Transitioning to a lower emissions power system
The power system is transitioning, with a large number of renewable generators like wind and solar farms connecting, while older generators are retiring.
At the household level, the last decade has seen a significant increase in the uptake of new technologies such has rooftop solar photovoltaic systems, battery storage and ‘smart’ energy management systems, collectively referred to as distributed energy resources (DER).
These changes are being driven by:
- government policies to support the uptake of renewable energy to reduce emissions
- the rapidly decreasing cost of renewable technology
- changing consumer preferences.
Our forward looking work program on energy and emissions
New technologies provide opportunities and challenges. The AEMC is supporting the transition to a lower emissions power sector by making rules and providing advice on:
- integrating energy and emissions policy
- least cost solutions to keep the lights on as the power system transitions
- integrating new technology into the power system by identifying and addressing potential barriers in regulatory frameworks.
Integrating energy and emissions policy
Policies used to reduce emissions in the electricity sector can directly influence:
- movements in electricity wholesale and retail prices
- investment incentives and risk allocation frameworks
- the level of consumer engagement with the market.
It is important to design policies that can reduce emissions while also providing reliable and affordable power to consumers.
The AEMC has highlighted the importance of integrating emissions reduction policy with the existing energy market structures in previous advice to government.
For example, our 2016 Review on the integration of energy and emissions reduction policy analysed the characteristics and impacts on the energy market of three emissions reduction policy mechanisms, and our 2009 Review of energy market frameworks in light of climate change policies analysed the impact of environmental policy uncertainty on Australia’s energy market. Links to other key reports can be found at the bottom of this page. As a member of the Energy Security Board, the AEMC worked on the development of the national energy guarantee (NEG) as a way to encourage new investment in clean and low emissions technologies while allowing the electricity system to continue to operate reliably.
New technologies create new opportunities for the entire community. They also raise new challenges when it comes to operating the power system and managing the market. There are many ways to address these challenges. The AEMC aims to develop targeted, evidenced-based solutions that meet customers’ needs, at the lowest possible cost. For example:
- We have updated generator technical performance standards – and the process for negotiating these – to provide a foundation for a smooth transition as new generators with different technical characteristics join the power system. Generators play an important role in helping keep the grid stable and so it’s important that they have specific technical capabilities when connecting to the power system. However, our proposed approach will enable the standards to be negotiated for each connection – tailored to circumstances – which aims to provide the best outcome for investors, and for consumers so they don’t pay more than necessary.
- We made a rule to develop a register of ‘smart’ distributed energy resources (ie. DER that can inject power into the network either through direct generation or the active curtailment of load). The register will be established by AEMO and include information about what DER is connected where, and how it performs in different scenarios. The register will improve energy market participants' visibility over DER, and, in turn, contribute to better decisions by network service providers, AEMO and other energy market participants about how to efficiently integrate DER into the grid.
- We have recommended new ways to integrate more demand response into the wholesale market through a wholesale demand response mechanism, a voluntary, short-term forward market that would allow trading of financial contracts closer to real time, and giving consumers the ability to contract with multiple retailers or aggregators at the same connection point (multiple trading relationships). These changes will give consumers more opportunities to offer and get value from their demand response in the wholesale market.
- We have changed the financial settlement period for the wholesale electricity spot market from 30 minutes to five minutes. Price signals that align with physical operations lead to more efficient bidding and operational decisions and will underpin investment in capacity the power system needs. This will include fast response technologies, such as batteries, gas peaker plants and demand response. Over time, more efficient investment will flow through to lower wholesale costs, which should lead to lower electricity prices than in a market with 30 minute settlement.
Integrating new technology into the power system
The AEMC is undertaking a technology-focused work program to identify:
- barriers to deployment of new technologies by new or existing market players
- whether the consumer protection framework remains fit for purpose
- incentives or disincentives for business model evolution and whether changes to distribution system operation and market design are needed.
Projects in the AEMC's technology work program include:
- Electricity network economic regulatory frameworks review which supports the continual evolution of the energy sector. The 2019 review is assessing how financial incentives for network businesses may need to change over time so networks embrace new technology where it is the cheapest way to help manage the grid.
- Distribution Market Model which sets out a vision for our future electricity grid where new energy service providers emerge with more high-tech choices for consumers and more consumers buy and sell energy in a dynamic way in response to price signals. To achieve this, some essential changes to energy markets are already underway but our report outlines a range of ‘enablers’ to help.
- Integration of Storage which focused on how storage will impact the supply chain and whether there are barriers and regulatory issues associated with the uptake of energy storage. We have since removed the identified barriers to entry and are addressing any regulatory issues through rule change processes as they are identified.
The AEMC is also participating in reference groups for pilot renewable energy projects which include:
- Distributed Energy Integration Program (DEIP), an initiative of the Australian Renewable Energy Agency that brings together energy peak bodies, market authorities, industry associations and consumer associations to maximise the value of customers' distributed energy resources for all energy users. DEIP will work to coordinate the rollout of initiatives aimed at growing the penetration of DER through improved cost and time efficiencies, informing energy consumers and supporting development of innovative business models.
- Decentralised energy exchange (deX) project, funded by ARENA and led by GreenSync. The deX provides a marketplace for households and businesses with rooftop solar and batteries to trade with each other and also with network operators. This will allow households and businesses generating renewable energy to access incentives and reduce their demand on the grid during peak events.
- Virtual power plant project in South Australia, which is being built by AGL in partnership with ARENA and US-based energy storage company, Sunverge. The project is aiming to build the world’s largest virtual power plant of its kind, made up of 1,000 connected batteries installed in homes and businesses and providing 5 MW of peaking capacity. Customers participating in the project are able to purchase a heavily discounted energy storage system. When working together at scale, the batteries could help stabilise the grid by discharging during peak times.
- Energy Storage for Commercial Renewable Integration (ESCRI) project. ElectraNet has installed a large-scale battery at Dalrymple in South Australia. This demonstration project, part-funded by ARENA, is looking at how energy storage can strengthen the grid and improve reliability in the local area. The battery system has been designed to provide back up energy in the event of a loss of supply to the area; system security services such as fast frequency response and contingency frequency control ancillary services (FCAS); and surplus energy to the wholesale market (ie. energy trading). AGL intends to operate the battery to provide FCAS and energy trading as these are competitive market services.