Demand management incentive scheme and innovation allowance mechanism

Demand management incentive scheme
Date initiated: 
5 August 2016
Effective date: 
8 December 2017
General inquiries - Demand management
AER reference: 


The AER has been developing a new demand management incentive scheme and innovation allowance mechanism. The scheme and allowance mechanism will complement our ongoing reforms targeting consumer choice and more efficient network pricing outcomes. These include our work on tariff reform, metering contestability, ring-fencing and a rule change to strengthen the transparency and efficiency of replacement expenditure.

The scheme’s objective is to provide electricity distribution businesses with an incentive to undertake efficient expenditure on non-network options relating to demand management. The separate allowance mechanism’s objective is to provide distribution businesses with funding for research and development in demand management projects that have the potential to reduce long term network costs.

On 28 August 2017, we published the draft scheme and allowance mechanism, which were the product of extensive collaboration with stakeholders. At the start of 2017, we received submissions on a consultation paper to inform the development of a robust, best practice scheme and allowance mechanism. This was followed up with a demand management Options Day workshop on 6 April 2017 and a Directions Forum videoconference on 29 June 2017. After publishing and receiving submissions on the draft scheme and allowance mechanism, we held a Feedback Forum videoconference on 8 November 2017. We have made submissions on the draft scheme, allowance mechanism and  early application rule change consultation paper available on our website under draft decision, alongside a summary of the discussion at the Feedback Forum. 

Our next step is to publish the scheme and allowance mechanism in early December 2017. At this time, we will also propose a fast-track rule change to the Australian Energy Market Commission to allow us to apply the scheme to distribution businesses part way through their current regulatory control periods.