A range of stakeholders have provided initial feedback on the AEMC’s proposed reforms to transmission access and charging to help address an increasingly congested grid at the lowest cost. Their submissions are now available on the AEMC’s website.
Our consultation paper covered:
- Access: managing transmission congestion so that the cheapest power can get to consumers. In particular, we set out a potential high-level approach for phased reforms to change how generators access and use the network. Reforms could start with dynamic regional pricing to reflect where network congestion is happening in real time, and transition to firm access rights where generators can buy rights to use the transmission network or be compensated if they are constrained off.
- Charging: examining how to better align the costs of transmission, especially interconnectors, with those parties that benefit from the investment.
We have received 38 submissions to date from a wide variety of stakeholders, including networks, generators, renewable energy companies, equity investors, market and industry bodies as well as large energy users and consumer groups.
There was a general view from stakeholders that, given the transitioning power system, there is a need for this exploration of reforms to the transmission access framework. Others did not consider that there was sufficient evidence at this point in time to suggest that access reform is required.
However, stakeholders differed on what the appropriate form of reform should be.
Dynamic regional pricing
Stakeholder views on dynamic regional pricing were mixed – some explicitly supported the reform, while others strongly opposed the changes.
Dynamic regional pricing is a different way to settle the market when transmission congestion arises. The idea is to put a price on congestion and introduce a signal to generators that reflects the costs of using the network.
Most stakeholders commented that it was difficult to provide meaningful feedback without viewing a detailed market design proposal. A common theme was a need to understand how dynamic regional pricing would interact with the contract market.
Other stakeholders provided detailed comments on how dynamic regional pricing could work, including how settlement residue could be allocated and what bidding incentives may arise for market participants.
Improved information from dynamic regional pricing
While stakeholders were supportive of improved information, many queried whether the phasing was correct. Stakeholders either considered that improved information should occur before the other stages; or at the same time as dynamic regional pricing.
Stakeholders also questioned whether the information provided by dynamic regional pricing would have any direct impact on the economic assessment of transmission investment options. For example, industry stakeholders noted that the cost-benefit analysis for new transmission, known as the regulatory investment test for transmission or RIT-T, already considers forward-looking congestion costs in its assessment of the costs and benefits of alternative credible options. As such, historical price information, like that provided by dynamic regional pricing, would not have a direct role to play in deciding whether transmission investment should proceed.
Generators fund transmission investment
Many stakeholders supported a reconsideration of whether generators should be able to pay for firm access rights. However, it was generally agreed that further quantitative analysis is required to test the AEMC’s proposed approach and alternative firm access models. Stakeholders also suggested a range of options should be considered, not just those proposed in the consultation paper.
Some stakeholders were concerned that a firm access regime would not encourage investment where it is needed. For example, political factors or the availability of resources may have more influence. Others suggested the AEMC considers and learns from international experience in this area.
Because parts of the proposed access reforms involve generators paying for transmission investment, this has raised broader questions about the transmission charging framework.
The AEMC proposal therefore includes changes to inter-regional transmission use of service (IR-TUOS) charges. This is also timely given the large number of new interconnectors currently being considered for construction. Specifically, we proposed:
- changing the pricing methodology to allocate costs based on average load rather than peak load
- including non-locational components of inter-regional investment in IR-TUOS, instead of smearing them across customers in a particular region
- allowing a transmission business to discount the non-locational elements of IR-TUOS
- implementing these changes alongside dynamic regional pricing to help provide information to the market about the costs of congestion.
Stakeholders engaged much less on charging reforms than on access reforms. Around half of the stakeholder submissions did not discuss charging reforms at all.
Stakeholders that did comment on this generally considered that any review of the charging arrangement should occur after reforms to access are more bedded down.
Interaction with other reforms
Stakeholders generally commented the AEMC’s timeframe for the review was ambitious, particularly given the work underway at the moment to implement the move to five minute settlement.
In addition, a number of stakeholders commented on the potential overlap and interaction between this work and the Energy Security Board’s post 2025 work that we had identified in the consultation paper and agreed it would be important for the AEMC to continue to work closely with the ESB on these issues.
There will be further opportunities for stakeholder input on access and charging arrangements throughout the year, including public workshops.
We have also form a technical working group of experts from the market bodies, the ESB, networks, generators and consumer groups to provide input into the proposed reforms and to help develop rule change requests needed to support the reforms. The first meeting will be held on 28 May 2019. Notes from these meetings will be published on the project page for the review.
We have published a timeline that sets out the next steps for the review and how stakeholders can be involved. It also shows how the Commission will be developing draft rule changes on the proposed reforms.
We aim to deliver the COAG Energy Council a final package of proposed regulatory changes in December 2019, to be submitted back to the Commission in 2020 for full assessment through the rule change request process.
Media: Prudence Anderson, Communication Director, 0404 821 935 or DL (02) 8296 7817.
This work is part of the AEMC’s broader package of changes to the regulatory framework to support new investment in transmission networks in line with AEMO’s Integrated System Plan.
Other key reforms in the package are:
- streamlining the regulatory process for priority transmission projects – this is being progressed through rule change requests to the AEMC from the Energy Security Board
- supporting the seamless integration of large-scale energy storage systems – this will be progressed through a rule change request from AEMO
- embedding the Integrated System Plan in the regulatory framework through changes to the National Electricity Rules and National Electricity Law – this will be progressed by the Energy Security Board.
About the Integrated System Plan
AEMO’s Integrated System Plan, published in July 2018, sets out where and when network investment needs to happen to support the large amount of new generation connecting to the grid in the coming years.
The COAG Energy Council asked the Energy Security Board to work with the market bodies - the AEMC, AEMO and Australian Energy Regulator - to make the Integrated System Plan “actionable”.
The AEMC has developed a comprehensive reform package as part of that process. Our report on improving the coordination of investment in electricity generation and transmission, published in December 2018, sets out the nuts and bolts of how to deliver the Integrated System Plan. The report was developed in consultation with stakeholders and underpins the Energy Security Board’s vision for making the Integrated System Plan actionable.