Posted July 18, 2019 01:45:59

Photo: The recommendation comes as contingency plans are made for the proposed closure of the Liddell coal-fired power station. (AAP: Joe Castro)

In a sign of rising pressure on power generation, the Federal Government's chief energy advisor is urging rule changes to allow large commercial and industrial users to easily reduce their demand in peak periods and sell it back into the grid.

The proposal from the Australian Energy Market Commission (AEMC) comes as businesses, consumers and regulators make contingency plans for the proposed closure of the Liddell coal-fired power station in the NSW Hunter Valley by 2022.

Under the rule change, high energy consumers could decide to reduce their consumption and sell the "demand reduction" back into the grid via a third party, such as an aggregator, at the market price at the time.

AEMC chairman John Pierce wants the rule changes put in place quickly to take pressure off the grid so energy demand can be guaranteed in the increasingly uncertain environment.

"These are times in which those consumers have agreed not to consume electricity or consume less or later," Mr Pierce said.

"Taking demand pressure off the power system is a substitute for generation and helps tackle rising wholesale prices at peak times, reducing electricity costs for everyone.

"It makes sense to manage demand for electricity if we are going to deliver reliable energy at the least possible cost."

Mr Pierce said the scheduled closure of Liddell meant allowing a "demand response" system was important in establishing the lowest cost of energy and the most efficient way of meeting energy supply.

"The greatest savings are likely to be realised from commercial and industrial customers," he said.

"We want to make it more attractive and eventually open it up to be a truly two-sided market where generators and consumers face the same price signals and incentives to either supply or use electricity."

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In a statement to the ABC, Energy Minister Angus Taylor said the proposed rule change was critical in giving power back to consumers.

"Consumers that work together will have improved negotiating power and will get a better deal. That's an important change," Mr Taylor said.

The Australian Competition and Consumer Commission (ACCC) has welcomed the proposal, which it said would make it more attractive for big energy users to reduce their demand on the power system.

ACCC chairman Rod Sims said it was a vital development in reforming the energy market and would help bring power prices down.

The Australian Energy Council, which represents 23 major electricity and downstream natural gas businesses, cautiously welcomed the proposal.

"There is no doubt that this rule change and its new settlement arrangements, while an improvement on what was proposed by some parties, will still add complexity to what is an already complex wholesale market settlement arrangement," it said.

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The rule change would be restricted to large industrial and commercial energy users, with households and small customers excluded because of consumer protection concerns.

However, the AEMC said access to the wholesale market by small consumers could be considered after a 12 month review to determine what protections might be necessary.

The proposal comes after pressure from a range of stakeholder groups including the Total Environment Centre, the Australia Institute, the Australian Energy Council and the South Australian Government

Follow Peter Ryan on Twitter @peter_f_ryan

Topics: energy, electricity-energy-and-utilities, business-economics-and-finance, australia