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AEMC examines economic assessment of inertia procurement options

12 December 2024

The Australian Energy Market Commission (AEMC) has today released a Directions Paper examining potential approaches for procuring inertia – a crucial service that helps maintain power system stability as Australia transitions to more renewable energy.

AEMC Chair Anna Collyer said the paper examines whether there could be value in complementary ways to secure inertia services.

"Our analysis examines potential benefits of procuring inertia in operational timeframes, which could complement our existing framework," Ms Collyer said.

  • The paper progresses the AEMC’s assessment of the proposed introduction of operational procurement of inertia
  • The AEMC proposes that while minimum levels of inertia are best met by long term procurement, there is merit in exploring further whether operational procurement of additional levels could potentially help reduce system costs and support efficient dispatch.

The analysis indicates there may be economic benefits in procuring additional inertia in real-time.  

However, the Commission emphasises that further investigation of technical feasibility, implementation considerations and costs is needed before determining the most appropriate approach. 

The Directions Paper identifies several key areas requiring further examination, including:

  • The interaction between any new procurement mechanism and existing frameworks
  • Technical requirements and capabilities
  • Implementation and operational considerations
  • Costs and timing of potential reforms.

"While our initial economic assessment shows potential benefits, we need to carefully examine the technical and practical considerations to determine the path that provides the best outcomes for consumers," Ms Collyer said.

The AEMC is seeking stakeholder feedback on the analysis and considerations outlined in the Directions Paper by 5 February 2025. This input will inform the draft determination, expected in June 2025.

For more information and to access the directions paper, please visit the Efficient provision of inertia project webpage.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au     

AEMC’s transmission access recommendations focus on supporting the effective delivery of jurisdictional schemes

12 December 2024

Energy Ministers have noted the Australian Energy Market Commission’s (AEMC) recommendations on transmission access reform, specifically not to implement the hybrid model.

The AEMC's final report, delivered to Ministers in September 2024, recommended against implementing the proposed hybrid model of transmission access reform, concluding that existing and planned jurisdictional schemes like Renewable Energy Zones (REZs) and the Capacity Investment Scheme (CIS) are already providing locational signals for investment. 
Instead, the AEMC made a series of recommendations that focussed on supporting jurisdictional schemes to drive efficient investment in the energy system.

The hybrid model, which combined priority access arrangements and a congestion relief market, was proposed by stakeholders and developed by the Energy Security Board and Energy Advisory Panel.

The AEMC's work to further develop the model in consultation with market bodies and stakeholders found that in the current context of rapid energy system transformation, it was not clear that the model's benefits would outweigh its implementation costs and complexity.

The AEMC made recommendations to support the effective delivery of jurisdictional schemes including:

  • establishing a collaborative forum between jurisdictions and market bodies to support effective delivery of schemes
  • improving the quality and timeliness of locational information through AEMO's Enhanced Locational Information reports
  • enabling the AER to strengthen incentives for transmission networks to progress efficient, low-cost congestion solutions
  • a focus on congestion impacts when designing and implementing schemes that underwrite new energy infrastructure.

AEMC Chair Anna Collyer said the recommendations recognise that coordinating generation and transmission investment through jurisdictional schemes provides a practical pathway for managing the significant transformation required in the National Electricity Market.

"A coordinated and timely transition to a net-zero electricity system is in the long-term interest of consumers.

''Our recommendations focus on ensuring jurisdictional schemes can effectively deliver low-cost, low-emissions energy when and where consumers need it," she said.

Access and pricing arrangements are fundamental components of the National Electricity Market's regulatory framework, designed to signal where generation should locate and how it should operate. Such signals will be increasingly important in the transition to a grid dominated by variable renewable energy.

While reforms to national arrangements could improve these signals, the AEMC found that jurisdictional schemes are currently providing a practical way to coordinate and manage the significant scale and speed of investment required on the pathway to net zero.

The AEMC's recommendations aim to support the effective delivery of these schemes through improved coordination and information sharing between market bodies, governments, and industry participants.

For more information and contact details, visit the project page.  

