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AEMC modelling reveals billions in potential savings through integrating virtual power plants

15 February 2024

New modelling results showcased by the Australian Energy Market Commission (AEMC) show substantial cost savings of up to two billion dollars (net present value) between 2025 and 2050. These savings are attributed to the effective integration of price-responsive resources, including virtual power plants, into the National Electricity Market (NEM).

Chair Anna Collyer says the recent analysis is set out in a paper ahead of a public forum for stakeholders next week and follows a rule change request by the Australian Energy Market Operator (AEMO) to improve its ability to forecast electricity supply and demand.

“As more households and businesses invest in newer technologies such as batteries, rooftop solar, electric vehicles, and home energy management systems, these consumer energy resources (CER) will play a vital role in the shift to a net zero energy system.

“Similarly, traditional assets such as hot water heaters and pool pumps will continue to play their part in how the energy system performs and transforms,” Ms Collyer said.

As a result of the rapid uptake of CER, energy companies are increasingly combining these resources to form Virtual Power Plants (VPPs), which are actively responding to price signals in the national electricity market (NEM).

Additionally, there are commercial and industrial resources such as chillers and hydrogen electrolysers, which could be price-responsive and significantly impact the energy market in the future.

Currently, these resources are not fully integrated into the NEM’s planning and operation functions. By making them more visible, AEMO proposes it could more accurately determine how much energy demand needs to be met and how to meet this demand.

It’s of the view that better integration of these resources could lead to more efficient network and wholesale market services, reducing the overall cost of providing reliable electricity to consumers, ultimately leading to lower prices.

New modelling by the AEMC, published today, marks the next step in our exploration of solutions to allow these resources to participate in the wholesale electricity market.

Ms Collyer explained by comparing the anticipated market operations between 2025 and 2050, the modelling explored two potential reform cases against the current scenario, wherein price-responsive resources, such as VPPs, function invisibly within the NEM.

"Positively, the findings revealed a net present value of $1.5 to $1.9 billion dollars in potential cost reductions resulting from the proposed rule change. These cost reductions encompass lower generation costs, lower emissions, reduced emergency supply requirements and a decreased reliance on additional resources to rectify imbalances in the system.

“Furthermore, the integration of these resources is anticipated to significantly increase market competition and put downward pressure on prices", she said.

Modelling indicates the benefits would start to arise as integration occurs and grows, if the rule change is made.

The next step in this rule change request involves a series of detail design decisions, informed by technical working groups and stakeholder engagement. This will inform the AEMC’s formulation of a draft rule and determination, expected to be published in the second half of the year.

The paper will delve into design solutions that not only unlock these benefits but also serve as an incentive for widespread participation.

A public forum on February 19th will offer stakeholders an in-depth overview of the AEMC’s work to date, including the benefits modelling.

Background:

On December 14th, the AEMC published an update paper for the rule change, signalling our commitment to undertaking benefits modelling to provide better insights into where and when the benefits arise.

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 electricity system and affordable electricity prices, particularly in light of current cost of living concerns.

It is currently working on reform that aims to unlock the full potential of consumer energy resources for the benefit of both the customer who invested in those assets and also for the benefit of all customers through the resulting improvements to the operation of the overall system.

View the project page for more information and contact details.

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

Draft rules on enhancing reserve information

21 December 2023

The Australian Energy Market Commission (AEMC) has made a draft determination for its ‘operating reserves’ rule change making a draft rule for a more cost-effective and immediate approach to support reliability as the power system undergoes its transformation to net zero.

The proposal is set out in a draft determination following separate rule change requests from Iberdrola Australia and Delta Electricity, seeking to introduce an operating reserve market to help respond to unexpected changes in supply and demand.

Operating reserves, or “stand-by power sources” help manage reliability and are provided by generation that is available but has not been scheduled for dispatch. These assets are rewarded via the market framework if they are required to be dispatched due to short-term changes in power system needs.

Following extensive input from stakeholders and careful analysis, the AEMC is of the view that while an operating reserve market could provide greater visibility of market participants’ reserve decisions helping to manage risks, the Commission considers that it would not offer any material performance improvements relative to the current arrangements, and would introduce significant additional costs for the market.

As Australia transitions to a net zero future, the national electricity market (NEM) is rapidly changing, transforming from a centralised, largely thermal power-based system to a decentralised system with a greater proportion of variable renewable energy (VRE) sources and storage assets, such as solar PV, wind and battery technology.

