Depending on the market involved, the 3rd party may be a retailer, DNSP or other aggregator, although there are constraints on which markets different types of aggregator can trade the DR.
2.1
Possible future markets
There are of course many possible future markets for household engagement in electricity flexibility. The success of and level of participation in future VPPs remains to be seen, with the current VPP trials focusing on technical aspects and customer acquisition. Household participation in the trials is subsidised, and so the financial viability of the VPPs is untested. A two-sided market has been proposed by the Energy Security Board (ESB) to increase the potential for demand side participation in the wholesale market and network support. Consultation with stakeholders is ongoing, including exploring new tariff structures and options for more flexible, locational price signals, as well as development of an appropriate consumer protection framework (Energy Security Board, 2021). A variation on LET as described above is where households still sell their excess solar to other households or charge their battery using excess solar generation from other households and discharge to meet their neighbours demand, but this does not occur through a marketplace but instead is simply in response to tariffs. It is important to note that there may be future limitations on markets for DR due to requirements imposed through technical standards and by DNSPs as well as due to direct control by DNSPs and AEMO. Additionally, electricity flexibility successfully incentivised through one market may undermine the business case for some of these emerging markets. For example, a high uptake of and response to cost-reflective tariffs might reduce the need for VPPs that target high spot prices and network demand peaks.
3
Tariffs and other incentives
Incentives for households to provide electricity flexibility include electricity tariffs but also a range of other price and non-price incentives. This section first discusses electricity tariffs (broken down into network tariffs and retail tariffs). It then introduces the other types of incentives through the different types of mechanisms used to respond to them (for example, battery management systems, home energy management systems, Direct Load Control, Behavioural Demand Response and VPPs). It then discusses the various tools available to support household decision-making.
3.1
Electricity tariffs
Electricity tariffs come in many shapes and sizes and can be applied to both consumption and export. Although most households in Australia are on flat tariffs (which provide no price signal for electricity flexibility), a range of time-varying tariffs are available, with the most common being time of use (TOU) 4 and demand tariffs, although tariffs linked to wholesale spot prices are also emerging. Although households face a single retailer tariff, it consists of TUOS, DUOS, jurisdictional scheme charges, wholesale spot price, market fees and retailer margin components. Another type of tariff that enables electricity flexibility, despite essentially being a flat tariff, is a controlled load tariff. Whereas tariffs such as TOU and demand charge require ongoing responses to price signals, controlled load tariffs require a single decision by the household to go onto that tariff, with the load response then being automated, generally by the distribution network service provider (DNSP) through ‘ripple control’. The most common form of retailer export tariffs (which are more payments than tariffs) are FiTs that have been used to drive the uptake of solar PV. These were originally deployed at premium rates but (apart from legacy systems) are now only set by retailers at the avoided cost of generation in the wholesale spot market plus a value for customer acquisition. As part of its ruling on minimum FiT rates (which ‘have regard’ for the avoided social cost of carbon and the avoided human health costs attributable to a reduction in air pollution), the Victorian Essential Services Commission While some utilities use TOU to describe time-varying tariffs with two charging periods and rates (peak / off-peak), and ‘flexible tariff’ to describe those with three or more rates, others use TOU as a general term to describe both categories; in this report, we use the more general meaning of TOU.
4
Opportunity Assessment – H4: Rewarding flexible demand: Customer friendly cost reflective tariffs and incentives
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