Reliability frameworks review: directions paper released for consultation

The Australian Energy Market Commission (AEMC) today called for submissions on how to change regulatory frameworks to help deliver long-term electricity reliability at least cost to consumers. 

Australia’s power system is in transition to a new mix of generation sources as more wind, power and demand response is coming into the market while old generators are closing at the end of their economic lives. 

The Energy Security Board has proposed the National Energy Guarantee to produce a clear investment signal so the cleanest, cheapest and most reliable generation can get built in the right place at the right time. 

AEMC Chief Executive, Mrs Anne Pearson, said today the guarantee was a window of opportunity to bring climate and energy policy together for the first time. 

“The market bodies are already working together to change the way we manage the power system as change is happening all around us now. 

“The directions paper we are releasing today considers complementary changes to market design to support the guarantee’s objective. It provides an update on key streams in our reliability work program. 

“We are seeking stakeholder feedback on improving the transparency of demand forecasting and Finkel recommendations relating to assessing the need for: demand response; providing day-ahead information; and designing a strategic reserve. 

“Our reliability frameworks review is an important part of our market transition plan which is looking at ways to increase confidence in the power system’s capacity and capability at all levels – at lowest cost,” Mrs Pearson said. 

This directions paper will consult on four key transition elements:

1. Demand response

The Finkel Panel review recommended the AEMC undertake a review to recommend a mechanism that facilitates demand response in the wholesale energy market.

Demand response is our future. It can help keep costs down by avoiding unnecessary investment.

Demand response would also provide a source of reliability to support the national energy guarantee.

We are calling for submissions on alternative ways to facilitate demand response so it can play its part and provide the most benefit at the least cost.

2. Forecasting demand for electricity 

Forecasts of electricity demand help market participants make short-term decisions on how they operate their equipment, and longer-term decisions on investment. 

Forecasting is becoming more complex as the market transitions due to factors such as: more distributed energy resources across the community and growing opportunities for demand response; changing weather patterns affecting power usage; and the increasing proportion of more variable renewable generation.

Market participants need more transparency about forecasting methods, assumptions and accuracy so they can make better informed operational decisions. 

Increasing transparency on demand forecasts would also help market participants make better decisions about investment needed to meet the national energy guarantee. 

We want stakeholders to tell us: 
- what information they need for better decision-making 
- how industry could expand its contribution to the preparation of system-wide forecasts. 

3. Day-ahead markets 

Knowing how much electricity will be bought and sold ahead of the next day’s physical dispatch helps market participants make better operational decisions. 

The national electricity market already has many day-ahead features. We want stakeholders to tell us if they need more day-ahead information and if so, how current information provision can be improved. 

4. Strategic reserve 

As the power system transitions, we are looking at the least cost way for AEMO to access strategic reserves. 

We are considering the design of a strategic reserve in parallel with the design of the national energy guarantee, and through two rule requests which have been already submitted by AEMO in relation to the current strategic reserve mechanism, the Reliability and Emergency Reserve Trader (RERT). These rule requests will be initiated shortly for stakeholder consultation. 

Next steps 

Stakeholder submissions on the discussion paper are due by 18 May 2018. 

A final report for this review is due in mid 2018 which will present our findings in relation to the four key streams and any recommended changes to regulatory frameworks. 

Media Prudence Anderson 0404 821 935 or (02) 8296 7817