AEMO says major market reform essential to cut energy prices | RenewEconomy

AEMO says major market reform essential to cut energy prices

AEMO and ARENA again plead for changes to market rules to keep pace with extraordinary change of technology. Australia’s over-buit grid is locked in 20th century, with much capacity sitting idle and peaking plants trying to recoup a year’s revenue in just a few hours.


Two key Australian energy institutions have again pushed for more rapid and wholesale changes of market rules, saying this was essential if Australia was to manage new technologies and return to its former status of a low-cost energy nation.

Testimony from the Australian Energy Market Operator and the Australian Renewable Energy Agency underlined their plea for changes to market rules, changes which many in the industry say have been stalled under the current market rule maker.


New AEMO chief executive Audrey Zibelman says Australia used to have low energy prices, but had obviously lost that status. “The question is, how do we use the resources we have to get back to that level of affordability?” she told a parliamentary inquiry in Canberra.

The answer was with new technologies like battery storage and demand management, a new set of market rules. “What we need is to think how to get these opportunities into the market. We are operating 20th Century power system trying to keep pace with 21st Century change,” Zibelman said.

Both AEMO and ARENA have been highly critical of the slow pace of reform of Australian energy market rules, the province of the Australian Energy Market Commission and the COAG energy ministers.

In its submission to the parliamentary inquiry into a modern electricity system, AEMO said that Australia’s rule making was not sufficiently forward-looking to meet the needs of the “paradigm shifts” the National Electricity Market was undergoing.

In particular, AEMO and ARENA want rule changes that can encourage battery storage and demand management, and that will address the over-investment in networks and generators that are responsible for Australia now having some of the highest electricity prices in the western world.

The AEMC, however, has been sitting on both these proposals. The request for demand management incentives made way back in 2012 have been stalled, and it is still considering a request for a change to a 5-minute settlement rule, which would encourage battery storage, nearly two years after it was made.

The AEMC, appearing at the same inquiry, conceded there had been delays because of the “complexity” of the issues, but said the biggest problem was the lack of clarity over emissions targets.

Zibelman said answers to questions about emissions would be helpful, but “there are other things we need to start talking about. “

She cited demand management, where new market incentives could allow consumers to be paid $50/MWh to not use power at certain times, rather than having to pay $10,000/MWh when supply is tight.

AEMO and ARENA, frustrated by the glacial pace of AEMC rule-making, last week launched their own pilot to install 100MW of demand management in Victoria and South Australia by this summer, “to show it can be done”.

Zibelman says Australia’s energy market structure meant that on average the power stations in the grid were operating at only around 50 per cent capacity. That’s because so much extra capacity – mostly gas and diesel plants – had to be built historically to meet several hours of peak demand each year.

They basically “sat around waiting for a hot day” and then tried to recoup a year’s worth of revenue in just a few hours of generation. Hence the high prices.

“It’s like building a hotel and deciding you are only going to fill it on Anzac Day,” Zibelman told the inquiry. “You probably won’t build it.

“We should be creating a market that is more efficient, so we don’t need to have new generators that have to get one year’s revenue in 10 hours.

“That’s what we’re talking about when we say we should be rethinking the grid and making it more efficient. You need to work out how to build a grid that doesn’t have to build resources for few hours a year, which tends to be very expensive.”

ARENA boss Ivor Frischknecht said his organisation wanted rule changes in four key areas.

One was a shorter settlement period – to the 5 minute period now being considered. “Even shorter would be better,” he said.

Another was changing rules that did not penalise storage attached to, say, a large-scale solar plant, being pinged twice (as the batteries were charged and then discharged) with the full cost of the transmission network. He said transmission and distribution costs needed to be “truly cost reflective” rather than being “smeared” across the sector.

The third was on demand management initiatives such as demand response. “There is inadequate regulation.”

And the fourth was on inertia in the market, normally delivered “free” by turbines (coal, gas or hydro), but which now needed a market signal to encourage wind and solar farms to deliver the same service.

Frischknecht estimated that the total back-up costs for a high renewable energy grid – which he said was clearly achievable – would be between $20/MWh and $40/MWh.

Zibelman, in a reference to the “cultural” difference in the Australian energy market over the inevitable energy transition, and whether it could or could not be achieved, said it was essential to seize the opportunities as well as dealing with the challenges.

