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Strategic priorities for the energy sector - discussion paper released today

12 September 2017

In a discussion paper published today, the AEMC outlines priority actions for governments and energy market bodies to support the delivery of secure and reliable electricity and gas to households and businesses at the lowest possible cost, while also meeting emissions reduction commitments.

Today’s paper is the next step in developing strategic priorities to address challenges in the energy sector, and also to harness opportunities from the advancements in energy technologies, as requested by the COAG Energy Council in December 2016. These priorities will contribute to the COAG Energy Council’s strategic energy plan as recommended by the Finkel Panel review.

The electricity system is transforming from centralised synchronous generation to more non-synchronous variable wind and solar and more local, distributed generation. Retail electricity prices have increased by around 20 per cent in many regions, driven by generator retirements, higher gas prices and a lack of clarity about future emissions reduction polices.

Gas markets are also experiencing upheaval, with sharp price rises in recent years driven by the growth of the LNG export industry and restrictions on gas supply. This has raised concerns about whether gas can play the role of a ‘transitional fuel’ as the electricity market evolves to more renewable generation.

At the same time, new technologies are changing the way households and businesses use energy, and opening up more opportunities to sell power back to the grid.

The discussion paper proposes a set of goals for Australia’s energy sector, key work to deliver the goals, and measures to track progress. The goals cover the areas of:

best price outcomes and affordability, along with better information, enhanced consumer participation and engagement, and improved protection for energy consumers
the integration of energy and emissions policy, underpinned by a long-term national emissions reduction target
a secure electricity system, which adapts to maintain adequate system strength and frequency control as the generation mix changes, and also in the face of human and environmental threats
a reliable electricity system, with sufficient capacity to produce and transport electricity at the least cost and appropriate intervention mechanisms to deal with shortfalls and emergencies
efficient gas and electricity markets, including mechanisms to facilitate demand response and enable distributed energy resources to participate in the market
effective regulation of monopoly networks so they can achieve their security and reliability obligations at the lowest long-term cost to consumers
facilitating the evolution of networks to deliver dynamic, two-way energy flows as the uptake of distributed energy resources like batteries accelerates
coordinated investment in transmission and generation so new supply can be added to the system at the lowest possible cost
access to efficiently priced gas and gas pipelines, supported by the continued implementation of gas market reforms
effective governance through leadership and strategic direction, clear roles and effective coordination among the energy market bodies, and faster rule changes and responses to market developments.

It is envisaged that this advice on strategic priorities will be further developed in collaboration with the newly established Energy Security Board, the Australian Energy Market Operator (AEMO), the Australian Energy Regulator (AER) and Energy Consumers Australia (ECA). The final advice will inform the COAG Energy Council’s strategic priorities and work program for the next three years.

Stakeholders are encouraged to provide their feedback on the proposed strategic priorities and work program. Submissions are due by 10 October 2017.

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

Consultation starts on application of revised rate of return guidelines for TasNetworks

22 August 2017

The AEMC has published a consultation paper on a rule change request from TasNetworks to change the timing of the application of the Australian Energy Regulator’s revised Rate of Return Guidelines to its distribution business.

TasNetworks proposes to apply the current, rather than revised, Rate of Return Guideline in its 2019–2024 revenue proposals for both its transmission and distribution businesses. Under arrangements put in place last year, the revised Rate of Return Guidelines will apply to TasNetworks’ next distribution revenue proposal and the current Rate of Return Guidelines to its next transmission revenue proposal.

By basing its revenue proposals on one rather than two Rate of Return Guidelines, TasNetworks stated this would reduce costs associated with preparing and making its proposals. This change may also make it easier and provide a more streamlined assessment process for stakeholders and the Australian Energy Regulator.

TasNetworks is the only network business affected by this inconsistency. The rule change request does not propose to alter any arrangements for other network service providers.

The AEMC will consider this rule change as non-controversial under an expedited rule making process, subject to the receipt of any written objections from stakeholders by 5 September 2017.

Submissions on the rule change request are due 19 September 2017. A final determination is due 3 October 2017.

Consolidation of Contestability of energy services rule change requests

15 August 2017

The AEMC has consolidated rule change requests from the COAG Energy Council and Australian Energy Council on the Contestability of energy services.

There is a close overlap of issues within the requests. Consolidation of the requests will allow the Commission to provide a comprehensive set of solutions to the issues raised in both rule change requests.

We plan to publish a consolidated draft rule determination on 29 August 2017.

Media: Prudence Anderson, Communications Director, 0404 821 935 or DL (02) 8296 7817.

Distribution revenue smoothing in NSW and ACT – final determinations

01 August 2017

The AEMC today published final rule determinations that will allow NSW and ACT distribution businesses to recover any increased or decreased revenue that results from the Australian Energy Regulator’s remaking from its 2015 determinations for distribution network businesses.

