Giving the energy regulator the power to crack open network revenue determinations whenever it wants could help grid operators better respond to the peculiarities of wind and solar power.
Or at least that is what the Australian Energy Market Commission (AEMC) expects from its latest draft rule.
The latest rule was proposed by the Australia Energy Regulator (AER), which is being given the ability to reopen a transmission network service provider’s (TNSP) revenue determination outside the usual five-yearly decision period, so it can swap in updated service target performance incentive schemes.
A STPIS, as it’s known in the acronym-heavy world of energy, is a set of penalties and rewards to encourage TNSPs to provide a better service.
That may be by investing so there are fewer outages, or through bonuses and penalties for meeting or missing targets.
But the ability to do this at will drew criticism from the two non-network entities that gave their views to the AEMC, and an industry expert.
NEXA Advisory director Stephanie Bashir says the draft decision highlights a weakness in the AER’s ability to scrutinise assumptions and costs before projects are locked in, and other reforms are needed to fix this.
She called the new workaround a “bandaid” and a short term fix.
“Consumers are ultimately footing the bill – they deserve transparent modelling and independently verified cost assessments,” Bashir says.
“Transmission investment must be robust and TNSPs need to be accountable.”
Her concerns were outlined during the submission process by the two non-network entities that gave their views on the rule request.
The Energy Users Association of Australia said not all future STPIS may be good for consumers, inferring that just because an incentive is good for the grid it may not be good for the people ultimately paying for the network.
Queensland power company CS Energy was worried that giving the AER carte blanche to insert new incentives and punishments at will into revenue determinations could result in instability.
“The industry is experiencing a rate of change that is very rapid relative to its capital intensive and long-lifed asset nature” CS Energy said in its submission.
“In these conditions, the AER will need to balance very carefully the benefits of adapting the STPIS to new circumstances against the possibilities that circumstances are only short term.”
“Frequent scheme changes may disrupt rather than improve transmission firms’ performance.”
New energy makes carrots, sticks difficult
The STPIS problem, as the AER sees it, is that it issued the new version in April last year but has no way of inserting it into revenue determinations until the next five year review.
“The review addressed stakeholder concerns that elements of the STPIS were no longer working as intended,” the AER said in its request.
“Largely, this is a consequence of the transition to renewable energy sources, which is changing the way electricity is generated and transported.
“The move from more centrally located thermal generation to more geographically dispersed and weather dependent fuel sources has created new demands on the transmission network with implications for how transmission network service providers (TNSPs) manage their assets.”
One of the alterations is suspending the market impact component, which incentives TNSPs to minimise the impact of planned outages on the National Energy Market (NEM) so the market operator doesn’t need to step in.
Powerlink in Queensland said in its 2023-2027 revenue proposal that it’s struggling to manage the demands of the new generation on the grid.
The AER is now working on a better way to prompt TNSPs to keep planned outages to a minimum.
The other changes include a bonus for finishing priority projects – and a penalty for not doing so – and an up to 1.25 per cent payment, or fine, of a TNSP’s annual maximum allowed revenue based on service targets such as how often there’s a loss of supply.