“What we need to do is think of market changes, and do how do we turn those challenges into opportunities. Even with this paradigm shift, we are seeing how challenges can be opportunities.”

She cited the push by South Australia and Victoria into battery storage, but also noted that “lots of innovators” were coming to AEMO with new ideas.

“What we need is to think how to get these opportunities into the market. We are operating 20th Century power system trying to keep pace with 21st Century change,” Zibelman said. “The question for us is – given that rate of change, of customer preference and customer security – what changes need to be made, and have to be made?”

Print Friendly, PDF & Email

  1. DJR96 3 years ago

    Everyone wants to know why power prices are so expensive.
    The answer is simply because the AEMC and COAG are virtually unresponsive.
    Their complete lack of results really is the reason for high costs. Had they done their job and kept up-to-date we would all be better off.

    • MaxG 3 years ago

      It should not have been privatised in the first place — the root of it all

      • DJR96 3 years ago

        OK, at the risk of being stung by your sarcasm yet again….
        Nowadays it doesn’t matter who owns it. Private ownership is just trying to make profits. But State governments are milking it for all its worth too just to prop up their budgets. Especially here in Qld. Which is one reason prices have gone up.

        • MaxG 3 years ago

          No risk 🙂 No sarcasm 🙂 I mean it.
          I agree with you on “nowadays”, which is sad in itself, but relates to the dysfunction of government, which does not look after its people (its main objective). If government would function, than I prefer the ‘milking’ of the utility for the greater good of society, compared of private profits filling individual’s pockets. Electricity was certainly cheaper as a public asset.
          I aslo hold the view that the government has no right to sell the assets of its people; it would need a referendum. It is also commonly understood that there is usually a greater cost to a service someone else is running for you. One reasons, why I become as self-reliant as possible, having only 5 bills per year to pay.

        • MaxG 3 years ago

          Maybe I owe you more…
          I am not only looking at one particular subject; I am systems-thinker, and as such it matters to me that the public ‘owns’ something. In my world and in the meaning of democracy the people are the power, who elect their leaders to work for a greater common good; which is violated on all fronts… so, when we further think about the continuous decline in jobs and thus employment, one question comes up: where are the jobs coming from, and are jobs the answer, or even possible, considering where — let’s say computerisation (for AI and robots) is taking us? My answer would be ‘basic income’; however, this idea goes down the gurgler, because it would be financed form the common / public owned assets, where e.g. resources form part of it. The more that democracy and public good is being dismantled by the neoliberals (also found in the Labour Party), the (literally) poorer the public = people will be… and is already the case.

          Just a thuoght 🙂

  2. Chris Fraser 3 years ago

    I think all political parties should publicly state their stance on transforming the AEMC, prior to State elections. AEMC have been flying under the radar for too long, and they’ve decided our energy prices for too long.

  3. Tom 3 years ago

    I like Audrey Zibelman. She’s awesome.

    She is quite literally going to change the world, starting with Australia.

    • david H 3 years ago

      I agree, she is awesome and if she can change Australia, she can change the world as there is none as blind as those that don’t want to see!

    • FeFiFoFum 3 years ago

      Audrey is too awesome, so they will probably get the knives out and kill her off.
      She is showing up all the pretenders and out of date dinosaurs in AEMC and COAG and putting the spotlight on them, where it should have been pointed before.

      Watch out for the smear campaign to try and discredit her.

      • solarguy 3 years ago

        I have to agree the vested interests will do their utmost to discredit Audrey (what a girl). We can help support her and we must do that in every way we can.

      • ben 3 years ago

        Unfortunately I agree as well. The vested interests, “mates” and snouts in troughs will do their best to stop her from upsetting their cosy way to rip off the consumer

        • ROBERT NEILL 3 years ago

          Indeed. Think fat Barry Fife in Strickly Ballroom pulling the plug and screaming “NO NEW STEPS!!”

  4. Rob G 3 years ago

    Abbott the “wrecker” has played a big part in messing energy up. Electoral trickery and a push for coal has worked against the interests of Australians. It’s truer to say the LNP stand for higher energy prices.

  5. Mark Roest 3 years ago

    Regarding “Frischknecht estimated that the total back-up costs for a high renewable
    energy grid – which he said was clearly achievable – would be between
    $20/MWh and $40/MWh.” It certainly is clearly achievable — and the backup costs are more likely to be $10/MWh to $20/MWh by 2020 or 2021, and continue to drop from there, as battery life improves.