Media: Jessica Rich | 0459 918 964 | media@aemc.gov.au
 

Final rule to help mitigate cyber threats on the electricity system

12 December 2024

The Australian Energy Market Commission (AEMC) has published a final rule to better protect the electricity system against the threat of cyber attacks.  

The rule, which commences immediately, clarifies the role and responsibilities of the Australian Energy Market Operator (AEMO) in preparing for and responding to evolving cyber needs.

Robust and clear cyber security measures are of critical importance as the electricity system becomes more digitised, decentralised and interconnected.  

AEMO has been proactively working with industry and the relevant agencies to increase cyber security resilience.

AEMC Chair Anna Collyer said embedding AEMO’s role in the National Electricity Rules (NER) provides market participants and consumers with greater certainty.

“A cyber attack on the electricity system could have far-reaching consequences that impact millions of Australians,” Ms Collyer said.  

“It is therefore essential that our rules continue to evolve to counter these threats as they become more sophisticated.

“Our final rule builds on existing measures to support a more strategic and coordinated approach to energy security.”

Cyber security is now explicitly established as one of AEMO’s power system security responsibilities within the rules. The final rule embeds four key cyber security functions for AEMO:

  • Coordinating a NEM-wide cyber incident response plan
  • Supporting energy businesses in cyber incident preparedness
  • Providing expert cyber security advice to government and industry
  • Distributing critical cyber security information to market participants

Formalising AEMO’s role enables additional resourcing for it to sustain and scale up these functions.

The functions are also designed to work alongside AEMO’s emergency powers and the Australian Energy Sector Cyber Security Framework (AESCSF).  

The final rule follows a rule change request from the Hon. Chris Bowen MP, Minister for Climate Change and Energy, and has been well received by AEMO and the energy industry.

View the project page for more information and contact details.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au   

AEMC delivers final recommendations to improve market compensation frameworks

12 December 2024

The Australian Energy Market Commission (AEMC) has delivered recommendations to improve national electricity market (NEM) compensation frameworks that help to ensure consumers are provided with reliable electricity at times when the market is under stress.  

In a final report published today, the AEMC outlines proposed administrative, governance and methodology updates to the guiding compensation frameworks for market directions, market suspension and administered pricing.

AEMC Chair Anna Collyer said the final recommendations follow a review into compensation frameworks and the events of June 2022 when global and local factors culminated in the electricity market entering into an administered pricing period.  

“Every day, our people at the AEMC are working towards the small and large scale improvements that will ensure the energy rules are fit for purpose as the geopolitical landscape evolves, climate changes and the market transforms on the journey to net zero,” Ms Collyer said.  

“Efficient and effective compensation frameworks are essential for providing confidence to market participants to keep the NEM operating smoothly and reduce risk of outages during occasional periods of market stress.

“We have taken insights from the conditions that occurred in June 2022 and made a series of proactive updates to the frameworks that should promote greater energy security and reliability for consumers.”

The AEMC has made five key recommendations, with the aim to provide greater simplicity, consistency and clarity across compensation frameworks.  

The changes include:  

  • specifying an objective for the directions compensation framework in the rules
  • allowing participants to apply for opportunity costs in each compensation category  
  • improving the method for calculating directions compensation  
  • nominating AEMO to receive all compensation claims and assess them together with the independent expert, whose role in the claims assessment processes will be extended to assessing opportunity cost claims
  • improving and clarifying administrative rules and timelines, including establishing time limits on the provision of information that will help ensure timely settlement of claims.

Ms Collyer said the recommendations take into consideration and complement the AEMC’s 2022 rule change to increase the administered price cap from 2025-2028 to facilitate greater reliability during market disruptions.  

“Our final recommendations follow extensive consultation with consumer and industry stakeholders and combined with the 2022 change to the administered market price cap, they will provide the certainty the market needs to make decisions that will serve to bolster reliability.”

The AEMC looks forward to receiving rule change requests that would allow the current rules to be updated with the recommended improvements.

Please visit the project page for more information and contact details.  

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au 

AEMC proposes expedited rule change to support reliability in South Australia

28 November 2024

The Australian Energy Market Commission (AEMC) has published a consultation paper in response to an urgent rule change request from the South Australian Government that seeks a time-limited jurisdictional derogation.

