EUAA Conference Keynote, Melbourne, 16 May 2023
Anna Collyer, Chair AEMC
*check against delivery
Thank you, Brian.
I, too, would like to acknowledge the Wirundjuri People of the Kulin nation, on whose lands we are meeting today, and pay my respects to their elders past, present, and emerging.
It’s a timely reminder that the enormous work of the energy transformation is now, and will continue to be, crossing over First Nations lands.
Thank you also to the EUAA team for asking me back to this important event.
I’ve been thinking about last year’s conference and reflecting on the difference a year makes…
Although – and I’m sure you’re feeling this too – these days, one year ago is almost like ancient history so perhaps we need a new measure of time to mark the pace at which the transition is moving along? Something like the concept of ‘dog years’ might help us capture the acceleration of the change.
Back in 2022, I spoke to this conference about some of the major works underway at the AEMC, the ESB, and across the sector. I focused on the infrastructure-enabling Transmission, Planning and Investment Review, and the reliability-enhancing Essential System Services workstreams.
I spoke about the need to get the balance right between the reforms and investment we need to reach net zero targets with a reliable and secure energy system, and delivering it all at the right time and as cost-effectively as possible for both small and large consumers.
A great deal has happened in those projects I discussed last year. Our transmission review is completed, for instance, and rule changes are already in progress, but I can assure you that the need for balance will continue to be at the front of our minds throughout the transition.
Balance is also an important aspect of another major change since last year, the inclusion of emissions reduction targets in the national energy objectives. This is a fundamental reform proposed by the energy ministers. It will significantly change the way we work at the AEMC, because all our decisions have to meet the relevant energy objective.
The three national objectives, as you know, cover electricity, energy retail, and gas. The emissions reduction component of the energy objectives will be one of several considerations the AEMC will be required to balance in making its decisions. The other considerations are the existing elements of price, quality, safety, reliability, and security. All of these are to be balanced in the best interest of consumers.
We support this change and we’re currently developing a proposed framework to embed emissions targets into our workstreams. We are also updating our internal decision-making framework and determination templates.
Once the legislative work is done, we will be consulting with you on the guidelines, later this year.
With so much underway, and so many interrelated and interdependent projects, we find it helps to organise the bigger picture under themes. Our three themes this year are transformation, resilience, and innovation.
We must fundamentally transform the power system – as you are all experiencing that’s well underway. It comes in many forms but most noticeably in new infrastructure, with billions of public and private sector dollars pouring into the construction we need.
I was told recently that while energy projects have for many years sat at around 20% of the national infrastructure pipeline, within the next five years this will leap to 70% of the total national effort – it may even go higher.
But no matter how much we build, the system must work in new ways and the changes must be resilient. There are many ways to apply that word to the sector:
- Market resilience, where supply and demand are well-matched, and few interventions are needed to provide efficient services.
- Or policy resilience, where jurisdictions are in broad alignment and decision-makers have confidence in their advice and delivery.
- And finally, social resilience, where consumer benefits are clearly paramount and include energy equity across all communities.
And the third theme, the element that’s got us this far, and needs to take us much further, is innovation. New ways of thinking, making, acting, and combining processes that accelerate the deployment of the massive changes we need to meet our goals.
So today I’ll use those themes to talk about some important work as it relates to large energy customers such as yourselves. These are all areas where we particularly value your input and participation.
I’ll share with you:
- First, how Transmission Access Reform could support the energy transformation with a more efficient, coordinated approach to the vast amount of renewable energy coming online.
- Second, some of the strategies we’re working on for market resilience, including the proposal we have received from the Reliability Panel to increase the Market Price Cap as an investment signal.
- And third, how innovative reforms are opening the way for large customers to save money with Consumer Energy Resources or CER.
In each case, I want to reiterate that customers, and in particular large customers, are front of mind for us as we progress this work. I also want to invite you to help us to help you, and I’ll be using these examples to draw out those opportunities as we go.
I will start with Transmission Access Reform, as an enabler of the transformation.
This is a fundamental reform. It has been in the making for the lifetime of the NEM.
While our transmission review was about getting the transmission connections funded and built, Access Reform is about getting the maximum usage and value from the transmission we build in this new grid, where variable renewable energy is the primary power supply.
