Frustration as key energy market proposals delayed for another 18 months

The energy industry has reacted with frustration at news of another 18-month delay to proposed key market reforms that they say will add to market and investment uncertainty and cause costs to rise.

The Australian Energy Market Commission announced on Thursday that decisions on two key energy market reform proposals – originally put forward at the beginning of last year – would be put back for another 18 months.

The AEMC said the delays were the result of the complexity of the reforms, and the need to obtain data. But it also admitted it is inextricably linked with the ongoing efforts by the Energy Security Board, of which the AEMC is a key member, to develop a so-called “capacity market.”

The ESB, as part of the first wholesale rewrite of the market rules in more than two decades, had proposed a capacity mechanism that was dubbed “coal-keeper” because it was seen to favour legacy generators such as coal plants and gas plants.

The state governments have largely rejected the idea, although they have opened the way for the ESB to come up with another capacity market proposal that favours new investment in zero or at least low emissions technologies, such as battery storage, pumped hydro and demand management.

But there are other proposals about. One, put forward by Infigen Energy, now owned by Spanish energy giant Iberdrola, is for the introduction of a “dynamic operating reserve” framework.

Essentially, this is an extension of the existing RERT (emergency reserve) mechanism operated by the Australian Energy Market Operator, but rather than being subject to central control, it would be market based and flexible enough to allow different levels of reserve according to the wishes of individual states.

It would operate in a similar manner to the current market for contingency FCAS (frequency control) services and would allow for reserves – which could be in the form of batteries, virtual power plants, demand response, or even electric vehicles – to be be procured 30 minutes ahead of time (with a 15-minute call time).

A second, less popular proposal, has come from Trevor St Baker’s Delta Electricity in the form of a “ramping mechanism”.

The basis of this appears to be an arrangement to pay coal generators to run in reserve mode in case they are needed to deal with the steep “ramping” of demand as large amounts of solar PV closes down in the afternoon sun. It would be a bit like having your partner drive behind your EV in a petrol car, just in case.

Joel Gilmore, the head of regulation at Infigen/Iberdrola, said in a LinkedIn post that the decision by AEMC to defer its decision making was understandable given the ongoing push for a capacity market, but it was doing no favours to the industry, or consumers.

“This highlights the problem of the ESB pursuing an ineffective capacity market reform that almost no-one wants: it delays efficient market solutions that would actually improve reliability for consumers and provide certainty for governments,” Gilmore wrote.

“The ESB should move quickly to accept the evidence and rule out capacity markets, and use our proposed Operating Reserves framework to implement Jurisdictional Strategic Reserves. This would increase the reserves in our system and be an efficient way of meeting state reliability targets.

“Then we can focus on market incentives for new, low emissions, flexible capacity.”

In a statement, the AEMC made it clear that the delay on a decision to June, 2023 was at least partly driven by the need to get further information on the ESB’s post 2025 market reforms, particularly in relation to the proposed capacity mechanism.

“Introducing a new market mechanism for the procurement of reserves would be a significant energy market reform,” it said.

“It is important to thoroughly assess the concept in the long-term interests of consumers.:

It said the delay would also allow time to prepare detailed technical advice, including design features and key elements of the potential new market, confirming the estimated implementation costs and timetable.

It would also allow data to be gathered from the provision of reserves from under the recently implemented five-minute financial settlement and wholesale demand response market.