This is an extract from a recent notification by Australia’s Energy Security Board on the final advice for a post-2025 market design for the National Electricity Market.

The Energy Security Board (ESB) in Australia released its recommendations for the redesign of the national electricity market on August 26, 2021. These were submitted to energy ministers on the Energy National Cabinet Reform Committee (ENCRC) at the end of July 2021.

ESB Independent Chair, Dr Kerry Schott AO, said the release of the detailed recommendations enables informed public debate about the package of interrelated reforms and will be of interest to industry and consumers and help inform future decisions by energy ministers and National Cabinet.

“The release of our complete advice should end the guesswork about certain aspects of the proposed reforms which has certainly not enabled an informed debate.” Dr Schott said. “This is not one big bang reform for the redesign of the electricity market. It is a set of interrelated measures to be implemented and considered over time. The reforms aim to deliver reliable, affordable, lower emissions electricity for consumers and to keep the lights on as the system decarbonises.”

Making way for new large-scale generation

The ESB is recommending four key pathways for reform to manage both the orderly exit of old technologies (especially ageing coal fuelled generation) and pave the way for new technologies.

Recommendations include:

  • Providing governments with tools to organise extra supply when they decide more ‘insurance’ is needed through a new opt-in strategic reserve or by triggering the current retailer reliability obligation (RRO), alongside principles to better align investment nationally.
  • Incentivising the market to bring forward the right mix of firm, flexible and variable resources, including storage, through a new medium-term capacity mechanism.
  • Increasing transparency to the market by requiring generators to provide more information about early exit and power supply status.
  • Enhancing data capacity to enable tracking and forecasts of consumer choices, demand response, value of reliability, and better understanding of the wholesale market and changing contracting behaviours.

Connecting renewables to the grid

The ESB recommendations are also about getting new renewable generation to consumers.

The ESB recommendations complement planned transmission projects in AEMO’s ISP and the development of Renewable Energy Zones (REZs) with a congestion management mechanism to encourage more generation into renewable energy zones (and the limited other places) where transmission costs can be shared and firm access secured.

  • Supporting the development of renewable energy zones through a consistent NEM-wide framework including principles to manage, planning, connections, access, funding, and economic regulation.
  • Encouraging generators and others to locate in renewable energy zones (and the limited other ideal locations) via a dual mechanism of congestion charges and rebates.
  • Identifying ways to maximise the timely and efficient delivery of major poles and wires (including ISP) projects.
  • Enabling effective locational forecasting to help plan and prioritise transmission augmentation.

New modelling done for the ESB has been released recently to demonstrate the extent of future congestion challenges.

People’s generation – rooftop solar and other distributed energy resources

Properly harnessing latent demand side flexibility and solar PV will make the grid more productive, cutting both costs and emissions.

  • Resolving identified technical and market issues which slow down and make it harder for customers and the grid to get the full value of distributed energy resources. A detailed 3-year implementation plan has been mapped out with industry and consumers.
  • Opening up new ways for customers with solar, batteries or smart appliances to be rewarded for responding to system needs, backed up by emergency tools to help keep the grid stable.
  • Putting fit for purpose consumer protections in place that are based on a new risk assessment tool to assess potential harm to customers associated with new products and services.

Strengthening the power system

Lack of essential system services has cost consumers a lot of money in recent years as a result of expensive interventions that have had to be made by the operator to keep the system stable. New technical backups (frequency, inertia, system strength, operating reserves) are needed urgently with the increasing wind and solar (asynchronous) generation and falling levels of coal-fired (synchronous) generation.

Dr Schott said new technologies like large-scale batteries and flexible demand will help make the system stronger.

  • Supporting availability and investment in the four essential system services – frequency, operating reserve, inertia, and system strength – through actions already underway.
  • Providing new tools to help AEMO manage the complexity of scheduling these essential system services as the resource mix on the grid changes.
  • Further monitoring of market conditions to identify the need for longer term reforms like the further bundling of system services and an integrated ahead market or development of an inertia spot market.
  • Providing critical data for monitoring and forecasting of required services weather-driven generation and demand.

The ESB will continue to work with the Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) to progress reforms to the National Electricity Rules while the broader advice is considered by governments.

About the Energy Security Board

The Energy Security Board reports to the Energy National Cabinet Reform Committee (ENCRC). The ENCRC and the energy ministers’ meeting are ministerial forums for the Commonwealth, States and Territories to work together in pursuit of national energy reforms. The ENCRC and energy ministers’ meeting were established following cessation of the Council of Australian Governments (COAG) in May 2020. The Energy Security Board has five members.

The original release can be accessed here