Report details reforms for National Electricity Market's future
The Energy Security Board (ESB) has released details on the future direction of the National Electricity Market (NEM), identifying four areas of reform to address key challenges facing Australia’s electricity supply.
Following consultation with industry and governments during 2020, the Post 2025 market design directions paper consolidates proposed reforms to address the challenges set out in a Consultation Paper (issued September 2020) and in the Health of the NEM assessment report.
Reforms will deliver benefits to consumers by addressing four specific areas of need:
- Resource adequacy through the transition — critical to ensuring reliable and affordable energy as the power system continues its transition to lower emissions and new-generation technologies.
- Essential system services, scheduling and ahead mechanisms — building a stronger power system that can keep the lights on as change happens is the most critical issue.
- Demand-side participation — unlocking opportunities for energy consumers to make the consumption choices that suit them best, such as shifting to off-peak use, installing more efficient appliances or investing in their own locally based generation to increase competition and deliver real benefits.
- Access and transmission — providing networks to meet future needs including connection of renewables at the lowest possible cost.
The 2020 Health of the NEM assessment finds that real progress has been made with improved generation capacity (reliability), emission reduction, competition and network investment. But system stability (security) and investor confidence remain critical.
Falling wholesale and retail prices have improved affordability for most, but bill-shock is still a critical issue for consumers experiencing vulnerability, including those who have been impacted by the economic downturn associated with COVID-19.
ESB Independent Chair Dr Kerry Schott AO said there are ways to address these issues by redesigning the market, but the speed of change means reform is increasingly urgent.
“The Health of the NEM clearly shows the repercussions of rapid change in our electricity system and highlights the absolute urgency of addressing them,” Dr Schott said.
“We are concerned about security constraints in some parts of the NEM and the increasing pressure on distribution networks from growing rooftop solar penetration.
“This, combined with growing large-scale renewable generation and low wholesale prices, means it is vital that post-2025 reforms are put in place that can work alongside government policy schemes.
“We’re moving in the right direction, but major changes are needed to unlock value to customers and ensure capital investments are made in an efficient and timely manner to deliver the affordable, reliable and secure electricity consumers need.”
The report consolidates the previous seven market design initiatives (MDIs) into four directions, which respond to stakeholder feedback and rapidly changing government policies and incentives.
The scope of reform has been narrowed, including removal of proposed measures to deal with the exit of ageing thermal generation, which will instead be addressed through other resource adequacy mechanisms.
Similarly, the focus on integrating distributed energy resources (like the exponential growth of rooftop solar) becomes a key part of the pathway towards developing a two-sided market in the long term.
“We are focused on modernising the market, unlocking value for consumers and boosting consumer protection, removing red tape and making it easier for businesses to get in and offer the services customers may want to buy,” Dr Schott said.
“These reforms address the critical challenges facing the energy sector — affordability for all consumers, reliability and security; renewable energy zones; integrated system plan rule changes, enabling new generators to have adequate access to the grid; and national standards for distributed energy (or behind the meter) resources.
“While many people in the energy sector have different perspectives on the possible solutions or priorities, everyone agrees on the problems we identified earlier in this process. What we have in place now is no longer fit for purpose for the energy transition and beyond.
“The time to tackle these problems is now.
“The market bodies working together have held hundreds of workshops and consultations, spoken to thousands of stakeholders and considered hundreds of thousands of pages of submissions. It’s now time for tough, united decisions. If we keep kicking this further down the road, it’s going cost us all more for electricity in the future,” she said.
In the months ahead the ESB will develop detailed market designs for energy ministers and their further consultation in March, before making final recommendations to government in mid-2021.
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