To set the scene, as you know, renewable energy appears in vastly more locations than thermal power stations. The existing transmission network was designed to serve traditional power stations, which were often located close to coal seams or urban areas.
In contrast, renewables are typically spread over large open areas with high levels of sunshine and wind. They also need to be complemented by dispatchable plant – including storage and flexible load. And the whole lot must be connected, as efficiently as possible, with 10,000 km of new poles and wires.
Another consideration – given the nature of the NEM – is that those connections should also work across state borders.
This is something that’s been highlighted by the rise of state government Renewable Energy Zones. (I did mention that we’re at an interesting stage…)
It’s a completely rational step for governments to be heavily invested in a transformation as significant as Australia’s energy transition. We absolutely welcome the contribution and the benefits that jurisdictions bring to their Renewable Energy Zone schemes in terms of jobs, and growth, and reaching our net zero goals. But we also need these Zones to be part of a wider coordinated plan to avoid excessive and inefficient construction with costs that will be borne by consumers in energy bills and taxes.
One way to understand the goal of Transmission Access Reform is to think about how roads work. We build roads to enable traffic, but we don’t build a separate road to connect every possible point A to every possible point B.
Why? Because roads are expensive to build and maintain, and we would create a wild scrabble of wasteful infrastructure. Instead, we plan and build commuter corridors and arterial connections to connect people to important sites like schools/hospitals.
If you’re a town planner or a property developer, the existence of various types of roads sends a signal about where to build new services and population centres.
In this analogy, Renewable Energy Zones are like regional towns. They contain a lot of useful services that people need at different times and in different ways. You might follow a highway to get close to the town, but you don’t then need a highway to reach each doctor, baker, or plumber that’s based there, when you want to access their services.
In the same way, as we shift from a few big thermal generators to lots of smaller renewable sources, no matter how they are organised, we want to avoid underutilised, expensive connections. Access reform is intended to send signals to investors on the best place to set generation, storage and dispatchable assets, so we only build the transmission we need.
Given the challenges that we have faced with transmission access reform, we have sought to work with industry to find a win-win solution, that will take us a step forward from where we are now.
Having presented this to Ministers in February, we have a preferred design, which we are seeking to refine for approval at the Ministers’ meeting scheduled for mid-year The preferred Transmission Access model combines priority access with a congestion relief market.
It would support Renewable Energy Zones in a number of ways, such as:
- strengthening incentives for investors to participate in these schemes
- giving Zone participants confidence that their investment case will not be undermined by subsequent projects outside a Zone
- and still allowing market participants to connect outside of Renewable Energy Zones, without disrupting the coordinating efforts of the scheme
- but it would also remove opportunities for subsequent-connecting generators to free-ride on transmission investments in these Zones, without contributing to them.
We think this can build the value in Renewable Energy Zones and, ultimately, get energy to customers as efficiently as possible at the lowest cost. It’s about the best bang for buck for everyone at this stage. We’re seeking to achieve a coordinated and efficient process over individualistic behaviour.
We are realistic about what success looks like and believe we can get there. We don’t want to let perfect be the enemy of good. However, it’s not done and dusted. Hearing your voices in support will really help us to get to an outcome, which, while not perfect, will be good, and better than the status quo.
Having mentioned a market response to transmission access, I’ll move to our resilience theme, and how we go about keeping the system reliable and secure during this once-in-a-century build-out.
At the AEMC we are thinking about the market and looking at the settings in the short-, medium- and long-term and how they provide both investment and operational signals that support reliability.
We have three priority workstreams focusing on reliability as we transform to a very different energy market.
First, the Commission is in the midst of reviewing the Interim Reliability Measure, with the final report due at the end of this month. And we also have a consultation paper out for the Retailer Reliability Obligation.
Second, the Reliability Panel is currently considering the most appropriate form of expressing the reliability standard to encourage new investment that will deliver a reliability system at a level customers will value. That, too, has a consultation paper currently available.
Both the Interim Reliability Measure, and the Reliability Panel’s work, seek to deal with the emerging risk of low-probability but high-impact events, as we transition to a power system dominated by VRE, and a changing weather system affected by climate change.
The third area is one I wanted to explore a little further with you, as it pertains to a topic close to your hearts – pricing, and the impact price has on reliability and investment. The market price cap has traditionally been a mechanism designed to send long-term investment signals.