The proposal would allow the Australian Energy Market Operator (AEMO) to consider procuring two mothballed generators to support reliability this summer.  

The Engie-owned Snuggery and Port Lincoln peaking plants came offline on 1 July 2024. Under the National Electricity Rules, AEMO cannot enter into scheduled reserve contracts with plants that have been available for dispatch within the last 12 months.  

The issue stems from AEMO’s 2024 Electricity Statement of Opportunities (ESOO) which forecasts reliability risks in South Australia over summer.  

Without sufficient backup electricity reserves, AEMO may need to resort to load shedding during extreme cases of reliability shortfalls. This would severely impact households and businesses, particularly if it coincides with an extreme weather event.  

The AEMC is therefore proposing to use an expedited eight-week process to assess the request to help mitigate system reliability and security risks. Stakeholders can object to the expedited process by lodging a written objection with reasons.

Visit project page for more information and contact details. 

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au   
 

AEMC’s outlook maps path to lower household energy costs through coordinated transition

28 November 2024

The Australian Energy Market Commission (AEMC) today released its analysis of residential electricity prices over the next decade, showing how Australian households could significantly reduce their total spending on energy – including electricity, gas, and petrol – through a well-managed transition to electrification.

The comprehensive analysis represents a new approach from the AEMC, extending from a three-year to a ten-year outlook to better capture long-term trends and provide deeper insights into what drives costs as Australia's energy system transforms.  

Rather than just examining electricity prices, the analysis also considers how households' total energy costs or their 'energy wallet’ will change as they electrify transportation, heating and cooking.  

AEMC Chair Anna Collyer said the findings demonstrate both opportunities and challenges ahead.

"Our modelling shows that with effective planning and investment, Australian households could see their total energy spending fall substantially over the next decade through electrification.

"However, we need to ensure this transition is well-managed and equitable, so that the benefits are accessible to all households, not just those who can access new technology immediately.

"This 10-year outlook provides new insight into how household energy costs could evolve as Australia's energy system transforms. While the overall trend is encouraging, achieving these benefits requires coordinated action across the sector,’’ Ms Collyer said.

Key Findings:

  • Under our base case analysis, residential electricity prices across the National Electricity Market could be around 13% lower in ten years' time, if renewable energy and infrastructure development proceeds as expected.  
  • The analysis shows prices initially dropping as new renewable energy supply connects to the grid. Network prices are also projected to decline despite significant investment, as increasing household electricity use helps spread these costs across a larger consumption base.
  • Under this base case scenario, aligned with AEMO's Integrated System Plan projections, electrification would lower total household energy expenditure by nearly $1,000 per year – or by 20% – on average by the end of the 10-year outlook.  
  • Individual households who electrify could see even larger benefits, with potential reductions of up to 70% in their total energy costs.
  • The outlook depends on coordinated planning and timely investment in transmission, generation, and effective integration of household energy technologies.

Regional Outlook

"While different regions face different challenges and opportunities in this transition, our analysis finds the overall trends in residential electricity prices are generally consistent across the National Electricity Market.

‘’This reflects how the key drivers, like the significant build-out of renewable generation and growing household electrification, are having similar impacts on costs across the interconnected jurisdictions,’’ Ms Collyer said.

Our modelling accounts for each region's unique circumstances, including infrastructure needs, existing generation mix, and policy settings. Under the base case, the analysis shows that over the 10-year outlook:

  • Victorian prices are projected to fall by about 9%, remaining below the national average, with a larger projected increase in demand due to rapid electrification, helping to keep network prices lower by using network infrastructure more intensively.  
  • Queensland prices show a similar trend to the national outlook, with prices projected to fall by 15%, though there may be slightly more upward pressure on wholesale prices towards the end of the period.
  • South Australian prices are also projected to fall by 15%,but remain slightly higher than the national average due to elevated wholesale costs, though network prices are declining.
  • New South Wales prices follow national trends with prices projected to fall about 14% over the outlook.  
  • ACT prices are projected to decline by 31%, a larger decrease than the national trend, reflecting the territory's Large Feed-in-Tariff scheme which offsets movements in wholesale prices, and a reduction in network prices.  
  • Tasmania maintains the lowest prices of all regions but could see an increase in prices of about 6% towards the end of the period.

