Fossil fuel incumbents push to delay another crucial energy market reform

Crucial reforms designed to modernise the National Electricity Market are being put on the back burner under pressure from large incumbent fossil fuel generators using Covid-19 as a cover to stymie progress.

Two core reforms to the electricity market rules are facing delays after regulators are pressured to push back implementation out of concerns for ‘energy security’ as the Covid-19 pandemic places pressure on the Australian economy.

Large electricity market incumbents, primarily represented by the major fossil fuel generators, are already set to benefit from a push by the three core energy regulators for a delay to the implementation of the 5-minute settlement rule change request, as was reported by RenewEconomy in early April.

The reform to the National Electricity Market settlement, which would mostly benefit fast response technologies like battery storage and demand response measures, was also designed to reduce the opportunities for large generators to use their market power to manipulate wholesale electricity prices.

The AEMC is proposing a delay to the implementation of the 5-minute settlement rule change in response to the Covid-19 pandemic, joining AEMO and the AER in a joint letter to federal energy minister Angus Taylor to say there was “a direct security impact needing to be addressed immediately and implemented in a 6 – 12 month period” and that it was necessary to “to ease the pressure on industry in responding to the impacts of COVID-19.”

RenewEconomy now understands that a similar delay to the implementation of the wholesale demand response mechanism is being actively lobbied for, which the AEMC had indicated could be implemented in time for the 2021-22 summer. That timeline now appears to be up in the air.

In a submission to the AEMC, the Australian Energy Council, which represents some of Australia’s largest incumbent energy companies, called for a delay to the introduction of the wholesale demand response mechanism, saying that its introduction should align with the now delayed timeline for the five minute settlement rule change.

“…the implementation of Wholesale Demand Response should be delayed even further, to ensure that system changes and preparations do not conflict with, or cause unwelcome resource constraints for, the implementation of Five Minute Settlement and Global Settlement,” the Australian Energy Council submission says.

The Australian Energy Council called for the implementation of wholesale demand response mechanism to be pushed back until as late as February 2023, an almost 16-month delay.

AGL Energy, Snowy Hydro, Origin Energy and EnergyAustralia all made similar submissions to the AEMC, calling for a delay to the wholesale demand response mechanism, claiming that its timeframe should be aligned with the five-minute settlement implementation to reduce complexity.

Due to this pressure from some of Australia’s largest energy companies it is likely that such a delay would factor into the considerations of the AEMC, as it makes its decision about the final form and timeframe for the wholesale demand response mechanism. This decision is due to be finalised in June.

A formal request for the delay is likely to be submitted on behalf of the energy companies, modelled on the similar delay requested to the five-minute settlement rule change.

The calls for the delay were slammed by the collective of consumer and research organisations that originally proposed the introduction of the wholesale demand response mechanism, including the Australia Institute, the Public Interest Advocacy Centre and the Total Environment Centre.

“We write to express concern that some energy providers are arguing that COVID-19 presents a reason to alter or delay this vital demand-side reform. We strongly oppose any delay in the implementation of the wholesale demand response mechanism later than 2021, the intended introduction outlined in the draft determination,” the groups said in a joint statement.

“Given its crucial role in affordably meeting reliability and security requirements in coming  years, and the downward pressure it places on wholesale electricity prices, the costs of deferring wholesale demand response may far exceed the benefits.”

“As soon as the market bodies agreed to a 12 month delay of 5 Minute Settlement the opponents of reform used that to call for delay of wholesale demand response,” The Australia Institute’s Dan Cass added.

“This looks like it will be the anti-reform strategy in 2020, to focus on a few key rule changes and then use every win as a ratchet to wind back other reforms.

“The opponents of reform have still not presented clear evidence to demonstrate how reform implementation threaten system security, so we have to wonder whether it is really a cost issue. Perhaps some market participants planned ahead for the system changes and others are running late?” Cass added.

The Australian Energy Market Operator (AEMO) has said that there was no need to delay the implementation of the wholesale demand response mechanism.

“AEMO supports the introduction of the WDR mechanism prior to [five minute settlement], though acknowledges this may add some complexity to rule drafting and implementation, specifically in the areas of settlement and baselines. AEMO is keen to support the AEMC and industry stakeholders to design the necessary transitional rules and processes,” AEMO told the AEMC.

On Monday, the Australia Institute published its latest update to the National Energy Emissions Inventory, which showed strong growth in renewable energy generation, particularly rooftop solar, was pushing coal generators out of the Australian electricity market, while Covid-19 appeared to have little impact on the overall demand for electricity.

“Unfortunately, some coal generators and retailers are using this health crisis to lobby and slow down much needed reforms to the NEM. Over the long-term this will harm consumers, slow down economic recovery and hinder the growth of clean energy and emissions reduction,” The Australia Institute’s climate and energy program director Richie Merzian said.

“Australia’s electricity sector provides an incredibly valuable opportunity to stimulate the economy and reduce emissions; however, it is abundantly clear that more fossil fuel extraction and use cannot achieve either of these goals as effectively as renewables.”

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