The AEMC must give weight to our reliability needs in a way that’s most cost-effective to consumers as the market transitions. After careful consideration, it has decided to propose a new rule that would increase transparency when it comes to the sharing of information about a generator’s reserves, as a more cost effective and immediate approach to addressing these issues.

The proposed change would require the publication of any energy constraints from either hydro, gas, or coal for each region at the start of each trading day. Additionally, the rule would stipulate real-time updates be disclosed on the combined state of charge for batteries.

The AEMC believes that by making more information available to the market, market participants can continue to make their own commercial and operational decisions which in turn will deliver reliability in a way that’s best for customers. In particular, it would provide useful information during days of high demand, potentially improving the provision of reserves and ensuring a smoother transition to net zero.

Written submissions on the draft determination are being accepted until Thursday 8 February 2024.

For more information, visit the project page.

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

Updated proposals to support security through the transition 

14 December 2023

The Australian Energy Market Commission (AEMC) is consulting on updated proposals to bolster system security as traditional thermal energy sources approach end of life and more variable renewable energy (VRE) generation and storage assets are introduced.

Today’s update paper follows the AEMC’s August 2023 directions paper which outlined a set of proposed improvements to security processes and frameworks within the national electricity market, as part of the Improving security frameworks for the energy transition rule change.

One of these was the ‘transitional services framework’ which aimed to allow the Australian Energy Market Operator (AEMO) to meet existing system security gaps in the current planning framework and trial the security capabilities of new technologies for a low or zero emissions power system.

Currently, AEMO needs to regularly intervene to direct generators to manage system security to help ensure a more secure supply of power for energy consumers.

Stakeholders generally accept the need for this framework but provided feedback around its design.

After carefully considering their feedback, the AEMC has refined the transitional services framework, and is proposing adjusted timings for procurement, to ensure the framework supports investment in new technology and the transition proceeding at pace.

The AEMC also agrees that consistent with the updated energy objectives, emissions reductions should be considered in contracting decisions and has proposed a new obligation to meet this objective.

In addition, the AEMC is proposing AEMO publish a transition plan every two years to keep industry informed of its arrangements to meet system security needs.

AEMC Chair Anna Collyer said these changes, considered together, would provide clearer investment signals to support new technology that can strengthen security.

“We have listened carefully to a range of stakeholders and believe these updated proposals balance industry’s desire for efficiency and transparency with the need for practical and adaptable security arrangements.

“Achieving this balance is an important step in delivering secure, safe and low-cost electricity to consumers in a rapidly evolving energy landscape,” she said.

The AEMC is now accepting feedback in response to these updated proposals.

Written stakeholder submissions are being accepted until 5.00pm (AEDT) Thursday 1 February 2024.

For more information about the arrangements proposed, or to provide feedback, visit the project page.
Media: Jessica Rich 0459 918 964 or media@aemc.gov.au

Draft rules to support timely transmission investment and reduced network charges

14 December 2023

The Australian Energy Market Commission (AEMC) has proposed making two new rules that facilitate lower costs to consumers as well as faster delivery of critical transmission infrastructure needed for the energy transformation.

The draft rules and associated draft determinations are out for stakeholder consultation today following two rule change requests from the Commonwealth Minister for Climate Change and Energy, Chris Bowen, and a rule change request from Energy Networks Australia (ENA).

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 ensuring the regulatory framework strikes the right balance between getting transmission built quickly and affordable electricity prices, particularly in light of current cost of living concerns.

An essential part of this work involves improving financing arrangements for the delivery of new transmission and distribution projects needed for the transformation, in order to drive timely delivery at the lowest possible cost for consumers.

Sharing concessional finance benefits with consumers (‘concessional finance’)
The AEMC today made a draft rule change on concessional finance that would allow the benefits of financing for transmission and distribution projects sourced through government programs, such as the Commonwealth Government’s Rewiring the Nation Fund, to be passed back to consumers in the form of lower network charges, either now or in the future.

The Commonwealth Government’s Rewiring the Nation Fund commits 20 billion dollars to modernise our electricity grid and infrastructure. This low cost finance is intended to support efficient investment in, and timely delivery of, critical transmission infrastructure, while minimising network charges to consumers.