Renewable Energy Target (RET) and state-based energy efficiency schemes are expected to have minimal impact on overall prices (around 0.7c/kWh at national level).

Understanding Total Energy Costs

The report introduces the concept of an 'energy wallet' – which describes the total amount a household spends directly on energy, including electricity bills, petrol for cars and gas for heating.

"The traditional way of looking at just electricity bills doesn't tell the full story anymore. As households electrify their cars, heating and cooking, they'll see their electricity usage increase but their total energy costs – their 'energy wallet' – could significantly decrease,’’ Ms Collyer said.

“While the energy wallet modelling doesn’t cover the purchase costs, such as buying an EV, we can assist customers weighing up these decisions by providing them information about the savings they experience if they were to make a decision to incur those up front costs”.

For example, electric vehicle owners could save around $2,000 per year on fuel costs alone, with these savings starting from the date of purchase. Importantly, these benefits don't require complex optimisation of charging times - though households can save even more by charging during sunny periods when solar generation is at its peak.

Critical Success Factors

The report identifies several factors crucial to achieving cost reductions:

  • Timely development of transmission infrastructure
  • Successful integration of renewable energy and storage
  • Effective coordination of household energy resources like solar, batteries, and electric vehicles
  • Well-planned electrification of homes and transport

The AEMC is actively working to support these outcomes through initiatives including our Electricity Pricing Review, which is examining how pricing structures can better support the transition. This work also complements other initiatives such as the government's Consumer Energy Resources (CER) Roadmap.

Ensuring an Equitable Transition  

The AEMC recognises that not all households will have equal access to cost-saving technologies.

"While some households will be able to significantly reduce their energy costs through solar panels, batteries, and electric vehicles, others face barriers to adoption. This highlights the importance of considering equity in policy development," Ms Collyer said.

These barriers include rental arrangements, housing that can't accommodate solar panels or electric vehicle chargers, and the upfront costs of new technology. The analysis emphasises the importance of ensuring the benefits of the transition are shared across all household types.

Looking Ahead

Our analysis shows two main factors will shape energy costs over the coming decade. The first is the significant build of new renewable generation and storage. This new generation, combined with the careful management of coal plant closures, will help moderate electricity prices.

Secondly, while significant transmission investment lies ahead, the impact on electricity prices is expected to be moderated as these are shared across growing electricity use.  

As more households and businesses electrify, leading to a projected 23% increase in electricity consumption, network costs are spread across a larger user base.  

''The potential for lower household energy costs is clear, but it depends on getting the transition right. This means smart, timely investment in infrastructure, effective integration of new technologies, and ensuring the benefits are shared across the community," Ms Collyer concluded.

The full Residential Electricity Price Trends report is available here.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au    

Consultation paper published on allowing AEMO to accept cash as credit support

24 October 2024

The Australian Energy Market Commission (AEMC) has initiated an expedited rule change process in response to an urgent rule change request from Delta Electricity.

The proposed change would allow the Australian Energy Market Operator (AEMO) to accept cash as credit support from market participants in the National Electricity Market (NEM).

This issue has arisen as some generators, particularly those operating coal-fired power stations, are finding it increasingly difficult to obtain traditional forms of credit support due to banks' evolving environmental, social, and governance (ESG) policies.

Currently, NEM participants must provide credit support to AEMO in the form of a bank guarantee or letter of credit from an acceptable lender. Delta, which operates the Vales Point power station in NSW, has reported being unable to secure new credit support arrangements when its current arrangements expire at the end of 2024.

If implemented, the proposed rule change would provide an alternative option for all market participants to meet their credit support obligations. However, there may be potential risks or unintended consequences associated with accepting cash as credit support that need to be carefully considered.

The AEMC is seeking stakeholder feedback on both the problem raised by Delta and the proposed solution.

Key questions include:

  1. Are there issues with obtaining credit support in the NEM?
  2. What are the potential impacts if participants cannot meet credit support requirements under the current arrangements?
  3. Are there any risks or drawbacks to allowing cash as a form of credit support?
  4. Are there alternative solutions that should be considered?