The final rules are more preferable rules, and allow for any changes in revenue as a result of the remade determinations to be ‘smoothed’ and recovered from customers over the current regulatory control period (2014-2019) and the next regulatory control period starting on 1 July 2019.

In March 2016 the AER applied to the Federal Court for a judicial review of the Australian Competition Tribunal’s decisions on the NSW and ACT distribution network revenue determinations for the 2014-2019 period . The Federal Court made orders on 4 July 2017 requiring the AER to remake the 2015 determinations. This process is currently underway.

The two rule change requests - one submitted jointly by the NSW distribution network businesses (Ausgrid, Endeavour Energy and Essential Energy) and the other submitted by ActewAGL - proposed that any revenue adjustments that may result from the outcome of the judicial review proceedings be recovered over two regulatory control periods, to minimise price volatility for customers.

Media: Communications Director, Prudence Anderson 0404 821 935 or DL (02) 8296 7817

Non-scheduled generation and load rule request: workshop papers and time extension

19 April 2017

The AEMC today published presentation slides and a summary of the stakeholder workshop on the non-scheduled generation and load in central dispatch rule change proposals held on 24 March 2017.

Under the proposed rule changes, a number of options for changing the requirements for non-scheduled generators and loads to participate in central dispatch were put forward.

At the workshop, participants provided feedback on the AEMC’s analysis of the issues raised in the rule change proposals and the options being considered.

To enable further consultation, and due to the complexity of issues raised by the rule change requests, the AEMC is extending the date for publishing the draft determination until 20 June 2017, under section 107 of the National Electricity Law.

For further information, contact:

Communications Director, Prudence Anderson, 0404 821 935 or (02) 8296 7817

Final Determination – Minor Changes 2017

19 April 2017

On 19 April 2017, the AEMC made the National Electricity Amendment (Minor Changes) rule 2017 No. 3. This Rule was initiated by the AEMC to correct minor errors and make non-material changes to the National Electricity Rules (NER).

The National Electricity Amendment (Minor Changes) Rule 2017 No. 3 commences operation on 2 May 2017.

For further information, contact Communications Director, Prudence Anderson on 0404 821 935 or 02 8296 7817.

Fast response energy – directions paper for five minute settlement

11 April 2017

In a directions paper released today, the Australian Energy Market Commission has outlined the impacts of changing the settlement period for the electricity spot price from 30 minutes to five minutes.

AEMC Chairman John Pierce said the proposed change would signal more accurately the value to consumers of fast response technologies, such as aggregating distributed storage, new generation gas peaker plants and rapid demand response, which are needed to support the increasing penetration of intermittent wind and solar generation in the sector.

“With more wind and solar generation, along with the retirement of thermal generators like Hazelwood, there is an increasingly important role for flexible and fast response generation and services,” said AEMC Chairman John Pierce.

“It’s essential that we have mechanisms that appropriately value the contribution of different generation sources to the long term interests of consumers, not only using the technologies of today – but the technologies of the future,” Mr Pierce said.

”We are now calling for public submissions to provide more detailed evidence on the costs and benefits of this fundamental change to the design of the national electricity market.”

A move to five minute settlement would align the physical electricity system – which matches demand and supply every five minutes – with the price signal provided by the spot market for that five minute period.

An efficient price signal will help drive investment in the range of technologies required to meet consumers’ future electricity needs.

The Commission also notes that moving to five minute settlement is likely to lead to changes in bidding behaviour, which means historical patterns of five minute dispatch prices may not be a good guide for the future. For example, five minute settlement may lead to less volatility than displayed in the current five minute dispatch prices, with fewer and lower price spikes, and therefore the revenues for fast response generation technologies may be less than expected.

It is also essential to have clear, national, co-ordinated policy objectives, particularly in relation to the integration of emissions and energy policy, to provide the level of certainty needed for business and consumers to invest.

The directions paper identifies a number of significant implementation issues. A change to five minute settlement would create one-off metering and IT system upgrade costs. More importantly, it will disrupt wholesale contract markets which play an essential role in managing risk, reducing uncertainty, and lowering the barriers to entry faced by new competitors in the market.

A transition period would be needed to give contract markets time to adjust. The AEMC’s initial view is that a transition period of around three years would be short enough to capture the benefits of moving to five minute settlement, while minimising implementation costs and risks. We will consult with stakeholders to get a more detailed understanding of costs and benefits before making a draft determination.

