Market Review: Completed

Overview

The transforming generation fleet has implications for investment in the transmission network. Generation investment and retirement decisions need to be coordinated with transmission investment so that reliable, secure outcomes in the long-term interests of consumers are delivered.
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The transforming generation fleet has implications for investment in the transmission network. Generation investment and retirement decisions need to be coordinated with transmission investment so that reliable, secure outcomes in the long-term interests of consumers are delivered. 

The COAG Energy Council asked the AEMC to look at ways to better coordinate investment in renewable generation and transmission infrastructure to minimise costs passed on to consumers. 

Final report

On 21 December 2018 the AEMC published the final report of its Coordination of generation and transmission investment review.

This report recommends a comprehensive reform package that better coordinates investment in renewable generation and transmission infrastructure, facilitating transmission and generation in the right place at the right time at an efficient cost. The recommendations complement each other and include:

  • directly link investment decisions by transmission businesses to AEMO’s Integrated System Plan, to streamline regulatory approval processes for these strategic projects
  • streamline the cost-benefit assessment (the regulatory investment test for transmission – RIT-T) for new transmission by removing duplication from the process
  • manage congestion so the cheapest power can get to consumers. This involves implementing phased reforms to change how generators access and use the network, starting with dynamic regional pricing
  • allow generators to pay for transmission infrastructure in exchange for access to it – which means generators can influence and have control over transmission planning decisions, leading to better coordination of generation and transmission investment
  • examine how to better align the costs of transmission, especially interconnectors, with those that benefit from the investment
  • facilitate renewable energy zones through generators funding of transmission infrastructure
  • make it easier for large-scale storage systems to connect to the network by creating a new registration category to support seamless integration.

In August 2018 the COAG Energy Council asked the Chair of the Energy Security Board to take the lead on a work program to “convert the Integrated System Plan into an actionable strategic plan” and report back to the Council’s December 2018 meeting. The AEMC’s final report of this review is an input to the Chair of the Energy Security Board’s report.

Next steps

The AEMC recommends that the reforms be implemented in stages, to enable delivery of the 2018 Integrated System Plan in the timeframes identified by AEMO. The final report includes an implementation work plan, with the final stage of reforms completed in 2023.

Background

In February 2016 the COAG Energy Council provided the AEMC with terms of reference for a biennial regime to report on a series of drivers that could impact on future transmission and generation investment.

On 18 July 2017 the AEMC published a final stage 1 report on the drivers of change that impact transmission frameworks.  The report recommended that the review progress to stage 2 where a number of options to improve the coordination of transmission and generation could be considered.

This recommendation was on the basis that:

  • the drivers of transmission and generation investment have changed significantly since October 2015
  • there is likely to be large amounts of transmission and generation investment
  • this expected future investment is uncertain in its technology and location.

Since this review commenced, AEMO published its inaugural Integrated System Plan in July 2018. The ISP was developed in response to a recommendation from the Independent Review into the Future Security of the National Electricity Market: Blueprint or the Future that AEMO develop a plan to establish an optimal transmission network design, so that networks connect the areas with the best renewable energy resources at an efficient scale. The AER has also published final application guidelines for the regulatory investment tests for transmission and distribution networks.

On 21 September 2018 the AEMC published an options paper as part of stage 2 of the review. The options paper set out options for how the ISP could be made “actionable” by strengthening the links between the ISP and transmission investment decisions. The options paper also considered other key areas, including:

  • renewable energy zones, in particular how the transmission network could be developed to support the new renewable energy zones identified in the Integrated System Plan
  • congestion and access, if trends around increased congestion suggest that reconsideration of the existing access regime may need to be addressed in the near term once the role of the Integrated System Plan has been addressed 
  • treatment of large scale storage facilities, with the AEMC setting out ways that barriers to these parties connecting could be removed to promote efficient entry and competition in the wholesale market.
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