The AEMC-established technical working group on grid access reform held its 11th meeting last week and focussed on striking the right balance between the need for investment signals where there is network congestion and protecting consumers from high prices due to market power.
The technical working group is a key part of the transmission access reform work the AEMC is leading as part of the Energy Security Board’s post 2025 market design process. This work is fundamental to better integrating new technologies into the national grid.
During the course of the year, we are working with stakeholders to inform our thinking as we refine the model for transmission access reform.
Reforming transmission access is part of a major re-think of the national electricity market to integrate new technologies in ways that are reliable, secure and work best to benefit consumers.
The access model comprises two key elements of local marginal prices (LMP) and financial transmission rights (FTRs). The introduction of LMPs would pay generators for the actual value of supplying electricity where they are physically located – providing an incentive to factor grid congestion into their decision-making. FTRs would allow generators to hedge for changes in revenue related to local prices. The introduction of LMP may change the way that potential local market power in the NEM is exercised and the need for additional market power mitigation measures. By local market power, as opposed to broader concepts of market power in sectors or regions of the NEM, we refer to the market for generation in pockets of the network that may relieve congestion. In these circumstances a limited number of generators may have significant influence over a particular LMP.
The workshop addressed the issue that grid access reform is not expected to increase instances of localised market power, but it may change the way that localised market power is exercised by participants where it occurs.
The latest meeting of the working group, which has more than 40 members, discussed whether changes to the local market power mitigation framework might be needed following the introduction of LMP and whether market power mitigation is required in the market for FTRs.
The workshop discussed a number of issues and questions in relation to the need for additional mitigation measures, including:
- the trade-off between intervention and consumer protection
- the existing mechanism in the NEM for dealing with local market power
- additional options for dealing with market power including ex post and ex ante mechanisms
- the different ex ante mechanisms available
The introduction of FTRs introduces a new market to the NEM that has implications for market power both in the wholesale spot market and in the market for FTRs.
The workshop addressed a number of issues and questions in relation to the introduction of FTRs and market power:
- the influence of FTRs on incentives to exercise local market power over LMPs.
- the implications of market power in LMP and FTRs for revenue adequacy to back FTRs.
- potential market power issues in the new market for FTRs themselves.
While there are existing measures in place to address local market power concerns in the NEM, and instances of local market power are not expected to increase as a result of grid access reform, the way that local market power is exercised may change. The Commission, in addressing the issue of local market power, seeks to balance the need for investment signals in the NEM in instances of network congestion with the need for consumer protection.
The technical working group includes representatives from consumer groups, energy investors, large consumers, generators, transmission businesses, retailers, the Energy Security Board and market bodies. The group has also now expanded to include members of the ESB technical working group on the post 2025 market design process.
Anyone who would like to meet with AEMC staff to discuss the technical working group and the issues and questions raised can contact Russell Pendlebury.
Media: Kellie Bisset, Media and Content Manager, 0438 490 041 or (02) 8296 7813