Energy Consumers Australia is pleased to share our submission to the Energy Security Board’s Capacity Mechanism Project Design Paper.

Our submission sees merit in a well-designed capacity mechanism but the detail of the design process and the design itself will decide whether such a mechanism works to consumers’ overall benefit. Australians expect and deserve a reliable energy system but it cannot be at the expense of having an affordable one.

A capacity mechanism focuses on ensuring that there is sufficient electricity generation and storage to always meet consumer demand for electricity. There are at least two ways to solve that problem: build more electricity generation and storage, or lower consumer demand for electricity at critical times.  

Energy efficiency and demand response answer capacity needs by lowering consumer demand for electricity. Any successful mechanism introduced in Australia needs to include these approaches from the outset. Such approaches provide some of the lowest cost capacity available and provide a way for participating consumers to further lower their personal energy costs. Not designing the capacity mechanism to cater for demand response and energy efficiency would be choosing to ignore half the solution – the part that is lowest cost and provides additional benefits to consumers.

Our submission proposed three concrete recommendations to create a mechanism that works for consumer interests:

• The capacity mechanism should include a specific role for an independent “Mechanism Monitor” that will objectively monitor, investigate, evaluate and report on the capacity mechanism, including structural, design or operational flaws in the capacity mechanism.
• The detailed design should include specific actions to investigate and pursue all cost-effective demand response and energy efficiency measures in the capacity mechanism. For example, prior to market inception and at regular intervals thereafter a demand response and energy efficiency potential study should be undertaken to assess the potential for cost effective demand-side market participation.
• To help ensure that the capacity mechanism does not result in consumers paying more money for the same level of service, the Mechanism Monitor should annually review the cost of the capacity mechanism to see if its design and operation is meeting the ESB and Minister’s intention.

You can read the full submission here or by clicking the image below

Associated technical reports that have helped inform the submission:

• Econalytics – Policies to promote DR and EE in capacity markets
• Finncorn Response to Capacity Mechanism Project High-level Design Paper July 2022