Sixty stakeholders have made submissions on the AEMC’s proposals to overhaul wholesale pricing and transmission access to lower the costs and risks of getting new generation and battery storage into the grid. Submissions can be found on the project page.
The AEMC’s proposals were set out in two discussion papers published on 14 October 2019 as part of the AEMC’s Coordination of generation and transmission investment (COGATI) review. One paper set out a proposed model for access reform, setting out potential changes to the way generators access transmission networks. The second paper set out a proposed model for how renewable energy zones (REZs) can be facilitated.
The access model focuses on changing two inter-related aspects of the current transmission access framework:
- wholesale electricity prices: introducing dynamic regional pricing so that large-scale generators and storage receive a local price that more accurately represents the marginal cost of supplying electricity at their location in the network. Retailers would continue to pay a regional price.
- financial risk management: enabling large-scale generators and storage to better manage the risks of congestion and losses by purchasing financial transmission rights. These products will hedge against the price differentials that arise under dynamic regional pricing.
With regard to renewable energy zones, the Commission set out the different ways REZs can be characterised under the current framework, the various issues that arise under those different characterisations, and how they can be better facilitated in the future.
Submissions on the discussion papers came from a wide variety of stakeholders, including generators, network businesses, renewable energy companies, equity investors, market and industry bodies as well as large energy users and consumer groups.
Key themes from stakeholder submissions included:
- Most stakeholders agreed that there are issues with the current transmission access framework that need to be addressed.
- A significant number of stakeholders, including networks, consumer groups and a subset of generators and investors, support the proposed access reforms in principle. Many of these also suggested ways that the design could be improved or modified in order to minimise implementation challenges.
- Most investors and generators were not supportive of the access reforms, highlighting both implementation challenges, as well as specific concerns about the model, including that the reforms may decrease liquidity in the contracts market or increase market power.
- Some stakeholders highlighted the importance of financial transmission rights to be fully firm to hedge market participants.
- Many stakeholders suggested the need for clear implementation and grandfathering plans for this reform.
- Most stakeholders supported the development of detailed cost-benefit analysis and modelling on the financial impact on market participants if the proposed access reform was introduced.
- Almost all stakeholders noted that the proposed July 2022 implementation date for the proposed access reforms is too soon.
Wholesale pricing reform
Stakeholders had mixed views on dynamic regional pricing, which involves putting a price on congestion and introducing a signal for generators that reflects their costs of using the transmission network.
Most consumer groups and network service providers, as well as the Australian Energy Regulator (AER) and Australian Competition and Consumer Commission (ACCC), supported dynamic regional pricing because this reform will provide better price signals, which can improve both investment and operational decisions.
The majority of generators and some investors opposed wholesale pricing reform. These stakeholders consider that the proposal is complex and disproportionate to the identified problems. These parties also suggested that the reform will have substantial implications for existing contracts and market liquidity, while investment signals will not be materially improved. Some parties acknowledged that these concerns may be more on a transitional basis, rather than enduring.
Financial risk management
Stakeholders had mixed views on the introduction of financial transmission rights. These products will hedge against the price differentials that arise under dynamic regional pricing.
Most consumer groups and networks, and the AER and ACCC, supported the proposal as it can improve the ability of market participants to manage the risks of congestion and losses by purchasing financial transmission rights.
Generators and investors noted the need for financial transmission rights if dynamic regional pricing is implemented, but noted concerns with the proposal, suggesting that financial transmission rights as currently designed and set out in the discussion paper would not provide an effective risk management tool as their tenure is too short. Stakeholders also wanted more clarity on how firm these rights may be.
Renewable energy zones
Stakeholders held mixed support for the proposed REZ model. A number of stakeholders expressed support for the proposal, in some form, and with potential changes that might be needed.
Others noted the AEMC’s suggestion that the proposed model would complement the actioning the Integrated System Plan and the Regulatory Investment Test for Transmission (RIT-T) processes providing the framework for REZs. These stakeholders considered that the ISP process should be the focus.
Stakeholders also proposed alternative options for REZs, such as ways in which the definition of REZs could be better refined, and suggestions as to other ways in which they could be facilitated.
Most stakeholders expressed their concern with the proposed implementation date of July 2022. This is because:
- forward contracting is already occurring for 2022 on the basis of the current framework.
- there are other significant reforms that require resourcing and have an implementation date near 2022.
- a closer implementation date increases regulatory uncertainty, which has the potential to slow investment in the immediate term.
The Commission will conclude the current review in December 2019 by providing the COAG Energy Council with a final report as per our terms of reference. This report will include recommendations relating to both the access model and REZs, as well as setting out further work that needs to be undertaken.
The Commission is also working with the Energy Security Board and other market bodies to report back to the COAG Energy Council in 2019 on REZ connections, access and congestion, as well as the broader work on Actioning the Integrated System Plan. The Commission is also working closely with the ESB on its post 2025 market design work, of which COGATI is foundational.
The Commission will continue to develop the access model, and undertake impact analysis in early 2020. There will be numerous opportunities for further detailed stakeholder engagement next year when the Commission assesses the changes through any submitted rule change requests.
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.
Media: Prudence Anderson, Communication Director, 0404 821 935 or DL (02) 8296 7817.