Two-sided energy markets

twice as nice... or double the trouble?

Simon Moore: Business NSW Policy Manager, Infrastructure & Utilities  

8 June, 2020

Recently, Business NSW provided feedback to the Energy Security Board on its proposal to create a two-sided electricity market by 2025. 

Evolving from over a decade's worth of rapid changes in renewable energy and digital technologies, the proposal signals the biggest overhaul of Australia’s energy markets since privatisation. 

While a two-sided energy market brings a promise of greener and cheaper electricity, it will also make it a lot more complicated. Unsurprising, many businesses are yet to be persuaded.

Energy on the other side

A two-sided market will allow traditional consumers to sell excess power from their energy system services, such as solar panels. Energy operators will be able to see, and in some cases control, equipment that was previously beyond their reach to more precisely manage supply and demand. 

The ability to lower thousands of air conditioners by a few degrees gives the system a very attractive flexibility.

For some businesses, this might be a way to make more money from existing equipment or to reduce energy bills while helping keep the power system reliable. For others, the appeal is less clear. 

Many small business owners already struggle to find the time and the information to be on the best deal and to optimise their energy usage. This proposal suggests they'll need to navigate even more information and options over the coming years. 

Are incentives the key?

Business NSW asked businesses if they would reduce their energy use at peak times of the year in return for an incentive payment. More than 50 per cent said that the effort required would likely outweigh the benefit (Figure 1).

Figure 1: Regulators are considering changes to electricity rules that would allow businesses to receive an incentive payment for reducing electricity use at peak times of the year. Would your business be willing to turn down electricity use (e.g. switching off/slowing machinery, reducing air conditioning use, changing shift/production schedules etc) for these incentives?

 

A further 39 per cent either didn’t know or said it would depend on the size of the incentive.

Still, even if demand reduction occurred primarily from the nine per cent of businesses who said they would participate, it could reduce pressures on the system and allow less-flexible businesses to operate without constraint during peak times.

...only 41 per cent of businesses trust the energy market to deliver outcomes in their interest.

Trusting the new players

Policymakers envisage a much greater role being played by ‘intermediary’ firms who can help businesses navigate this complexity. These firms will sit between energy users and the market and, with permission, will be able to automatically control users’ appliances. 

The ability to lower thousands of businesses’ air conditioners by a few degrees gives the system a very attractive flexibility. But achieving this depends on high levels of trust between businesses and energy providers, which is lacking at present.

According to Energy Consumers Australia (ECA), only 41 per cent of businesses trust the energy market to deliver outcomes in their interest (Figure 2). That figure has never topped 50 per cent since ECA began collecting data in 2016. 

Figure 2: Business Confidence in the energy market – Energy Consumers Australia Energy Consumer Sentiment Survey December 2019.

The two-sided market reforms are a necessary step in modernising Australia’s electricity system, bringing it into a digital age and accommodating the solar revolution. 

But the success of the proposal rests on a group of as-yet unknown companies providing an unfamiliar service to an untrusting customer base. Getting the design right is only part of the challenge; building trust may be the harder task.

Please contact policy@businessnsw.com for feedback or queries on the two-side energy market.