by AEMC Chairman John Pierce
Published on 14 November 2019 in The Australian
For both watchers and participants in Australia’s energy markets, summers are as much about what is anticipated as it is about what may actually unfold.
For energy market participants, extreme conditions place the greatest pressure on generator capacity and network infrastructure.
A lot of work is being done to reduce the likelihood of such scenarios occurring. The Australian Energy Market Commission is focused on supporting the market operator and industry with reforms under way to improve every aspect of the power system’s resilience.
The change is big — from ways to compensate generators when they are directed to keep the system secure, to better ways to facilitate demand management in the wholesale, network and consumer parts of the supply chain.
One of the most progressive areas of work is a new approach to better manage demand so we can stretch supply further, not just this summer but to permanently reduce risk and cost. Australia is already at the top of international league tables on penetration of renewable generation. Our work on establishing a demand response framework for the future potentially puts us among the pioneers of a truly two-sided market — focused just as much on consumer choices and do-it-yourself generation as multi-billion dollar investments in supply infrastructure.
Over the next few weeks we will release recommendations, determinations, reports and consultation papers on more than 20 separate initiatives.
Much at stake
A lot is at stake, especially with so many vested interests in the energy sector wanting to take advantage of the structural change under way for their own profit. Proper progress simply can’t be made unless everyone is fully prepared and on board.
For our part, the market bodies are prosecuting reform together under Dr Schott and the Energy Security Board’s 2025 market design project and supporting AEMO’s integrated system plan. In all this work our focus is on preparing the energy system for whatever happens — come hot days, high winds or unprecedented take-up of distributed generation — at the lowest cost to consumers.
It’s a time for cool heads, collaboration, and open, honest engagement with all stakeholders on understanding the long-term hip-pocket impact on consumers as we consider options for change.
Preparations for summer now routinely include paying large users in advance to shut down if and when needed to keep the lights on. It’s necessary, but it’s not cheap. It’s a sign of the times that hard choices are needing to be made between keeping the lights on and cost.
Everyone understands and accepts the need to bring down barriers to entry for renewables.
We have weighed that against a clear understanding of who actually benefits from such a proposal. Thursday’s determination recognises the need for investors in new generation to have the information they need to estimate likely revenues when they are making decisions on where to locate plant.
It complements recent new rules to improve transparency of new generation projects and concludes that existing marginal loss factors maintain clear signals for efficient dispatch and future investment in the market.
Importantly, we have decided not to green light a transfer of wealth and risk from businesses — who are responsible for their own investment decisions — to consumers, who would ultimately pay the price if this request was accepted, or to other generators located in stronger parts of the network.
Renewable investment in Australia is reaching high levels and the argument that continuing financial incentives are needed rings hollow.
We are interested to see what stakeholders — including small and large consumers — have to say about where the balance should lie but our view is that pragmatic action to give AEMO more flexibility now is enough while we undertake a major reform of how these locational investment decisions are made and ultimately funded through our integrated generation and transmission investment (COGATI) review that releases its final report in December.
As always, we scrutinise every proposal that may ultimately make the lives of energy consumers more difficult, and more expensive, against this overarching objective.
Given the urgency of the reform agenda, we remain open to short-term measures that would have positive impacts as we develop a change pathway for the transitioning market.
It is another contribution to the Energy Security Board’s market redesign project and outlines the potential — enabled by digitalisation — that would allow consumer demand to interact directly with supply to set real-time prices.
Delivery of better and faster information in this digital world will also help AEMO manage a secure and reliable electricity supply from new technology generation of all kinds.
With Australia leading the world in wind and solar penetration, it is time for fresh thinking on better ways to let consumers big and small lead that revolution so our energy supplies can be secured at the lowest cost into the future.
John Pierce is chairman of the Australian Energy Market Commission