Currently, there is no mechanism by which the benefits of concessional finance can be shared with consumers. AEMC Chair Anna Collyer says that under our proposed rule, the benefits of government funding could now be shared between the network business and consumers.

“It is in everyone’s best interests – from consumers to network service providers to governments, to have clarity and transparency around concessional financing, to support the sector in the build out of major transmission projects,” she said.

Accommodating financeability in the regulatory framework (‘financeability)
Our second draft rule change on financeability’ seeks to address the challenges network service providers may have in securing efficient funding for major projects, in accordance with the needs of the transition.

Should a final rule be made, the National Electricity Rules would be amended to improve the ability of transmission network service providers (TNSP's) to efficiently finance the timely delivery of major projects.

The change would empower the Australian Energy Regulator to modify the timing of depreciation to manage cash flows when required. This would deliver benefits to consumers in the short and long-term, without providing additional revenue to TNSPs in real terms over the life of the assets.

It would also facilitate timely investment in transmission that the Integrated System Plan (ISP) has determined as necessary to support emissions reduction, security, and reliability. Delayed investment in transmission would come at a cost to consumers.

AEMC Chair Anna Collyer said both proposed changes should provide investors and consumers with confidence.

“When it comes to transmission, it is critical we strike a balance between getting the right investment to achieve net zero and facilitating a reliable and secure future energy system, with delivering major projects at the right time and as cost-effectively as possible to ensure the best outcomes for consumers,” she said.

“Our rule, if it were to be made, should provide transmission businesses and investors with greater certainty to develop projects in a timely way, so that the system can keep up with the pace of the transition and customers can enjoy reliable and secure power at the lowest possible price,” she said.

A public forum will be held from 11am on 15 December 2023 to present the draft determinations and to provide an opportunity for stakeholders to ask questions and provide views. The public forum will be held jointly for the rule changes on Accommodating financeability in the regulatory framework and Sharing concessional finance benefits with consumers.

Submissions to both draft rule changes close on 8 February 2024.

For more information about the financing arrangements proposed, or to provide feedback, visit the project pages:

Accommodating financeability in the regulatory framework

Sharing concessional finance benefits with consumers

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

New rule to ensure reliability in the energy system

07 December 2023

The Australian Energy Market Commission (AEMC) has made a more preferable final rule to the National Electricity Rules to keep the electricity system reliable for households and businesses as ageing coal fired generation retires and we transition to more renewable energy.

The change is set out in a final determination, following a rule change request by the AEMC’s Reliability Panel, a panel of advisers representing consumers, the energy industry, and the Australian Energy Market Operator (AEMO).

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 electricity system and affordable electricity prices, particularly in light of current cost of living concerns.

An essential part of this work involves implementing arrangements to make sure there is enough electricity supply in the wholesale electricity market to meet the needs of households and businesses over the coming years and reduce the risk of outages.

Analysis from the AEMC has shown that price settings in that market are currently set too low to ensure there is enough generation and battery storage to keep the system reliable as it transitions.

Additionally, pressure will continue to be placed on the electricity system as aging coal fired generation retires, with AEMO forecasting in its 2022 Integrated System Plan that 60 per cent of coal generation will exit the market by 2030.

This pressure will create reliability risks, with AEMO’s latest Electricity Statement of Opportunity update showing NSW and Victoria will begin to experience reliability pressures between 2025 and 2028 without new investment.

In order to meet our electricity needs, the AEMC has made rules to progressively increase the existing Market Price Cap, Cumulative Price Threshold, and the Administered Price Cap.

These changes would provide more scope for investors to deliver new generation and storage when it is needed most during times of high demand and in rare emergency situations. The final rule will also increase the incentives for consumer energy resources to participate in the market to enhance reliability.

Critically, the final rule, works together with the Commonwealth’s Capacity Investment Scheme (CIS) and jurisdictional schemes to help decarbonise the NEM by providing the flexible supply needed to support reliability given increasing levels of wind and solar generation. They act collaboratively to bring in supply and place downward pressure on wholesale prices in the long term.

