Demand response: a win for consumers and the climate

Demand response: a win for consumers and the climate

What is demand response? 

In many energy systems, power generators are paid a premium to increase supply when demand is high, for example, during a summer heatwave. Often, it means relying on high-emissions gas-fired generation. A demand response mechanism instead reduces demand, by paying people and businesses to use less electricity when demand is high and supply is tight. This encourages more efficient energy use and lowers prices and emissions. 

The introduction of a demand response mechanism in Australia’s energy market was revolutionary, signalling for the first time that the market does not have to be completely dictated by suppliers. Customers could instead be rewarded for reducing demand.  

Critically, a demand response mechanism reduces the need for large, polluting coal-fired and gas-fired generators – a crucial step on Australia’s path to net zero.   

How we pushed for demand response

Our Centre played a central role in securing a demand response mechanism for Australia’s energy network, despite resistance from energy companies.  

Efforts towards a demand-side reform began in earnest in 2012 when the AEMC’s Power of Choice Review proposed a demand response mechanism. 

We were active in securing the support of state and territory energy ministers and argued for the reform in the Australian Competition and Consumer Commission’s Retail Electricity Price Inquiry, the Chief Scientist’s Independent Review into the Future Security of the National Electricity Market (the Finkel Review), and the AEMC’s Reliability Frameworks Review. 

In 2018, we submitted a joint rule change proposal to the AEMC, in collaboration with the Australia Institute and Total Environment Centre. We proposed a wholesale demand response mechanism, open to all consumers, from large businesses to households and small farms. We then continued to refine the demand response model in sector working groups.  

While momentum was building, the Australian Energy Council (a body representing energy companies) proposed a watered-down reform, which would have seen demand response limited to energy retailers. Energy companies Engie and Simec made the unusual demand of a public hearing with the AEMC to argue against our proposals for a demand response mechanism.    

We remained persistent, leading multiple joint submissions to the AEMC, and working with groups including the Australian Council of Social Services, Consumer Action Law Centre, and the Tenants Union. We also partnered with innovative energy providers Enel X and Reposit, and consumer rights organisations.  

In March 2020, energy businesses demanded the AEMC delay the reform, citing the COVID-19 pandemic. We led a strong response from a coalition of 15 organisations and groups to successfully resist these demands. And we secured significant media coverage highlighting the benefits of the reform. 

The AEMC reached a final determination in June 2020 to introduce a wholesale demand response mechanism for large energy users. This demand response mechanism was introduced on 21 October 2021, but the Centre continues to fight to improve its effectiveness, and advocate for demand response to be extended to small consumers and ordinary households.   

Media coverage 

Guardian Australia, Energy prices: large users could be paid to reduce demand at peak times, 18 July 2019 

Sydney Morning Herald, ‘Ambitious’ energy reforms set to cut household power bills, 12 June 2020 

ABC News Online, Electricity users will get paid to cut energy use under historic new market reform, 11 June 2020 

Australian Financial Review, Big companies to be paid to cut power usage, 11 June 2020 

Renew Economy, AEMC approves landmark demand response mechanism, rejects calls for delay, 11 June 2020. 

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