The Reliability Panel has recommended that we progressively increase the market price cap and cumulative price threshold. The intention is to reach the level required to incentivise new entrant investment, consistent with the current reliability standard, by the final year of the review period.
The proposed changes are intended to encourage investment in the kind of new generation needed to ensure reliable energy for consumers as we move to supply most of the grid with variable renewables.
There are some strong opinions about this in the energy sector. It’s now the Commission’s job to consider whether that is indeed what an increase to the market price cap and cumulative price threshold would achieve.
We have confidence in the Panel’s analysis and judgment, but that does not mean the decision is pre-determined. We’re also conscious there were divergent views on the Panel. At the Commission, our role now is to test the proposals in a broader context. We will carefully consider whether there are net benefits to customers of increasing the market price settings.
I note the Panel’s work indicated the increased settings would deliver the reliability standard, but with an accompanying 3% price increase from 2025 to 2028. It’s also important to note that the Panel’s terms of reference were for the energy-only market.
In our considerations we will particularly focus on investigating retail price outcomes and interactions with government schemes.
For instance more investment should achieve better reliability and bring down average retail prices, compared to a situation without that investment, while government schemes supplement market outcomes and are paid by consumers or taxpayers, depending on the structure.
Some of the key questions we’ll be asking are:
- where should those costs be borne, and
- what are the exit paths for governments in these scenarios?
We released our consultation paper on increasing the cap last week and we will be listening closely to all our stakeholders – most certainly including the EUAA. For now, I’d ask you to read the paper, discuss the possibilities, share your thoughts, and allow us to do the work.
And that brings me to my final theme for the day – innovation.
In a world where daily we are exceeding some of the wildest dreams of energy inventors, no field is richer in innovation than Consumer Energy Resources. And the title is an important tip: not too long ago we called anything that wasn’t at utility level, DER – or distributed energy resources. You’ll still see that sometimes as people work out the distinctions in this new world.
But Consumer Energy Resources really tells the story – Australia’s energy transformation hinges on consumers. That means customers like you, personally, and like your businesses, as large energy users.
In fact, the transformation hinges on consumers doing more than just making their own power. The AEMO ISP and all our other modelling and rule development relies solidly on the idea of consumers being engaged in a two-way market. Innovation comes into play throughout that activity.
If you were a domestic consumer audience, I’d certainly lead off with our recent work reviewing smart meters. That’s because their availability and functionality will be a crucial enabler for so much of our energy transformation. If you’re interested in metering, our final report will be out at the end of August and I’m very keen to share it.
However, you’re here today as major energy consumers with many more zeroes in your power bills than any of us personally want to imagine! And so, I’ll point you to other work that’s also innovative and exciting, and to some examples of the kind of initiatives we expect to see in front of you, in future.
Three of the tools we have developed, or are developing, with particularly strong business applications in Consumer Energy Resources are:
- First, Rules that support innovations to integrate storage into the NEM
- Second, Rules that unlock the benefits of flexible trading of consumer-resource generated energy for their owners and the NEM
- And third, Rules that cater for scheduling at a ‘lite’ level - which will be a necessary addition to the market as we rely more and more on dispersed and disparate sources of renewable power and widespread storage.
All three of these concepts – integrated storage, flexible trading, and scheduled lite – offer opportunities for large users to manage their energy costs to an unprecedented degree.
Rather than go into the nitty-gritty of each rule, I thought I’d share a couple of examples of projects that have come to my attention that demonstrate the principles behind our rule changes, and may be enhanced as we finalise more of our Consumer Resource market innovations.
Shell smart energy hubs
Last October, ARENA announced $9.1 million in funding to Shell Energy Australia (Shell Energy) to support a project worth around $33 million in total.
It’s called ‘Commercialising Smart Energy Hubs’. Some of you may even be involved.
According to Shell and ARENA, this work acknowledges that flexible demand services have been limited due to perceived barriers. These include insufficient market revenue for customer return on investment, and the initial high cost of deploying equipment.
The project’s aim is to implement energy load control across at least 40 commercial and industrial customer sites to demonstrate an estimated 21.5 MW of flexible demand capacity.
Supermarkets and shopping centres in NSW, Queensland and Victoria will be involved because of the heating and cooling opportunities from their large thermal loads.
