“Incredibly ambitious”: Electricity market reforms given express track by energy ministers

Australia’s energy ministers have given themselves barely half a year to settle on the legislative changes that will establish the shape of the National Electricity Market beyond 2030, a pace that one leading energy analyst has described as “incredibly ambitious”.

The Energy and Climate Ministerial Council (ECMC) agreed on Friday to release a consultation package that will include draft legislation, initial draft rules, and a consultation paper outlining the proposed design of the Electricity Services Entry Mechanism (ESEM) – the scheme that will underpin the wholesale market for the bulk of the nation’s grid next decade.

The government released the package on Monday, with feedback open until October 13th.

A separate consultation paper was also circulated to potential contributors on Monday. Consultation on that paper will run until October 2nd.

The ECMC’s communique noted that the draft legislation and initial draft rules would enable the sates to roll their pre-existing schemes into the post-2030 framework.

These state programs included contracts under Victoria’s announced offshore wind auctions, South Australia’s Firm Energy Reliability Mechanism (FERM) and NSW’s Electricity Infrastructure Roadmap.

“Consultation will commence shortly, providing stakeholders with the opportunity to provide feedback before final decisions on the legislative package are taken at the December ECMC meeting,” the Communique noted. 

However, the communique noted Queensland did not support the release of the package. Its energy minister, David Janetzki, was among several energy ministers absent from Friday’s ECMC meeting, with several Queensland officials attending in his place.

The ESEM overhaul of the wholesale market mechanism of the National Electricity Market was a key outcome of the Nelson-led review of the market.

The mechanism is intended to replace the Capacity Investment Scheme that is aimed at accelerating the development of new large-scale renewable and storage projects to help replace ageing coal-fired power stations as they exit the market.

An ESEM contract working group released the details of its “indicative plan” in a separate release. The near-term activity includes a four-week consultation for the package, starting later this month.

The “Taskforce update” from the working group listed as December for progressing the National Electricity Law (NEL) through the South Australia parliament – where such laws reside.

An accompanying graphic also listed the “to be confirmed, February onwards” timing for a second-pass consultation period for the National Electricity Regulations (NER). It also detailed an end-of-2027 timetable as its indicative ESEM Plan for “mobilisation”.

Dylan McConnell, an energy analyst with the University of NSW, said the proposed timing of approval by energy and climate ministers was “incredibly ambitious on a range of fronts”. 

He noted how long it took for the energy and climate ministers took to include carbon emissions into the National Energy Objectives (NEO). That “fast-tracked” move was first endorsed in August 2022, just three months into the first term of the Albanese government, and was agreed to in May the following year.

“This [proposition) was with unanimous support across Liberal, Greens and Labor governments”, as is needed for changes to the NEL, McConnell said. The Liberals included Matt Kean, then NSW’s energy minister, up until Labor took office in March 2023.

“This is a rather different political make-up to what we have today,” he said. “We don’t even have agreement from Queensland to put ESEM in the NEL, before you even get to what might happen in Victoria and NSW” where state elections will be held in November and next March, respectively.

Alison Reeve, director of energy and climate at the Grattan Institute, said “there’s way too much complexity” in the overhaul of the NEM. That said, it could yet be completed by the end of next year “if they pull out all their fingers”.

Reeve said the ESEM-linked changes to the electricity law could advance without Queensland’s support provided they abstained rather than blocked them. Still, the caretaker and election periods in Victoria and then NSW could gum up the approval process in Australia’s two biggest economies.

Coordination with the Australian Energy Market Commission on its own rule changes was another complicating factor. So, too, was the link between ESEM and data centres if they were really to “BYO” their own electricity supplies as brought new demand to the system.

Developers of new renewable energy projects, meanwhile, may hold off settling final investment decision, placing “another chill’ on processing such ventures, Reeve added.