To facilitate stakeholder input on the directions paper, a public forum will be held on 4 May in Sydney. It will also be webcast live and a recording will be made available later. Stakeholders can register their interest in participating at www.aemc.gov.au

Submissions on the directions paper close on 18 May 2017. The AEMC intends to publish a draft determination on 4 July 2017.

Media: Bronwyn Rosser 0423 280 341 or (02) 8296 7847

Background

The five minute settlement rule change proposal was submitted by Sun Metals Corporation, a zinc refinery and large energy user. Under the National Electricity Rules, any individual, group or organisation can lodge a rule change request or submission with the AEMC.

A working group including generators, retailers, new technology providers, consumer groups, financial institutions, large energy users, the market operator and regulator, has been helping the AEMC assess this rule change proposal. The directions paper has been prepared in response to the group’s request for additional consultation on implementation issues and timeframes.

Draft rule on new planning arrangements for replacement assets by electricity network businesses

11 April 2017

The AEMC today made a draft rule on new obligations on network businesses to provide more information on their plans for retirement and replacement of electricity network assets.

As the technology-driven transformation of the electricity market continues, there is now a greater focus on managing the existing electricity network in new ways. For example, developments in battery storage, demand response and other technologies may provide alternatives to ‘poles and wires’ when parts of the network need to be replaced.

Taking account of these changes, the draft rule extends some of the mechanisms and planning arrangements in the rules to provide better information and more transparency on upcoming network replacement projects.

Under the draft rule, transmission and distribution network businesses would be required to include information on plans to retire network assets or reduce their capability (known as ‘de-rating’) in their annual planning reports. The draft rule also extends the application of regulatory investment tests (the RIT-T and RIT-D) to include replacement projects. These tests, which currently only apply to augmentation projects, require network businesses to weigh up the costs and benefits of potential network and non-network solutions.

Improving transparency should help providers of non-network solutions, such as battery storage, embedded generation and demand response, to identify investment opportunities in the network.

Increased transparency is also likely to assist the Australian Energy Regulator and stakeholders in regulatory decision-making processes such as revenue determinations.

The draft rule changes would make the planning process for replacement projects consistent with the process for planning network augmentation projects.

Stakeholders are invited to make submissions on the draft rule and draft rule determination by Tuesday 6 June 2017.

Submissions invited on Secondary trading of settlement residue distribution units rule change request

11 April 2017

The AEMC today called for submissions on a rule change request from Westpac Banking Corporation to enable the Australian Energy Market Operator (AEMO) to provide a platform for secondary trading of settlements residue distribution units.

Regions of the national electricity market (NEM) have different levels of demand and differently priced generation, which leads to different wholesale prices. Price separation between regions occurs when there is not enough interconnector capacity to equalise the spot price flowing from a lower to higher priced region. In these cases, AEMO collects more money in the higher priced region (from consumers) than it needs to pay to the generators in the lower priced region. That money is called the settlements residue.

AEMO auctions the rights to a share of this settlements residue on a quarterly basis, which provides auction participants with an additional hedging tool to help manage inter-regional price risk. While secondary trading of previously purchased settlements residue distribution units is allowed in the rules, the rule change request proposes a new platform for secondary trading based on an AEMO-facilitated auction.

In its request, Westpac proposes that auction-based secondary trading would increase the liquidity of settlements residue distribution units. Improved liquidity may also increase interstate trade of electricity and increase competition.

The consultation paper released today sets out the issues that will be considered by the AEMC, including the efficiency of inter-regional hedging through the use of settlements residue distribution units and default risk management.

Submissions are due by 9 May 2017.

Media

Prudence Anderson, Communications Director, 0404 821 935 or DL (02) 8296 7817.

Getting ready for the integrated gas market: gas day harmonisation final determination

16 February 2017

The Australian Energy Market Commission today published a final rule to harmonise the start of the gas day in markets across the eastern seaboard from 2021.

The new gas day rule will apply across different facilitated markets governed by the National Gas Rules. Under the final rule the gas day in each market location will start at 6am Australian Eastern Standard Time.

The Council of Australian Governments (COAG) Energy Council agreed in August 2016 to the AEMC’s roadmap to implement the ministers’ vision for an integrated east coast gas market. A common gas day across the facilitated markets will support new market arrangements proposed by that review which are currently being progressed by the Gas Market Reform Group established by the energy ministers.

The current reform program indicates the development of the market to standardise capacity contracts and incorporate short term secondary pipeline capacity trading and auctions is expected to be completed by around the middle of 2021. Changes to the gas day under the final rule will be coordinated with these reforms.

Different gas markets across the east coast currently operate with different gas day start times as a result of legacy pipeline arrangements. These differences impose a cost on the increasingly integrated system.

Media contact: AEMC Communication Director, Prudence Anderson 0404 821 935 or (02) 8296 7817 16 February 2017

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