Heard of a two-sided energy market? Here’s how it works
The energy landscape in WA is changing - and a two-sided energy market has the potential to play a major role in the future. In the past, there was generally a one-way relationship between customers using electricity and the retailer who sent the bill. Customers may have an agreed rate for electricity and real-time price fluctuations are something many don’t know about.
Behind the scenes, the Australian Energy Market Operator (AEMO) forecasts and monitors demand for electricity. Generators then make offers to supply electricity to the wholesale market to meet this demand.
When there is not enough supply to meet demand, the price of wholesale electricity increases. High prices encourage more generators to offer electricity to meet demand. Equally, at times of oversupply, the may prices drop and possibly even be negative.
The growth of distributed energy resources (DER) - that is, the rooftop solar, batteries, electric vehicles and other small-scale resources which now form a major part of our energy landscape have made the WA electricity market a lot more complex.
DER, together with utility-scale renewable energy sources like wind and solar farms, have impacted the supply and demand of electricity for everyone: consumers, generators, retailers and the aggregators who provide system services.
This means the electricity market has to change to address the challenges and make the most of new opportunities associated with a system full of DER. This means customers could potentially participate in new ways in electricity markets.
What is a two-sided energy market?
Instead of simply using electricity then paying the bill from their retailer, a two-sided market involves customers actively participating in the management of demand and supply. This means that in a two-sided market, your household or business could make more active decisions based on pricing, either directly or indirectly, for example to export solar-generated electricity, import electricity to charge batteries or manage your electricity consumption.
For example, imagine it’s a 40C day - the kind of conditions which would cause a high demand for electricity. You receive a text offering an incentive to decrease your electricity use between 4pm and 7pm that day - so you might decide to shuffle your plans around and do that load of laundry another time. This type of activity is known as ‘demand response’ and can help maintain the balance of supply and demand of electricity in the network. It involves customers taking a more active role in a two-sided energy market.
Here’s how a two-sided energy electricity market could work
At the moment, you might have some level of involvement in energy transactions through your home or business. For example, if you have rooftop solar you might receive a feed-in tariff for any excess solar sent back into the grid. However, for the most part you probably don’t participate in the market.
Currently, demand response activities are mostly limited to large customers such as commercial and industrial businesses. During periods of very high demand for electricity (known as a peak demand event), customers participating in demand response programs can get involved in demand response or demand management. This means they signed up to an agreement to cut back their electricity use when asked, just as we illustrated in the 40C day example above and are compensated for participating and providing that demand response service.
Virtual power plants (VPPs) are likely to play a key part in a two-sided market, where distributed energy resources such as rooftop solar and battery systems are coordinated to supply electricity or draw electricity from the grid when it’s needed most.
In the future, as a customer in a two-sided market, you may be able to participate in a demand response program and could receive an incentive for participating.
What are the potential benefits of a two-sided market?
Some of the potential benefits of a two-sided electricity market include:
- Better use of renewable energy sources - DER can be orchestrated and scheduled to respond to market conditions in real time, to help keep the electricity grid stable.
- Greater control for customers - In a two-sided market, you could have more control over how to reduce your electricity costs, through scheduling when you consume electricity to take advantage of incentives that may be offered.
- Better real time insights - A two-sided market also means the market operator, AEMO could have access to more detailed supply and demand information to better manage system stability and reliability.
What are the challenges of a two-sided energy electricity market?
In a two-sided electricity market, the relationship between the customers, retailers and the market operator will change.
Customers could offer services to the grid and be rewarded or incentivised to provide these services. This requires trust and understanding from both customers, retailers and other market participants. Customers need to be comfortable with how their DER are managed and how they’re rewarded or incentivised.
Pilots and trials are currently underway to understand how a two-sided electricity market could work in the unique energy landscape in WA. Project Symphony is an industry pilot that aims to understand how DER can be orchestrated to help system stability.
Learn more about solar, demand response and WA’s electricity market
The energy industry is changing at a rapid rate - and a two-sided electricity market is just one example of how new technology and new ways of thinking are part of our intelligent energy future. Find out more about projects and trials including the VPP trial, Project Symphony.