Under the final rule:

Market Price Cap, which sets the price ceiling in the wholesale electricity market, would increase from $16,600/MWh currently to $22,800/MWh by 1 July 2027
the Cumulative Price Threshold, which serves as a trigger point to end a sustained seven day period of extreme high prices in the wholesale electricity market, will increase from the equivalent of 7.5 hours at the Market Price Cap to 8.5 hours at the Market Price Cap by 1 July 2027; and
the Administered Price Cap, which caps the price in the wholesale electricity market once the Cumulative Price Threshold has been reached, will be set at $600/MWh from 1 July 2025.

These price settings would have no impact on wholesale electricity prices over 99 per cent of the time but would deliver additional capacity that will have substantial benefits in reducing the risk of outages and ensuring our electricity system remains reliable for households and businesses.

As these price settings apply rarely, the rule is expected to result in a relatively small impact on retail electricity prices. The Reliability Panel’s modelling predicts a 3 per cent increase in retail electricity prices by 2027, but ultimately the adjustments will lead to lower long-term prices for consumers than would otherwise have been the case.

AEMC Chair Anna Collyer said the setting changes must be made in order to help manage the transformation and to support decarbonisation of the electricity sector.

“These changes will encourage more generation and battery storage into the system when we need it most, reducing the risk of damaging outages for electricity consumers and keeping the system stable as we rapidly transition to higher levels of renewable energy and decarbonise our economy.

“Importantly, this final rule is designed to have no bearing on electricity prices under typical market conditions. Rather, it enables price fluctuations to encourage new market entrants, thus fostering competition to the benefit of all consumers.

“The Commission has considered the interaction between the market price settings and the CIS and determined they are complementary and likely to lead to better outcomes for energy consumers,” she said.

The rule is due to come into effect from 1 July 2025.

For more information, please visit the project page.

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

Unlocking key insights: decoding the role of reliability in energy transition

30 November 2023

The Reliability Panel has released key findings from its work to better understand how reliability might change as the energy sector undergoes an unprecedented shift in the transition to net zero.

The insights are set out in a directions paper for stakeholder consultation, following a decision by the Reliability Panel to undertake a review of the form of the reliability standard.

The Reliability Panel (the Panel) forms part of the Australian Energy Market Commission but independently monitors, reviews, and reports on the safety, security, and reliability of the national electricity system. Its panel of expert advisers represents consumers, the energy industry, and the Australian Energy Market Operator (AEMO).

An essential part of the Panel’s work involves reviewing current arrangements to ensure high levels of reliability continue to be provided to meet the needs of households, businesses, and industry over the coming years.

New analysis from the Reliability Panel has shown what the wholesale electricity market will look like as the power system transitions.

Getting that better understanding of the future is an important first step to allow consideration of the changing reliability risks as the market transforms in a way that we have never seen before.

To understand that challenge better, the Panel developed a model to create an extreme future where there aren't enough resources to meet the needs of customers.

This was deliberately designed to provide more information on the changing characteristics of outages by greatly exaggerating the number of outages considerably above the level that is likely to occur in the actual power system.

In this extreme scenario, the modeling has shown a trend for outages to become less frequent but potentially more impactful when they do occur.

Reliability Panel Chair, Charles Popple, says the model is one of the first of its kind in Australia and has provided interesting insights on potential reliability risks as the energy sector transitions.

"Our current work to review the form of the reliability standard, as well as the market price settings, is crucial to addressing the changing reliability risk profile. It’s vital for ensuring customers get a level of reliability at a level they value.

"Our task looking forward is to find the right mix of investment signals to create the right mix of assets to support reliability.

“These insights are critical to making sure we have sufficient investment in generation, particularly in the type and duration of storage we need to manage reliability risk as the sector transforms.

"This modeling is just one step in the process of understanding what we need for the future,” Mr Popple said.

Stakeholders will have until 19 January 2023 to provide feedback in response to the direction paper.

Using the model and stakeholder feedback, the Panel will start its work on determining if the current form of the reliability standard remains the right one for the changing national electricity market.

For more information, visit the project page.

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

AEMC reviews electricity compensation post market suspension

02 November 2023

The Australian Energy Market Commission (AEMC) is reviewing the electricity compensation frameworks following last year’s market suspension to improve reliability outcomes.

The National Electricity Rules contain several types of compensation frameworks, designed to ensure generators continue producing electricity when supply is constrained.

The directions, administered pricing, and market suspension compensation frameworks were used to varying extents in June 2022, when sustained high prices led to the application of the administered price cap (APC) in Queensland, and later, New South Wales, Victoria and South Australia.

