Big users of electricity, such as retailers and smelters, will be paid for reducing their power demands and regulators are working to expand it to other power consumers.
This means the wholesale market can pay big users for cutting electricity consumption, rather than paying electricity generators to boost supply, when the electricity network is under pressure.
It begins later next year despite opposition from big energy generators and retailers. The Australian Energy Market Commission (AEMC) says it will improve reliability on the network by allowing demand response to compete with 'peaking' electricity generators that typically receive very high prices for supplying additional electricity during times of heavy demand.
The potential savings to producers could put downward pressure on retail prices and the AEMC says it is looking at extending the payback scheme to smaller consumes at a later date.
The Australian Competition and Consumer Commission (ACCC) welcomes the change.
In a submission to the AEMC, chairman Rod Sims had argued the change had the potential to "constrain the pricing of [electricity] generation businesses, limit the need for additional generation and lead to lower prices".
The rule changes are a win for community and environment groups that fought for the shift to demand response — the Public Interest Advocacy Centre, the Australia Institute and the Total Environment Centre.
"Big energy users like factories and farms will be able to earn money by saving energy during heatwaves and at other times when electricity prices are high," the Australia Institute's Dan Cass said.
"This will push down prices for all consumers, improve reliability and help Australia safely retire our 20 remaining coal-fired power stations."
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