The AEMC has today published a paper outlining the 2011 strategic priorities for energy market development. The paper focusses on how consumers, industry and governments can best work together to effectively manage structural change in the national energy sector.

The AEMC developed these priorities through extensive engagement with interested stakeholders. We received a wide range useful comments, which we have actively considered in finalising the priorities.

Emerging challenges

Despite the achievements of the reform process so far there remain significant challenges for the energy market in the future.

Australia is putting in place policies to tackle climate change, such as the expanded Renewable Energy Target and the Federal Government’s intended price on carbon emissions, within one of the most liberalised energy markets in the world. This increases the importance of making sure that the measures to address climate change are well designed so that they do not adversely affect the economic efficiency of the energy sector or the ongoing development of competition in generation and retail markets.

Well designed measures to address climate change can use the incentives within the competitive wholesale and retail energy markets to promote investment and operational decisions by market participants that minimise costs for customers and taxpayers.

The electricity sector has a framework to identify needs for investment in additional network capacity. The electricity market provides a framework that allows the most cost effective options for additional generation capacity and greater demand side participation to contribute to achieving the climate change mitigation objectives.

Australia faces a particularly significant challenge in responding to climate change because about 80% of its electricity generation is coal fired. This further increases the importance of considering the impact of climate change mitigation policies on energy markets, including new and existing market participants’ capacity and willingness to invest.

We have identified three strategic priorities to address the challenges facing the Australian energy sector.

Strategic priorities

1. A predictable regulatory and market environment for rewarding economically efficient investment

2. Building the capability and capturing the value of flexible demand

3. Ensuring the transmission framework delivers efficient and timely investment

These priorities will help guide the AEMC in the development of our work program. We intend to continue developing them periodically, and we will seek further advice and feedback from interested parties in doing so.