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Energy retailers push back on mechanism hailed as a win for consumers

Energy retailers are pushing back against a proposal to allow large commercial users to enter the wholesale electricity market for the first time, prompting warnings that the sector wants to stifle competition.

The Australian Energy Market Commission will hear from energy companies Engie and Simec Energy on Tuesday about its proposed demand response mechanism, which has been hailed as a win for consumers that will see electricity prices fall.

In a letter to AEMC, Simec is warning that the new rule could impose an economic levy on host retailers and create “perverse incentives” that could see regulatory costs increase. It is asking the regulator to consider not going ahead with the change.

Engie’s reasons for its request to the AEMC for a special hearing have not been published.

But the hearing comes as the Australia Institute, which was one of the proponents for the rule change, releases new research showing that other major electricity markets are forging ahead with similar demand response schemes to benefit consumers with lower prices and better reliability.

The Australia Institute’s head of energy policy, Dan Cass, said that the three biggest electricity markets in the world – China, the USA and the European Union – were all moving to open up their networks to demand response competition.

“The rest of the world is charging ahead with energy market modernisation and Australia is now poised to make a major reform that will put us at the leading edge,” Cass told Guardian Australia.

“The big energy retailers want to prevent competition. They want to be the gate-keepers and decide whether or not their customers participate in emerging, digital energy markets.”

Under the proposed rule change, the Australian Energy Market Operator would be able to bypass retailers and pay large energy users to cut their power use via a third-party service provider.

The measure, which will put the so-called “demand response” on an equal footing to generation for the first time, will see energy users paid as if they are generators.

A demand response mechanism was recommended by both Alan Finkel’s review into the energy market and the Australian Competition and Consumer Commission’s retail electricity pricing inquiry.

The Australian Energy Council, which represents retailers, advocated an alternative demand response model that would see retailers negotiate with demand aggregators on behalf of customers, but this was opposed by the Australian Competition and Consumer Commission.

The Australian Institute report says the suggestion that incumbent energy companies should be allowed to control the sale of services that undermine their interests would be “unimaginable” in most industries.

“It would be like the taxi industry maintaining the best way to increase competition is to ensure all orders for passenger transport, including ride-sharing companies like Uber, must go to the taxi company first,” the report says.

Cass said the demand response rule, which is due to come into effect in 2022, needed to be in place to help maintain reliability and security of supply when AGL’s Liddell power station closes in 2023.

“Progressing this reform and allowing everyone, including big industrial users and regular households, to engage in demand response as soon as possible will reduce energy costs and emissions while also improving reliability.”

The energy minister, Angus Taylor, last month welcomed the draft rule change, saying it would increase competition, “leading to lower prices for everyone”.

“This proposed rule change builds on action already taken by the government to empower consumers to get a better deal, and increase the availability of dispatchable resources in the wholesale market to keep the lights on and bring prices down,” he said.

Source: The Guardian