The Energy Security board is calling for feedback what is likely to be the biggest shake up of electricity markets in decades, including asking regulators to actively prepare for the phase out ageing coal and gas generators, establishing two-way electricity markets and new mechanisms to coordinate network investments.
In a consultation paper released on Monday, the Energy Security Board has called for feedback on proposed reforms along seven themes, that work to manage the fundamental transformation underway in Australia’s main grid, including increased uptake of wind, solar and battery storage as well as the growing role of behind-the-meter energy resources like rooftop solar.
Proposed reforms for a post-2025 redesign of the National Electricity Market has been the main focus of the work of the Energy Security Board, and is being developed in recognition of the fundamental changes that are occurring in the way Australia’s electricity markets are operating.
Energy markets undergoing an accelerating shift away from the centralised model that relies upon big thermal generators supplying passive energy users, with the emergence of cheap renewable energy technologies, surging uptake of distributed energy resources like rooftop solar and batteries, and demand response measures changing this relationship.
“It is clear that the rules and market frameworks need to evolve to keep up with the accelerating pace of change, which is leading to security and reliability challenges and less than ideal outcomes for consumers,” chair of the Energy Security Board Dr Kerry Schott said.
The Energy Security Board is seeking feedback on a number of potential reforms, including the establishment of a two-sided market and a strategy for managing the closure of Australia’s ageing fleet of coal-fired power stations.
“The transformation roadmap released today is open for public review and response,” Schott said. “Some changes can be implemented now and others before and after 2025. This major reform is a change journey to and beyond 2025 – it is not a one “big bang” reform process.”
The ESB has proposed the development of an ‘Aging Thermal Generation Strategy’, which would manage the exit of almost two-thirds of Australia’s thermal generation capacity, including coal and gas generators, over the next two decades.
“This uncertainty around the timing of closure of ageing thermal generation may exacerbate the risks faced by investors in the NEM, leading to either delayed investment or increased risk of new investments, both of which may translate to higher prices for consumers. Ageing thermal generators also face uncertainty around the timing of their own closure and that of their competitors, which may lead to inefficient levels of investment in maintaining their plant, also increasing the cost of generation or leading to premature, unplanned exit,” the Energy Security Board says.
The ESB pointed to the rapid rise of the rooftop solar market in Australia, with more and more households and businesses taking their energy production into their own hands, adding that the package of reforms is designed to help manage the decentralisation of the Australian energy system.
“Similar changes are occurring in many electricity markets across the world. But the rapid pace of change occurring in Australia and the adoption of distributed (rooftop)solar photovoltaic (PV) systems is remarkable,” the ESB discussion paper says.
“At least 2.2million households now have solar PV on their rooftops, up from 100,000 a decade ago. This means the changes to the NEM design are likely to be among the first in the world to meet these needs.”
This will include a long-flagged introduction of mechanisms supporting the creation of two-sided markets, recognising a trend towards energy users taking a more hands-on role in how their energy is produced and managed. These reforms would also factor in the growing digitisation of the energy market, with more data being collected and the ability to coordinate energy systems remotely becoming increasingly common.
The ESB is also seeking feedback on a proposals for the coordination of new generation and network investment, and how access to transmission networks by new projects will be managed. Such a mechanism would help to avoid issues that have plagued new wind and solar projects in some parts of the next work, where insufficient network infrastructure has been built, leading to costly project curtailments and connection delays.
Regulators have seen a growing need to step in an coordinate investment in network infrastructure, with proposals for Renewable Energy Zones being lead by several state governments, and AEMO’s Integrated System Plan serving as a blueprint for where new network investment should be directed.
Additional proposed reforms include the establishment of a resource adequacy mechanism, the further development of ‘ahead market’ mechanisms and the strategy for the integration of distributed energy resources.
“This is a substantial package which builds on a great deal of feedback from stakeholders and interested parties over the past six months. We are very interested in feedback from all interest groups on the directions we have set out as we work towards a final set of recommendations,” Schott added.
“These initiatives consider almost all aspects of how electricity is generated and dispatched, how consumers can access the services they want and how investment can occur in the most efficient way to avoid unnecessary costs.”
The Energy Security Board, which includes Schott, deputy chair David Swift and the heads of the three energy market bodies, AEMO, the AEMC and the AER. The Energy Security Board was tasked with the development of a post-2025 design proposal by the former COAG Energy Council, and will instead report to energy ministers through the new National Cabinet system.
Responses to the consultation paper can be made by 19 October, with a final list of recommendations to be delivered to energy ministers by mid-2021.