    And I agree that Audrey Zibelman is awesome!

  6. David McKay 3 years ago

    Seems AMEC is rooted in the old energy system & staffed accordingly. They will delay change that will encourage new energy competition

  7. disqus_3PLIicDhUu 3 years ago

    Think it’s premature to say the grid is over built, it may be the case at present but we will see much more electric transportation load hitting the grid soon enough.

    • Ren Stimpy 3 years ago

      It’s premature, costly and wasteful to overbuild the grid before knowing what extra load electric transportation will need. People will probably do most of their electric car charging from solar panels – either on their own roof, on their employer’s roof, or on their neighbours’ roofs shared via microgrid. The new distributed energy paradigm will mean we can save a ton of cash by not pre-emptively and unnecessarily building gold plated grids anymore. We wouldn’t build 6-lane highways to Tittybong, Wonglepong, Humpty Doo or Goonoo Goonoo, so why do the equivalent of that with the electricity grid?

      • Calamity_Jean 3 years ago

        Public car chargers (and maybe private grid-connected ones also) should be controlled by the grid operator so that if a cloud drifts over the solar array, or there’s a lull in the wind, some random chargers can be shut off for a minute or two to compensate. A “dispatchable” load would go a long way toward balancing the variability of renewables.

        “…Tittybong, Wonglepong, Humpty Doo or Goonoo Goonoo….”

        I’m in the US, so I have to ask; are there really towns with those names in Australia?

        • DJR96 3 years ago

          Yep, all real names. (Tittybong neighbours Cokum 😉 )

          • Calamity_Jean 3 years ago

            As my mother used to say, “You learn something new every day.” Thanks!

        • Ren Stimpy 3 years ago

          Yes, and it may not even have to be random. The charging could be programmable, by time available to wait or even a dollar amount to spend, and also interactive with the vehicle’s current charge and capacity. Basically a smart system which can better match supply to demand based on priorities. Though with public charging stations the priority will probably always be ‘get em charged and move em out’ to avoid long queues.

          Yep those are real places. Goonoo Goonoo means ‘place of good water’. I reckon at the times when the tribes trekked there for water and it was dry they would’ve said Oonoo Oonoo!

        • Steven Gannon 3 years ago

          Aboriginal names, sort of. Humpty Doo and Goonoo Goonoo are real. He means the back of nowhere, generically known as Whoop Whoop.

          Many towns in Oz retained the Indigenous name for the locality. Wagga Wagga (a city), Tibooburra, Cockelbiddy, Grong Grong, Boorooloola, Cunnamulla and Collerenabri are a few and I have to add Bong Bong and Woodenbong. A made up one is Kickatinalong. Look up the song ” I’ve been everywhere man” if you want a laugh.

          • ROBERT NEILL 3 years ago

            Lets not omit Yarrawonga, Boomanoomana and Tumarumba

          • Calamity_Jean 3 years ago

            “Look up the song ” I’ve been everywhere man” if you want a laugh.”

            Evidently there’s both US and Australian versions of the song.

          • Steven Gannon 3 years ago

            It was written in 1959 by Australian Ted Mack. It looks like Hank Snow was the third to record it, just as good. Trump just announced he’s pulling out of the Paris deal, at least you have your State and other targets he can’t hobble.

          • Calamity_Jean 3 years ago

            “It was written … by Australian Ted Mack.”

            I didn’t know Mr. Mack was Australian. As my mother used to say, “You learn something new every day.” It’s a fun song in either version.

            “Trump just announced he’s pulling out of the Paris deal, at least you have your State and other targets he can’t hobble.”

            What a disaster that man is! Some US states and cities have clean power targets, others don’t. One state, Wyoming, actually has a special tax on wind power used in the state!

        • jamcl3 3 years ago

          Eventually every large load with be controlled by pricing on a ten second basis, controlling the entire grid by “supply side” variables. Nobody will mind the drop in cost most of the time. There will be spikes in price.

          • Calamity_Jean 3 years ago

            “Eventually every large load with be controlled by pricing….”

            “There will be spikes in price.”

            With plenty of “dispatchable” loads in the mix, price spikes should be unusual and short in both senses of the word.

    • solarguy 3 years ago

      Oh yes and it must be planned for now!

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.