Clarifying the treatment of jurisdictional policies and system costs in the ISP

Rule Change: Completed

Overview

The Australian Energy Market Commission (AEMC) has published a final determination to make no rule in relation to a rule change request submitted by The Centre for Independent Studies, which proposed changes to the way the Australian Energy Market Operator (AEMO) develops the Integrated System Plan (ISP) and the information the ISP provides.

The rule change request sought changes to:

how the ISP treats jurisdictional emissions reduction targets and policies
require the inclusion of a broader range of costs in determining “whole of system” costs
require publication of additional information relating to costs and cost implications of individual jurisdictional policies as part of the ISP.

The Commission has determined that rule changes are not required to address the issues raised by the proponent

The Commission has determined that a rule change is not required to address the issues raised by the proponent in its rule change request. The additional analysis and information the proponent proposed that AEMO include in the ISP in its rule change request:

would be inconsistent with the governance arrangements of the national electricity framework, including the National Electricity Law (NEL) and the Australian Energy Market Agreement (AEMA),
can already be considered under the current rules
would increase costs for limited benefits
would not support the achievement of emissions reduction targets that are set by jurisdictions, as well as price and reliability aspects of the National Electricity Objective NEO.

The purpose of the ISP, as set out in the National Electricity Rules (NER), is to establish a whole of system plan for the efficient development of the power system over at least a 20-year time horizon. This means that the overall purpose of the ISP is to contribute to the long-term interests of consumers with respect to achieving targets on the targets statement, as well as price, quality, safety, reliability and security of the supply of electricity. This includes targets set by participating jurisdictions, including, emissions reduction targets, as well as renewable energy, electrification and energy productivity targets.

Jurisdictions determine which targets are included in the targets statement for the purpose of developing the ISP

Jurisdictional governments are responsible for setting energy and emissions reduction policies, including emissions targets, under the national electricity framework.

We recognise there is a risk of distortion in modelling outcomes in the ISP in cases where jurisdictions include near-term policy targets in the targets statement that are unlikely to be delivered.

These risks can be managed by jurisdictions ensuring the emissions and renewable energy targets in the targets statement are coordinated and consider the impact on the NEM and energy consumers more broadly. This is particularly important for near-term targets, which can directly affect transmission planning and investment decisions that flow from the ISP.

Jurisdictions and AEMO can work together to support the achievement of key jurisdictional targets while ensuring the efficient and effective delivery of ISP projects. This would ensure that the ISP remains credible and effective as a roadmap for the development of the NEM.