“It is paramount:” AEMO says system and market operator functions must be kept together

The Australian Energy Market Operator has argued strongly that its system and market operation functions should not be separated as it faces an in-depth review of its governance arrangements.

The role of AEMO, how it is managed, and what it does, has become a hot topic in the energy industry – particularly as the green energy transition accelerates towards the end of coal generation and a near total reliance on wind, solar and storage in the coming decade.

There is a large contingent of critics who are appalled by the very idea of the shift from coal to renewables and are implacably opposed to the AEMO view that this is not just technically possible, but desirable because of climate issues, and cheaper than any other alternative to replacing the country’s stock of ageing coal generators.

But AEMO has its critics within the green energy industry too – some who are frustrated with the connections process and delays in providing data, and those who question its assessment and modelling of key technologies such as consumer energy resources, virtual power plants, EVs, and particularly its focus on new transmission.

State and federal energy ministers agreed late last year to hold the review into AEMO, raising the possibility of new ownership and governance structures, but also whether its role in managing the grid from day to day and preparing transition blueprints such as the Integrated System Plan should be separated.

In its own submission to the review, AEMO chair Mary O’Kane and CEO Daniel Westerman argue that it is essential to keep the two functions under the same roof.

“Retaining the ability to efficiently manage security and reliability through the energy transition and for the future must be paramount,” they write.

“The transition is fast-paced, with interdependencies across the sector and the wider economy.

“AEMO has a whole-of-system perspective and culture, providing synergies across people, systems and expertise that are necessary to address and solve system needs, considering the technical and market impacts of changing energy use and technologies.”

O’Kane and Westerman argue that market operator peers around the world have similar governance arrangements and any changes could damage AEMO’s perceived independence in market operations and system planning.

These include replacing its codified decision-making frameworks with a system of ad-hoc arrangements and veto rights, and granting these to companies with commercial interests or exposures.

“Roles and risk profiles are changing across the energy sector, as well-established business models become less viable and new opportunities arise around energy market participation and new services,” the submission says.

“Consumers are driving many of these changes, with over 4.2 million households having invested in rooftop PV across the NEM and WEM and the growing adoption of other Consumer Energy Resources (CER) such as batteries and electric vehicles.

“Industry participants are highly aware of the opportunities and challenges posed by the energy transition and are seeking to secure financing, resources, and materials to commission much needed electricity infrastructure in a timely manner.”

Still, AEMO says it acknowledges stakeholder feedback expressed about the potential for AEMO to assess system needs in a way that prioritises security and reliability over consumer value.

“AEMO notes there is a need to balance these in the performance of its functions. AEMO acknowledges it could enhance the way it explains its decisions and how, where discretion is available, and customer value.” It says it committed to this following a recent stakeholder survey.

“The complexities of integrating renewable and consumer energy resources, managing grid stability, and adapting to new technologies are not unique to Australia, although the characteristics of Australia’s networks and supply mix mean that some challenges have been experienced earlier,” it writes.

“In recent years there has been significant, and continuing, transformation in the role of system operators internationally, with growing recognition of the need for a more integrated and strategic approach to supporting the energy transition with governments for consumers.

“As energy systems become more complex and the pace of technological change accelerates, system operators are uniquely positioned to provide the technical expertise and insights needed to inform effective energy policy, market design and the integration of innovative solutions for grid stability and renewable energy integration.”

The review, headed by Nigel Ray, is expected to deliver its first findings on governance issues at the next energy ministers meeting, expected in May.

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