Given the potential implications for system reliability and security, the AEMC is proposing to use an expedited eight-week process to assess this request. Stakeholders can object to this expedited process by lodging a written objection with reasons by 7 November 2024.

Submissions on the consultation paper are due by 21 November 2024. The AEMC encourages all interested parties to contribute their views to inform this important decision.

Visit project page for more information and contact details.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au  
 

Draft rule clarifies AEMO's cyber security role

26 September 2024

The Australian Energy Market Commission (AEMC) has published a draft rule that would formalise the role of the Australian Energy Market Operator (AEMO) in maintaining the cyber security of our electricity system.

The AEMC sets the rules for the National Electricity Market (NEM) and provides independent expert energy advice to Australia’s State and Federal Governments. It is strongly focused on providing a framework for a reliable, sustainable electricity system in addition to affordable electricity prices.

As our energy system becomes increasingly digitised and interconnected, AEMC Chair Anna Collyer says robust cyber security measures are crucial to ensure the reliability and resilience of electricity supply.

"Cyber security is an important enabler for the energy transition. For it to be successful, the associated risks need to be well managed," Ms Collyer said.

"This draft rule aims to provide AEMO with the necessary tools and resources to further bolster the National Electricity Market's resilience against evolving cyber threats."

The draft rule builds upon existing industry efforts, including the Australian Energy Sector Cyber Security Framework (AESCSF), and AEMO's current emergency powers to respond to cyber incidents.  

It proposes four key cyber security preparedness functions for AEMO:

  • Coordinating a NEM-wide cyber incident response plan
  • Supporting energy businesses in cyber incident preparedness
  • Providing expert cyber security advice to government and industry
  • Distributing critical cyber security information to market participants

Ms Collyer explained that these functions are designed to formalise AEMO's existing preparatory and preventative efforts, while complementing their powers to respond to actual cyber security incidents.

"AEMO has been proactively working with industry on cyber security preparedness. This draft rule aims to embed and clarify these efforts, creating a more robust framework," Ms Collyer said.

"By formalising these functions, we're strengthening AEMO's role in cyber security preparation and prevention. This will work alongside their existing emergency powers, further enhancing our electricity system's resilience against cyber threats."

The draft rule follows a rule change request from the Hon. Chris Bowen MP, Minister for Climate Change and Energy, and has been well received by AEMO and the energy industry.

The AEMC invites stakeholder feedback on the draft rule by 7 November 2024, with the final determination scheduled for 12 December 2024.

View the project page for more information and contact details.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au   

Related Articles

Australian Energy Sector Cyber Security Framework and resources

AEMC unveils new rules to boost consumer energy resource benefits

15 August 2024

New rules by the Australian Energy Market Commission (AEMC) are set to make it easier for households and businesses to capture value from their consumer energy resources (CER) and exercise greater control over their energy use.

‘CER’ refers to smaller-scale energy resources owned by customers, which can produce, store, or vary how they use energy. There are newer forms of CER such as solar panels, batteries, and electric vehicles, and more traditional assets such as hot water heaters and pool pumps.  

Australia’s energy landscape is being transformed by the uptake of these resources and consumers becoming more engaged in the different ways they can use them.  

By 2030, it’s predicted at least one in eight households will have a battery or electric vehicle, or both. By 2050, that number is expected to rise to one in four. Around one in six free-standing Australian homes have solar panels, with one in two expected by 2040.  

These trends represent an enormous opportunity for Australia’s energy future. CER, along with resources such as neighbourhood batteries, have an important role to play in the power system. They can help reduce overall system costs, improve reliability, and achieve a secure, low-emissions energy supply for all consumers.

The final rules, in response to a request from the Australian Energy Market Operator (AEMO), will introduce the following arrangements.  

  • Large customers will be able to engage multiple energy service providers at their premises more easily, to manage and obtain more value from their CER.
  • Energy service providers for small and large customers will be able to separate and manage 'flexible' CER (such as EV chargers, batteries) from 'passive' loads (like fridges and lights) in the energy market, leading to more product and service options for consumers.
  • Market participants will be able to use in-built measurement capability in technology such as EV chargers and smart streetlights, eliminating the need for separate meters.  

Chair Anna Collyer says these rules are an important enabler in the context of the National CER Roadmap.

