The AER introduced a new Demand Management Incentive Scheme (DMIS) in December 2017 to encourage electricity distribution network service providers (DNSPs) to find lower-cost alternatives to investing in network capital expenditure. The DMIS will incentivise DNSPs to undertake efficient expenditure on non-network options focusing on demand management (DM).
The DMIS has three key features:
- Cost uplift – This gives DNSPs a financial incentive of up to 50% of their expected costs of efficient DM projects.
- Net benefit constraint – The size of the incentive must not outweigh the value (or net benefit) the DM project delivers across the electricity market. The DNSPs will estimate the net benefit of projects — for large projects, DNSPs will do this through the regulatory investment test; and for small projects, they must use the cost–benefit analysis method prescribed by the scheme.
- Overall incentive constraint – The total incentive in any year cannot exceed 1% of the distributor’s allowed revenue for that year.
The publication of DNSPs' annual compliance reports will assist us in identifying any need to change the magnitude of the cost uplift in a future version of the scheme and provide transparency to enhance understanding how different DNSPs are:
- estimating, accounting for and realising the benefits of DM
- providing DM as an input for distribution network services, and subsequently accruing financial incentives under the scheme
- proactively tendering for another legal entity to provide DM services
- undertaking DM in-house in a manner that is compliant with the ring-fencing guideline
- utilising DM in different ways to meet their unique network needs.