As Australia continues to navigate the evolution of demand response, an interesting question has emerged. Who is accountable for the network ‘going dark’ if the distributors are forced to use contracted demand response?
Let’s take a step back. Traditionally a distributor satisfies demand by investing in more ‘poles and wires’. Various regulatory ‘experiments’ are underway to see how policy can encourage network businesses to leverage demand response before they buy and build more infrastructure.
Personally, I feel we should be designing the regulatory framework, so distributors can earn a higher return using demand response than they can building more supply. Any other approach will see a constant tug of war between the distributor and the regulator, as the regulator seeks the best outcome for the community, and the distributor for its shareholders. I would like to see us assume that avoiding new infrastructure is always best and design the rules around this principle. Such an approach will have distributors trying their best to avoid unnecessary build.
Once all parties have agreed that demand response is the solution for a specific problem, a distributor needs to determine how it will secure the demand response outcome required. Here for me is the most interesting part of the challenge. In a country such as Australia, where the focus is on open markets, the obvious answer is the distributor needs to contract demand response from one or more demand response providers. We should leave aside the commercial concerns a distributor would have with such an arrangement as compared to owning and operating their own demand response assets, and instead look at the question of accountability for the reliability of the network.
Imagine the distributor has been forced, through regulations, to contract demand response from third parties. Then, an emergency network constraint occurs, and the distributor calls a demand response event. Something goes wrong, and the contracted demand response is not delivered, and that part of the network ‘goes black’.
A large part of how a distributor is measured is based on the reliability of the network. Who is accountable if the network fails due to a third-party demand response contract not delivering?