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Integrating distributed energy resources into our energy market system

Elizabeth Molyneux
Elizabeth Molyneux
30 December 2020

As customers continue to embrace innovative distributed energy resource (DER) product and service offerings such as solar battery orchestration and electric vehicles (EVs), the economic, technical and regulatory challenges associated with the integration of DER into Australia’s energy market system remain a key focus for industry. There are multiple streams of work at the policy and regulatory levels.

What is DEIP and what is it doing?


Through the Distributed Energy Integration Program (DEIP), industry, government agencies, market authorities, and consumer associations have been working together to co-design solutions on issues ranging from network access and pricing for DER to EV grid integration, standards and interoperability to enable the DER market to continue to flourish.

Open Energy Networks – how open and who controls DERs?


For the past two years, industry has also engaged with the Australian Energy Market Operator (AEMO) and Energy Networks Australia (ENA) through the Open Energy Networks (OpEn) project on the question of how best to design the distribution market to enable a two-way electricity grid, where all energy users can benefit from the services that DER can provide.

More recently, DER integration has also been a key focus for the Energy Security Board’s (ESB) Post 2025 Market Design program, that is considering the design of a long-term, fit-for-purpose market framework for the NEM.

The market bodies


  • The Australian Energy Market Commission (AEMC): DER integration remains a priority area for the AEMC following its 2019 Electricity networks economic regulation frameworks review, that identified a range of key reforms and actions to be progressed. While the AEMC has already played a pivotal role in bringing forward a range of changes to support the evolution of the grid towards DER including the contestability rule changes, current focus areas include establishing regulatory sandbox arrangements to support greater innovation, stand-alone power systems, retail energy competition in Australia’s EV market, DER network access and pricing and technical standards.
  • The Australian Energy Market Operator (AEMO): Through the AEMO Virtual Power Plant (VPP) Demonstrations, of which AGL is a participant, AEMO has begun to test VPPs access and sharing in wholesale (FCAS) value, providing an important step towards the integration of VPPs in Australia’s energy markets. AEMO is also seeking to develop a range of future DER market trials to further test DER wholesale market integration, integration of distribution network limits into VPP optimisation and the provision of local networks services from DER. AEMO’s distributed energy program spans markets and framework, pilots and trials, operations, data and visibility, standards and protocols and engagement and collaboration.
  • The Australian Energy Regulator (AER): DER has become an increasing focus for the AER in its assessment of distribution network expenditure determinations and access arrangements, as distribution networks seek additional expenditure allowances to support DER integration infrastructure spending. In 2019, this prompted the AER to commence a consultation on the current expenditure assessment framework to ensure it remains fit for purpose. Ring-fencing of regulated network business from contestable markets also remains a key focus in supporting the development of a more mature DER market. As distribution networks transition towards implementing dynamic export operating envelopes, the AER will play an increasingly important role in ensuring accountability through the development of appropriate methodologies to inform export hosting capacity.
  • The Australian Renewable Energy Agency (ARENA): ARENA has played a pivotal role in co-funding industry trials to test innovative technologies and business models focused on DER to deliver benefits to consumers, most notably through its Advancing Renewables Program. ARENA continues to scope and co-fund new opportunities.
  • Standards Australia is Australia’s independent standards setting body that develops and adopts technical standards that reflect international best practice through broad stakeholder engagement and with the support of relevant industry expertise, including with respect to safety, economic efficiency, innovation and customer impact to ensure a robust decision-making process. Standards Australia has overseen the development of a range of DER related standards, most recently the battery installation standards, inverter standard amendment and demand response standard amendment.

The customer should drive market design


As you may have noticed, the most important player has not been captured above: the energy customer, the investors and owners of the DER assets.

Fundamentally, integrating DER into Australia’s energy market system is about designing the distribution market to enable customers who own DER assets to engage and share in the value of those assets in the most efficient and effective way. As we outlined in our previous story, consumers invest in DER to keep their own energy costs down by generating and storing electricity in their home. However, the owners of these assets can also be rewarded for providing network and wholesale market services during peak periods or for system security and reliability. This helps avoid or defer high capital expenditure by networks and/or building new large scale generation. DER owners and all other energy consumers benefit from these broader services DER owners can provide.

Customers’ increased engagement and expectation to exert more control over their energy supply arrangements necessitates the development of a arrangements that puts the customer at the centre.



Through AGL’s Virtual Power Plant (VPP), we have begun to explore the opportunities in accessing and sharing the value from DER with customers for the benefit of all grid users. AGL’s VPP orchestrates residential batteries to support grid stability and reliability, whilst rewarding customers for providing those services. Established in South Australia in 2016 in partnership with ARENA, AGL’s VPP was awarded an Edison Award for innovation in 2020. We have since expanded our VPP to NSW, Queensland, and Victoria. In 2020, and have enrolled our fleet in the AEMO VPP Demonstrations to test accessing and sharing in wholesale (FCAS) value.

AGL is also planning towards a future where customers’ EVs can interact with Australia’s energy markets through managed charging and orchestration to deliver greater value to the electricity grid and the customer.