2020 vision: The AER has a new head, will there be change at the AEMC? | RenewEconomy

2020 vision: The AER has a new head, will there be change at the AEMC?

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AEMC has been a drag on the electricity system for some years. It’s time for a change at the top.

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John Pierce has been chair of the Australian Energy Market Commission since 2010, and was reappointed in 2015.

It’s hard to believe he will be re-appointed for a third term, and therefore we anticipate that the AEMC will have a new chair from mid 2020. The AEMC’s previous CEO, Anne Pearson left abruptly in mid 2019.

In ITK’s opinion the AEMC has been a drag on the electricity system for some years. In ITK’s opinion the AEMC did not foresee the changes in rules, approaches and structures that are required to deal with rapid decarbonization of the market.

In our view if the AEMC had done a better job, the Energy Security Board might never have been required.

In ITK’s opinion there has been, beneath  the surface, something of a struggle to determine who is running the market structures and policy of the National Electricity Market.

On the one side is the fiercely libertarian, fully market driven, yet passive approach of the AEMC and on the other hand a more interventionist view from the increasingly aligned ESB and Australian Energy Market Operator.

The Integrated System Plan represents the practical outcome of that alignment whereby AEMO is determining what needs to be done and the ESB is making sure that it gets done.

For  another example the AEMC has attempted to front run the COGATI process in front of the ESB market redesign process.  To date that effort has been unsuccessful with the COAG energy council requiring, at the least, more work from the AEMC.

Other relatively recent AEMC decisions, driven, in ITK’s opinion by an increasingly spurious resistance to centralization,  have been extensively criticised by industry participants, and in ITK’s view with good reason.

Two examples that spring to mind are the seemingly innocuous “do no harm rule” and the less publisised but in the long run equally detrimental “power of choice” policy.

So in short and in the full knowledge that criticism from the sideline  is easy and leadership on the field is difficult ITK thinks it is time for change at the AEMC.

AEMO

Audrey Ziebelman has been a breath of fresh air at AEMO. If the AEMC was slow to recognize the winds of change, AEMO prior to 2017 was even slower.

Its systems were out of date, its control of generation standards was loose, its forecasting record was terrible (in company with many others) and in general the industry was, in ITK’s opinion, unhappy with the level of performance.

In ITK’s view AEMO’s underlying “ fitness for purpose” has vastly improved however the scale of the challenge is so large that the improvements often seem overshadowed by difficulties.

In general we would say that AEMO’s ability to cope with the number of new connection requests and their impact on system strength has been lacking.

For better or for worse the pace of new connections is going to slow over the next 12 months and ITK believes that the processes to manage Australia’s own “Energiewende” will become more efficient.

AER

The previous CEO of the AER Paula Conboy left with a mixed record. There is no doubt that the regulatory authority of the AER has increased.

Perhaps the main reason for this was legislative abolition of a regulated entity’s right to appeal AER decision to the Australian Competition Tribunal.

Also there is now less debate over  WACC parameters, the single biggest driver  and least well understood  of network costs paid by consumers.

On the other hand the AER lost expensive and lengthy court cases brought by NSW distribution businesses against decisions made by the AER.

More importantly ITK  somewhat controversially believes a blinkered view focused more on short term efficient costs rather than long term fitness for purpose has held back development of required technological change in networks.

For instance there is at best very slow progress on peer to peer trading, community level storage, or the many benefits of distributed network control. Ring fencing makes capturing the multiple revenue streams batteries can offer very difficult for  industry participants.

The AER is still slow in making decisions.

What is the point of the AER extensively reviewing RIT-T investment cases that AEMO via the ISP have already determined as necessary?

Presumably the AER process means a second set of consultant.engineers are employed to review the budget and technical processes that the underlying regulated entity, eg Transgrid has proposed. If so such a  second guessing approach “should” be efficient and timely but in ITK’s opinion there is little evidence that is so notwithstanding interim “letters of comfort” that the AER may provide in such cases.

Again, it’s easy to criticize but the point really is that networks need to develop technology quite a lot and an “efficient” = low cost is more important than change philosophy doesn’t help.

The ESB

In ITK’s opinion the ESB got off to a rocky start with its endorsement of agenda driven modelling in support of the NEG. As we said at the time that undermined its reputation early.

However since then ITK has mostly good things to say about the ESB. In particular support for the ISP, behind the scenes activism for  pre funding of transmission development, instigation of the post 2025 markets design process are all very positive.

That said the failure to include a carbon objective in the markets redesign discussion is a fatal flaw to that process and by definition fatal means that the process wont properly succeed.

Markets and processes  will be inefficient until a credible carbon reduction target  is included in National Electricity Law, modelled in the ISP and explicitly priced into market transactions.

Kerry  Schott was appointed  Chair of the ESB in August 2017 and if serving a five year term would continue in that role until 2022.

Claire Savage, former Deputy Chair has now taken up a role as head of the AER and thus remains a member of the ESB, but there has been no replacement announced for her prior role at the ESB. As with many things to do with COAG its surprising that Ms Savage’s replacement has taken so long.

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5 Comments
  1. trackdaze 9 months ago

    If Overseeing massive rises in transmission and network costs is a guide then it’s time to go.

  2. John P 9 months ago

    Thanks David. I’m not familiar with the inner workings of the electricity market and after reading your analysis, I’m even more pleased that I decided to leave the grid some thirty years ago!
    Off grid is cheaper, more reliable and trouble free – at least, so far!

  3. Ken Dyer 9 months ago

    I disagree. The AEMC under Pierce has been a millstone around Australia’s renewable energy neck for nearly a decade and is likely to continue for another half a decade. The cognitive dissonance displayed by the LNP government under Abbot and now Morrison will ensure that Pierce will be appointed for another term of obfuscation, and implicit support of the fossil fuel industry.

  4. Les Johnston 9 months ago

    As your analysis concludes, four policy players each having separate agendas and driven by an ideology of keeping the Minister satisfied, means energy cost effectiveness for the consumer is bound to fail. The energy system must be focused around integration of new technology rather than tied to political ideology.

  5. JackD 9 months ago

    Perhaps the responsible Federal Minister has fallen asleep at the wheel on this issue? Would that be Anxious?

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