By Suzanne Falvi, Executive General Manager Security and Reliability

The COGATI (coordination of generation and transmission investment) blueprint proposes a comprehensive overhaul of wholesale pricing and transmission access to lower the costs and investment risks of utilising new generation and battery storage in the grid.

Today’s release of discussion papers on the proposed access reform model and renewable energy zones effectively launches the next stage of this work – with the COGATI review due to release a final report on access reform and renewable energy zones in December this year.

We have been collaborating intensively with stakeholders to get to this point in what amounts to a quite radical redesign of these aspects of the market. I would like to invite you to join us in refining our proposed blueprint in the months ahead. This is vital work and it will be all the better for your involvement.

A public workshop will be held in Melbourne next Friday. If you can’t attend in person the event will be webcast for your convenience. The event will be attended by two of our Commissioners, Charles Popple and Michelle Shepherd, and will include worked examples of how the proposed reforms would work in practice. The workshop will also provide an opportunity for you to provide initial feedback on the proposals.

This newsletter provides you with links to a very comprehensive blueprint. You’ll see it proposes the introduction of dynamic regional pricing, which would take into account where energy is being generated in terms of its value in the wholesale market. Combined with new measures to give generators the ability to buy financial transmission rights, this would provide the ability for generators to get more certainty over their investment, reducing investment risks for financiers. It will also send clear signals to generators about how they can connect to the grid in ways that maximise the benefits of new generation for consumers.

In the reports provided for consultation you will also read a lot about the need for changes being made now to the access framework. The speed of structural change in the power system is accelerating, driven by proactive federal and state government policies. The generation mix is changing. It’s not just about the increasing levels of wind and solar. The whole system is moving from a small number of large generators concentrated in regions - usually with access to nearby coal - to a large number of small generators and storage batteries that are far more geographically dispersed. Poles and wires have to get to these generators, and technical issues to do with congestion and long distances for electricity to travel, means comprehensive market reform is needed to effectively integrate these new resources and avoid upward pressure on consumer bills.

The AEMC has been working on this for some time. In 2015 we identified potential changes to the way generators accessed the grid and were asked by the COAG Energy Council to let ministers know when those changes became necessary. That time is now.

Over the past few years there has been a massive uptick in renewables to the point where some generators are having difficulty connecting. The future we predicted has panned out – and more. Increasing gas prices and scarcity has meant that renewables are now a cheaper form of energy and we need to change the way generation and transmission interact for this cheaper energy to be dispatched first to benefit consumers.

The timeframe for the market’s integrated system plan (ISP) has already been set.

The reform package we release today doesn’t change that. In fact it provides a clearer path forward so what is planned under the ISP can be used most efficiently. The ISP identifies what investment is needed to enable this to happen. COGATI is all about how it is used and who pays for it. We are moving as fast as possible on developing COGATI but are also mindful of the need for widespread consultation to develop a framework that works best for all.

The Energy Security Board says this COGATI work is foundational to its post 2025 project. An ESB issues paper recently released notes the current limited locational signals in transmission frameworks, as well as speed and scale of connections of new generation capacity, which means investment in generation is being made where there is little or no capacity for it to be dispatched. The ESB acknowledges that efficient coordination of generation and transmission investment will help provide operational and investment certainty for generators which should lower overall system costs for consumers.

The ESB paper notes the COGATI review will determine where on the spectrum of approach the future market design will lie. Any recommendations made by the ESB's post 2025 project will build on the COGATI review.

We are very conscious of these interactions and have sought to design an access reform model that provides flexibility for different future market designs to be explored, while adapting the national electricity market to meet the trends arising from the transition.

Our policy team has organised hundreds of bilateral meetings so far this year. Submissions for the two discussion papers are due 8 November. We are keen to meet further with stakeholders as required.

At this important point I would like to thank all the members of our technical working group comprised of experts from industry, market bodies and consumer groups. This group will meet again next month for the fourth time to address stakeholder feedback which we look forward to receiving in the weeks ahead.

Technical working group representatives are from, amongst others:

  • Australian Energy Council and its members
  • Australian Energy Regulator
  • Australian Energy Market Operator
  • Infigen Energy
  • Australian Renewable Energy Agency
  • Aurizon Network
  • Clean Energy Council and its members
  • Clean Energy Finance Corporation
  • Energy Consumers Australia
  • Energy Networks Australia and its members
  • Monash University
  • Public Interest Advocacy Centre
  • Energy Security Board
  • ERM Power