AEMC publishes the final report of the Transmission Frameworks Review

11 April 2013

The AEMC’s comprehensive three-year Transmission Frameworks Review has identified potential changes that will enhance the efficiency of future investment in both transmission and generation to minimise the long-term costs of the energy system for consumers.

AEMC Chairman, Mr John Pierce, said the review’s final report to the Standing Council on Energy and Resources (SCER) follows extensive consultation and addresses two key challenges facing Australia’s transmission network frameworks.

“Of concern are the co-ordination between generation and transmission investment decisions and also the cost, complexity and time delays associated with connecting new generation to the power system,” Mr Pierce said.

The recommendations include engaging with industry in a program of detailed design and testing of a new model for generator access to the market, and changes to the National Electricity Rules to increase competition and transparency in the provision of connections between generators and transmission networks.

Currently different processes apply to decisions about investment in electricity generation and transmission infrastructure. Investment in generation assets is market-driven and takes into account expectations of future demand, the location of the energy source, access to land and water, and proximity to transmission. Investment in transmission is centrally planned according to a cost-benefit test. Transmission businesses are subject to an incentive-based economic regulatory regime.

The differences in generation and transmission investment processes may result in a development path that does not minimise the total system cost faced by consumers. A key issue is the degree to which the allocation of risks between owners of the businesses and consumers are aligned in these processes.

Mr Pierce said “There is limited firm evidence that the current arrangements have caused significant co-ordination issues to date, but they may increase in significance in the event of changing patterns of generation investment, demand, new technologies, government policies and increased uncertainty concerning the most efficient development path.”

The AEMC has developed an integrated package of market arrangements to transform the way generators access the market during times of congestion - when more generators wish to use transmission than can be accommodated - and the way transmission investment decisions are made.

Under the new optional firm access model, generators would have the option of buying firm financial access rights to transmission networks. These financial rights would help generators to manage the risk of not earning revenue when networks are congested. They would take the form of compensation payments funded by generators without such rights, and would be underpinned by the provision of transmission capacity.

In choosing to acquire firm access, generators would fund and guide the development of new transmission to underpin their access rights. They would have a greater incentive to factor in the cost of transmission when determining generation locations, and be able to reduce investment risks through financial guarantees of access to the wholesale electricity market.

Mr Pierce said the approach should result in better decisions regarding the need for new transmission infrastructure, and has the potential to reduce prices for electricity consumers in the longer term by minimising the total system cost of building and operating both generation and transmission over time.

“The OFA model has the potential to increase the flexibility of transmission arrangements to cater for potential changes in an evolving electricity market,” Mr Pierce said.

The AEMC is also recommending that the rules be changed to increase competition and transparency in the construction of assets required for generator connections to the transmission network. The AEMC considers that increased competition should be balanced with the need to maintain clear accountability for outcomes on the shared network. The regional transmission network service providers would continue to be fully accountable for operation and control any assets forming part of the shared network, once constructed.

 

For information: AEMC Chairman, John Pierce (02) 8296 7800

 

Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817