‘’They make a series of incremental changes that, alongside other reforms, will unlock substantial benefits from flexible CER for consumers and the system as a whole. "If these resources are integrated well, the power system will operate more smoothly, and consumers and industry will enjoy the benefits of cheaper supply.

"A range of studies has estimated the net benefit of effective integration and coordination of CER to be up to $6.3 billion by 2040," Ms Collyer said. 

This rule change will empower consumers to access new energy products and services, enabling them to maximise value from their flexible CER and better manage their energy use.  

It also aims to promote innovation and competition in the electricity retail sector by simplifying the process of separating and unlocking value from CER.  

For example, these rules will make it easier for retailers to offer households EV charger products with built-in metering and dedicated tariffs. This means consumers could potentially receive separate billing for their EV charging, distinct from their regular household energy use. If they choose, they could also trade excess energy from their EV back to the grid.

The in-built metering arrangements will also make it easier to deploy public infrastructure such as EV chargers and smart streetlights. Modelling shows this could generate benefits of up to $100 million over two decades, including $16 million attributed to emission reductions.  

"We are committed to reforms that pave the way for the innovation required to meet the challenge of integrating CER, knowing that if we do nothing, all consumers will face higher costs," Ms Collyer said.

The AEMC's final determination is part of a broader suite of reforms aimed at supporting the energy transition and unlocking the full potential of CER for the benefit of all consumers.

These reforms are interconnected and wide ranging. They include reviewing pricing structures, speeding up the rollout of smart meters, and improving consumer access to real-time energy data.

''Additionally, we have published draft rules to create greater visibility of price-responsive resources, such as household batteries, to make it easier for them to participate in the market. We think this could help AEMO and networks to operate the system more efficiently, ultimately leading to lower prices and emissions.  

"These reforms are crucial pieces of the CER puzzle. They create opportunities for innovation, helping consumers reduce bills and participate more actively in our energy system, while improving grid management and reducing emissions,’’ Ms Collyer concluded.

Visit the project page for more information and contact details.

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au 

AEMC proposes stronger consumer safeguards for smart meter rollout

15 August 2024

Australians could soon have more control over their electricity pricing under new proposals aimed at protecting consumers during a nationwide smart meter rollout.

The Australian Energy Market Commission (AEMC) today published a directions paper for stakeholder consultation. The paper outlines the potential for enhanced consumer protections during the accelerated smart meter rollout, including a mandatory three-year consent period for retail tariff changes and requirements for designated retailers to offer flat tariff options.

These proposed safeguards come in response to the draft determination published on 4 April 2024.  

While a broad range of stakeholders acknowledged the critical role smart meters will play in the future energy system, they also highlighted the importance of addressing potential customer impacts following smart meter installations, particularly regarding retail tariff variations.  

AEMC Chair Anna Collyer emphasised that we have heard the community's concerns about unexpected tariff changes.

''These proposed safeguards aim to give customers more control and choice over their energy pricing while still enabling the important rollout of smart meter technology.

“With the right frameworks in place, an accelerated smart meter rollout will help to ensure all customers see the benefits of a more efficient, lower-cost, and decarbonised energy system sooner,'' she said.  

The directions paper proposes two key additional consumer safeguard measures:

  1. A new explicit informed consent requirement – customers would be required to give their explicit informed consent for retailers to change their retail tariff following a smart meter deployment. This right would last for three years after the customer receives the smart meter.
     
  2. A mandatory flat tariff option – certain retailers would be required to make a flat tariff option available to all customers. This measure would be implemented by jurisdictions.

These new measures build on protections outlined in the AEMC's April draft determination, which included 30 business days' notice before retail tariff changes, information to help customers understand new tariffs, and historical bill comparisons where available.

"We're seeking to strike a balance between enabling the rollout of this important technology and ensuring strong consumer protections are in place. Social licence is critical for realising the full benefits of smart meters," she said.

The AEMC is inviting stakeholder feedback on the proposals by 12 September 2024. You can register here for a public forum will be held on 29 August from 2-3pm AEST.  

View the project page for more information and contact details. 

Media: Jessica Rich, 0459 918 964, media@aemc.gov.au 

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