term, to help overcome the barriers to greater use of demand management and to support the emergent market for these solutions.
As part of its determination, IPART introduced a D-factor into the weighted average price cap control formula that allowed distributors to recover:
- approved non-tariff-based demand management implementation costs, up to a maximum value equivalent to the expected avoided distribution costs (as defined in the determination);
- approved tariff-based demand management implementation costs;
- approved revenue foregone as a result of non-tariff-based demand management activities.
In late October 2004, IPART established a demand management consultation group to develop principles and guidelines on:
- avoided distribution costs;
- foregone revenue
- loss management investments; and
- network planning.
The terms of reference and objectives of the consultation group were limited to developing principles and guidelines to give effect to the demand management incentives outlined in the Tribunal’s final determination and report. The consultation group included representatives from: the NSW electricity distributors, industry, Government and user/consumer groups.
These draft Guidelines are the output of the consultation group and were released for public comment.