Market Review: Open

Overview

As a result of the pace of change in Australia’s energy market, Australia has outgrown the way that it prices and delivers energy. It will replace most of its current generation stock by 2040. The electricity system of the future is likely to be characterised by many relatively small and geographically dispersed renewable generators, connecting to windy or sunny parts of the network which historically have not needed large amounts of transmission capacity.
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As a result of the pace of change in Australia’s energy market, Australia has outgrown the way that it prices and delivers energy. It will replace most of its current generation stock by 2040. The electricity system of the future is likely to be characterised by many relatively small and geographically dispersed renewable generators, connecting to windy or sunny parts of the network which historically have not needed large amounts of transmission capacity.

Substantial and timely transmission infrastructure is therefore likely to be required. These changes mean that there is a need to have a better way of co-ordinating generation and transmission investment decisions in order to better facilitate the transition that is occurring.

It is crucial that generators and storage are provided with the correct locational signals for their investment decisions, and the tools to manage the growing risks from transmission congestion and losses.

The current transmission access arrangements do not incentivise generators and storage facilities to locate and operate in a way that is most likely to minimise costs for consumers. Decisions on where to locate, and how to operate generation are not in lock-step with spare transmission capacity in the system or decisions on where and how much additional transmission capacity should be built. This makes it harder to keep power prices down. 

The current framework also does not provide the tools to help market participants manage congestion and loss related risk on an ongoing basis. These problems won’t be solved by building transmission alone. That is why the solution to the challenges facing the grid has two parts:

  1. actioning the Integrated System Plan (ISP) so that the right transmission is built 
  2. implementing transmission access reform so that the transmission network is used effectively.

Three reports on the proposed transmission access reform model

As part of the necessary reforms being developed to better coordinate generation and transmission investment, the AEMC published three papers on 26 March 2020:

  • A transmission access reform update paper that gives an overview of the access model’s features and explains how the Commission will further develop and model the proposed access reform as part of Energy Security Board (ESB) market design work during 2020.
  • A technical specifications report that provides a detailed blueprint of the current transmission access model. This blueprint incorporates stakeholder feedback to date and is the starting point for continuing design work with stakeholders during 2020.
  • A benchmarking study conducted by NERA Economic Consulting on the benefits and costs of transmission access reform based on the implementation of similar reforms in other jurisdictions. The study estimates reform benefits that considerably outweigh the costs and also provides commentary on learnings from other jurisdictions.

The core features of the proposed model are to introduce locational marginal pricing and financial transmission rights in the NEM. The blueprint provides specifications to make sure these core features are fit for purpose for the NEM, which have been shaped by extensive engagement with stakeholders. 

Access reform is integral to Australia taking the cheapest, fastest and fairest path on its transition to a low-emissions power system. It will integrate new technologies into the national grid in a way that is reliable, secure and works in consumers’ best interests, while also providing increased certainty and better information for market participants.

Further detail on next steps for stakeholder engagement will be released shortly. In the meantime, please don’t hesitate to reach out on email to:

Next steps

The Commission provided an update on the Coordination of Generation and Transmission Investment review to the COAG Energy Council. At its 23rd meeting on Friday 20th March, the Council agreed the AEMC should continue to progress the design of the proposed access reforms and provide the final details for Council’s consideration as part of the ESB’s post-2025 market reform package at the end of 2020.

The AEMC, through the ESB’s market design review process, will continue to refine and further develop the access model blueprint with stakeholders over the course of 2020. 

In addition, and in response to stakeholder feedback, we will quantitatively model the reforms by undertaking market modelling of the NEM. This modelling will inform the access model blueprint. We have engaged NERA Economic Consulting for this task and will be completing the analysis in a transparent and consultative manner, engaging with stakeholders through the process.

The core elements of access reform (locational marginal pricing and financial transmission rights) will complement and in some cases enhance and enable options being considered by the ESB in its market design work program. 

Background

The AEMC’s work on access reform

The AEMC must report every two years on drivers that could impact future transmission and generation investment, in accordance with terms of reference from the COAG Energy Council.

The inaugural Coordination of generation and transmission investment review (COGATI), completed in December 2018, made recommendations for comprehensive reform to the way investment in generation and transmission is coordinated.

In February 2019, the AEMC began the second COGATI review. This review is expected to conclude in December 2020. The following papers have been published to date:

  • On 1 March 2019, the AEMC published a consultation paper as part of the second COGATI review.
  • On 4 April 2019, the AEMC published a supplementary information paper which provided additional information and context to stakeholders on the need for COGATI reforms. The paper also provided answers to frequently asked questions about the proposed access model.
  • On 27 June 2019, the AEMC published a directions paper which provided further detail on the proposed access model, including a discussion of implementation and transition issues. 
  • On 14 October 2019, the AEMC published two discussion papers; one outlining a proposed access model, and another discussing renewable energy zones.
  • On 19 December 2019, the AEMC published an update paper for the COGATI review that provided further information and context on the review. It also responded to stakeholder feedback by revising the proposed date for implementation of the access model. 

These can all be found below.

Audio presentation

On 11 April 2019 the AEMC published an audio presentation which provided further explanation of one of the proposed models for reform: dynamic regional pricing (also known as locational marginal pricing). The audio presentation can be found here

Technical working group

The AEMC formed a technical working group of experts from industry, market bodies and consumer groups to consult on the proposed reforms. Representatives are from, amongst others:

The group has provided technical input into the development and assessment of the proposed reforms.  

The AEMC has convened five technical working group meetings: 

A subgroup of the technical working group has been formed in order to provide particular input into the modelling. The first meeting was held on 24 February 2020

Public workshops

The AEMC held a public forum on 8 July 2019 in Melbourne to discuss the proposed access model proposed in the COGATI directions paper. The AEMC also held a public forum on 18 October 2019 to provide an overview of the proposed access model and seek stakeholder feedback and a recording was made of the webcast.

We will likely hold a public workshop on the modelling being carried out by NERA that would be open to all interested stakeholders.
 

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Documentation

DISCUSSION PAPERS

AEMC documents

Submissions

Late submissions