Australia’s energy market rule-maker on Thursday baulked at a golden opportunity to modernise and decarbonise Australia’s energy system by valuing electricity generated close to where it is also consumed.
That’s the view of the Total Environment Centre, which has been working since 2004 to reform the electricity sector – the dirtiest, most greenhouse-intensive industry in Australia.
Yet, the Australian Energy Market Commission announced that it was rejecting the proposal by TEC, the City of Sydney and the Property Council of Australia to introduce local generation network credits (LGNCs).
These credits would have recognised the value to networks of energy generated in the local system rather than requiring expensive infrastructure to travel hundreds of kilometres.
The value would have been based on the long run marginal cost (LRMC) of future infrastructure investment, and would have been the generation equivalent of the way LRMC is now being used to set network consumption tariffs.
With network charges amounting to nearly half the average retail bill across Australia, our proposal would have made it more financially viable to sell energy locally.
It would have been of great benefit to local councils, community energy groups and precinct scale co- and tri-generation facilities wanting to put local solar, wind and bioenergy into the grid to replace dirty coal and gas.
TEC is critical of the economic justification used by the AEMC to justify inaction. We had modelling done by the ISF at UTS that showed that more than half of the new investment in network infrastructure that would have been needed by 2050 would have been avoided with local network credits.
We also had work done by energy economists Oakley Greenwood that found that solar plus storage especially could be useful to networks in reducing peak demand, and that this value should be reflected in a credit to the local generator.
We never thought our proposal was the last word, and looked forward to discussing how to improve it – for instance, around only applying it to future investment over a certain threshold, and perhaps only in constrained parts of the grid.
But that didn’t happen. Instead, the AEMC plans to introduce its own ‘more preferable rule’ which consists of little more than tweaking existing requirements around network support payments to standardise information about their availability.
These payments are controlled by networks, are highly selective and often short term, and are difficult and time-consuming for outsiders to respond to. So we doubt that the AEMC’s solution will work. Anyway, information about network constraints is now available in a much more user-friendly format through ISF’s network opportunity maps.
The impact of this decision will be to push more local generators and prosumers to reduce their use of the grid, to look at private wires and microgrids, and potentially to disconnect.
TEC is also critical of the AEMC’s processes. We have been working on this rule change for three years, and today is the first time we have had any clear indication of the AEMC’s attitude. And there is no right of appeal to their decisions. In fact, no reform proposal by any group representing small consumers like households has ever substantially succeeded in being adopted by the AEMC.
Today we are therefore calling on state and territory ministers to support a change to the national electricity objective (NEO) to force the AEMC and others to take seriously the need to urgently reform Australia’s energy market to help meet Australia’s Paris climate change commitments.
If decarbonisation was part of the NEO, the AEMC would have been forced to consider better alternatives to our proposal if it considered it to be unworkable.
In the meantime, the reform option is still live until the AEMC makes its final determination, so we encourage everyone to make a submission before November 3.
Mark Byrne is TEC’s energy market advocate.
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