Briefing Note | November 2021
Demand response refers to the coordinated reduction in demand (or increased supply) of electricity by large and small consumers to help manage periods of high demand or when these actions will be useful to the safe operation of the grid.
Demand response will become more important (and more valuable) with the increased use of intermittent renewable generation, as the ability to meet spikes in demand simply by increasing generation will be limited. It may need to become as automated as the supply of electricity to replace generation capacity and balance supply and demand.
Current demand responsiveness by consumers across the NEM has mostly been confined to large industrial customers, like aluminium smelters. Big electricity consumers agree to specific terms under which they will reduce or switch off their (large) loads under specific conditions and be compensated for this. This has been a valuable way of managing rising peaks in electricity demand, particularly with the increased uptake of residential air conditioners in the last decade of the 20th century.
More elegant demand management engaging a broader range of customers did not eventuate because electricity costs were low under the 20th century model of large dispatchable power stations supported by dispatchable intermediate and peaking generators.
Recent and more acute reliability conditions following the closure of two major coal fired generators in 2016 and 2017 have triggered the use of the Reliability and Emergency Reserve Trader (RERT) scheme. The RERT was designed as an emergency scheme to purchase demand management under critical conditions. It has been useful as a short-term solution but is expensive. It suggests a transition to a more sustainable demand management system may be more cost effective in the medium to long term.
New rules for expanded demand management for other large customers have been introduced by the Australian Energy Market Commission (AEMC). The Energy Security Board is now exploring development of a two-sided market to integrate demand response by enabling all energy users to actively buy and sell electricity.