Many market participants later applied for compensation through the Commission and other market bodies. Through this process, several issues were identified with the objectives, methodologies, governance, and administration of the frameworks which may have impeded the incentives for generators to maintain electricity supply.

The Commission is reviewing the compensation frameworks in a holistic manner to ensure generators work cohesively to ensure reliable outcomes for consumers, especially during peak periods.

The Review builds on the work already done on directions compensation, as part of the Improving Security Frameworks for the Energy Transition rule change and it will consider developments in the gas Compensation and Dispute Resolution Frameworks rule change.

Consultation on the review is underway with submissions closing on 1 February 2024. We encourage all interested stakeholders to share their views. For more information and contact details visit the project page here.

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

Extension for Unlocking CER benefits through flexible trading rule change

12 October 2023

The Australian Energy Market Commission (AEMC) is working on reform that aims to unlock the full potential of consumer resources (CER) such as rooftop solar, batteries and electric vehicles for customers who have CER assets as well as customers without.

The AEMC has extended the period of time for making the draft report on the Unlocking CER Benefits through Flexible Trading rule change. This is now expected to be published by 29 February 2024.

The extension will allow more time address feedback raised by stakeholders in response to the directions paper. Further time will also allow the AEMC to coordinate consumer energy resources work streams in a way that offers greater benefits for consumers and the system more broadly.

The AEMC will continue to engage with a range of stakeholders through public forums, meetings, and technical working groups in delivery of a draft rule determination.

Visit the project page for more information and contact details.

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

Extension for enhancing reserve information rule change

05 October 2023

The Australian Energy Market Commission (AEMC) will deliver a draft determination for the Enhancing Reserve Information rule change (formerly Operating Reserves) by 14 December 2023.

The extension allows more time to consult with our stakeholders in response to the issues raised in submissions to the directions paper.

Operating reserves, or “stand-by power sources” are important for managing system reliability and are implicitly provided by generation or other resources (such as storage) that are available but have not been scheduled for dispatch.

The Commission has taken steps to consolidate two rule change requests received from Delta Electricity (ERC0307) and Iberdrola Australia (ERC0295). Both requests relate to considering arrangements for forecast uncertainty and variability given with the expansion of variable renewable energy sources.

The consolidated rule change request will continue under the project name Enhancing Reserve Information and project code ERC0295, which better encapsulates the direction of the project as outlined in the directions paper.

The AEMC has been engaging with a range of stakeholders, through submissions, meetings and technical working groups, and will continue to consider their feedback to understand how best to manage power system reliability in the transition to a new operating environment.

Visit the project page for more information and contact details.

Media: media@aemc.gov.au.

Draft report released on improvements to the retailer reliability obligation

28 September 2023

The Australian Energy Market Commission (AEMC) is seeking feedback on 14 recommendations to improve the operation of the ‘retailer reliability obligation’ (RRO).

The draft recommendations are designed to improve the RRO by reducing costs for retailers in complying with the RRO and therefore, reducing costs for consumers.

Among these recommendations are options to revise the reporting timeframes for when retailers must report to the Australian Energy Regulator on how they have complied with the RRO.

Further, given the evolving nature of reliability gaps, with shifts from peak summer periods to other times of the year, we are proposing draft recommendations that would provide the Australian Energy Market Operator (AEMO) with additional time to trigger the RRO.

As the electricity market transitions to net zero and more renewable energy sources connect to the system, reliability needs to be carefully managed to meet the needs of households, businesses and industry.

In 2019, on the advice of the Energy Security Board (ESB), federal and state Energy Ministers agreed to the RRO as a supplementary measure to the existing settings to help ensure a reliable supply of power for consumers.

The RRO was designed to encourage new investment in dispatchable energy technologies, essential for the reliable operation of the energy system. It does this by requiring retailers to establish contractual agreements with third parties when AEMO foresees a potential shortfall in energy supply. These agreements are designed to ensure retailers are adequately prepared to fulfil energy demands.

The AEMC is required under the national electricity rules (NER) to deliver a final report by June 2023. However, the timeframe has been extended, with a final report expected to be released in early 2024. This has allowed the AEMC access to more information and insights about market performance with the application of the RRO in place, from across a greater time period.

Submissions in response to the draft report are being accepted until Thursday, 2 November 2023.  

Visit the project page for more information and contact details.

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

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