Supermarkets and shopping centres also, as many of you can attest, have a strong industry imperative to move to sustainable outcomes where possible.
Shell says they will build each participant a whole-of-site solution to optimise their energy system, including heating, ventilation and air conditioning, refrigeration, electric vehicle charging control, and onsite solar PV and storage.
As ARENA says, demand flexibility offers a way to reduce the load on the grid during busy periods, reducing energy costs, lowering peak demand and moving energy loads to when there are high amounts of renewable energy. It can be implemented in real-time in response to market signals, generation shortfalls or network constraints.
We understand that there’s a pilot underway at Chernside, with the aim of being the first shopping centre in Australia to be carbon neutral. If successful on a larger scale, the Shell Energy project aims to directly unlock 417 MW of flexible demand and be a catalyst to realise 1 GW of commercial and industrial flexible demand capacity across the NEM as soon as the end of 2025.
I believe this is the first C&I project ARENA has funded for whole-of-site optimisation. It shows the potential growth for energy demand management to deliver market, ancillary and customer benefits through the control of energy load.
Vicinity and Enel X
But maybe that model doesn’t sound right for your business, so here’s another idea to explore. In January, the property development group Vicinity Centres, and Enel X, which is an onsite battery storage and Virtual Power Plant service, announced a joint venture.
They plan to pilot onsite batteries at two of Vicinity’s centres: Broadmeadows Centre in Victoria and Lake Haven Centre in NSW. Together, their capacity is more than 5MW, and it’s expected to be in play by the middle of this year.
They say that their pilot expands on Vicinity’s existing energy strategy using solar, automated demand management, and now batteries, and aims to maximise energy production and reduce reliance on the grid. This appears to be an approach very much within the scope of our rule change proposals for unlocking flexible benefits.
Their project describes each party’s role as follows: Enel X is responsible for procuring, operating and optimising the batteries to generate the most value from the energy markets, while Vicinity provides access to its infrastructure and manages the engineering, procurement and construction process.
The participants say this project could help Vicinity reduce costs by optimising their batteries’ charge and discharge. They will store excess renewable energy when spot prices are low or negative, and generate when the local network is peaking, and prices are high. And then, Virtual Power Plant integration will introduce new revenue streams, such as frequency support, which helps to stabilise the grid.
If Vicinity expands across its other centres, the group says it has the potential to deploy more than 50MWh of battery storage or the equivalent of 5,000 home batteries.
We’re very encouraged when we see work like this ramping up participation in the transformation for a new range of consumers.
While we’re continuing our work to make space in the NEM for more and more innovative approaches, there are enormous opportunities for large customers on both sides of the meter, right now.
However, we can only make the opportunities possible – it’s your job to take them up. The energy transformation – now well underway – goes far beyond the concept of ‘sustainability strategy’ as you may have understood them in the past.
This should not be greenwashing – this is sensible business practice to manage costs and embed your business in a new and growing marketplace.
As regulators, we know we can learn a lot from projects like the ones I’ve mentioned, as well as hearing from you what barriers you perceive to participate. For example, the Shell project I mentioned includes the exploration of useful regulatory changes within:
- the Wholesale Demand Response Mechanism (WDRM),
- the Reliability and Emergency Reserve Trader (RERT)
- and state-based certificates such as the NSW Peak Demand Reduction Scheme (PDRS).
We really welcome discussions of that kind.
Now, what messages do you take away from these updates – what are the next steps for you?
I hope what you’re hearing is that we are asking for you to lean in – when you help us, it makes it easier for us to help you.
And the help we’re seeking includes:
- Responding to our consultation later this year, on embedding carbon targets into the national energy objectives.
- Also, supporting the work we are doing on Transmission Access Reform: it may not be a perfect solution, but it is robust, and a necessary step to keep the transformation moving at pace.
- And, letting us explore on the market price cap: we acknowledge the concerns some of you have raised, and we’re testing the proposal against the work we want it to achieve for resilience.
- And, finally, getting actively involved in managing your energy costs through the many innovative Consumer Energy Resource opportunities being created, and let us know what else we can do in this space.
I hope I can return to you in 2024, to see how the next batch of dog years in energy terms have treated us all and to celebrate the way you will be embracing the many innovations coming to help us, thick and fast.