All the changes occurring mean the current set of systems, tools, market arrangements and regulatory frameworks need to be made fit-for-purpose so consumer and system needs can be met.

Why the Post 2025 Project

The Energy Security Board (ESB) was asked by the nation’s energy ministers to advise on a long-term, fit-for-purpose national electricity market design.  The request recognised the problems faced by the current NEM design because of technology and market changes during the past 20 years, as well as proposed changes for the future.

Put simply, the revolution in energy technology means the way we generate, consume and share energy is vastly different to how it was in the 1990s.

When the cost of electricity after prices rose by 35 per cent in real terms between 2007-8 and 2017-18, consumers became concerned. New and more accessible technology made it possible for them to generate their own power as the popularity of distributed energy resources (DER) such as rooftop solar boomed, meaning electricity demand peaks started to change and electricity was no longer a one-way flow. The increasing affordability and penetration of smart appliances, batteries, smart meters and other digital technologies means consumers expectations have changed and we are starting to see the advent of virtual power plants, peer-to-peer energy trading and a raft of new products.

Source: Energy Security Board

The Post 2025 Project is taking a holistic look at what needs to change to ensure the NEM can meet the needs of consumers in a future of diverse sources of non-dispatchable generation, demand response, storage, and distributed energy participation.

There are seven Market Design Initiatives (MDIs) which combined are now considering 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.

Together, across these initiatives, the ESB, Australian Energy Market Commission (AEMC), Australian Energy Regulator (AER) and Australian Energy Market Operator (AEMO) are working together with industry and consumer representatives to capture the opportunities and tackle the four challenges that need to be addressed:

NEEDPOST 2025 MARKET DESIGN INITIATIVEOTHER RELEVANT PROJECTS

Addressing the needs of consumers whose relationship with the market is changing

Two-Sided Markets (MDI-E) – changing the way consumers can engage with the market to a two-way transaction

Lead by AEMC and AEMO

Links to AEMC Wholesale markets workstream

Managing volatility and uncertainty in the market that has accompanied substantial increases in large and small scale variable renewables.

Essential System Services (MDI-C)

Lead by AEMO and ESB

Scheduling and Ahead Mechanisms (MDI-D)

Lead by AEMC and AEMO

These initiatives ensure the system operator and market participants have the tools needed to keep the system in a secure operating state.

Links to AEMC Security and Reliability workstream

Links to AEMC Wholesale markets workstream

Need for capital replacement - as generation plants become commercially unviable and retire over the next 10-15 years and beyond, the replacement of the energy and essential services they provide is required.

Resource Adequacy Mechanisms (MDI-A)

Incentivising efficient investment in the electricity generation resources we need.

Lead by AEMC and ESB

Ageing Thermal Generation Strategy (MDI-B)

Lead by ESB

Transmission Access and the Coordination of Generation and Transmission (MDI-G)

Lead by AEMC

Links to AEMC Security and Reliability workstream

Links to AEMC wholesale and 2020 rules workstreams

Recognising demand flexibility and integrating DER - the value of demand response and load shaping must be recognized and DER needs to be effectively integrated into the system and the market.

DER Integration (MDI-F)

Lead by ESB and DER Integration Steering Committee

Impacts all other six design initiatives

Links to AEMC networks, ENERF, OpEN, DEIP workstreams

What’s happened so far

The post 2025 project was initiated by the former COAG Energy Council in March 2019. An issues paper was published in September 2019 to scope out the possible futures (and shocks) against which market design options should be tested, and to better understand the challenges and risks that must be addressed by market design now and into the future.

In November 2019, the Energy Council requested the ESB deliver several additional items for analysis, seeking recommendations for consideration at its March 2020 meeting.

These items included analysis on Renewable Energy Zones, system security measures, reliability framework and a recommendation regarding development of ahead markets and two-sided markets. These recommendations have been built into the strategic approach for the Post-2025 Project via a phased implementation plan laying the foundations for market design reform from now to 2025.

A directions paper was published in April 2020 to provide an update on progress and set out the structured approach and timing for assessing and implementing the proposals for future market reform.

Some Market Design Initiatives (MDIs) are more progressed than others and some parts of a design have been more considered.  The Coordination of Generation and Transmission Investment is a good example as the AEMC has progressed work on this matter for some time.

It is also the case that some parts of an MDI are likely to be progressed and implemented earlier than 2025.  Ahead markets and two-sided markets are both initiatives in this category.

Post 2025 Program Key Deliverables

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What happens next

The post 2025 market design project is seen as a pathway to a fit-for-purpose market design for the NEM and, rather than having an entirely new design introduced at a single point in time, we are planning for the transition to happen over time through phases. 

  1. Short term (12-18 month) deliverables: interim reforms to be implemented as soon as practicable relating to the Renewable Energy Zones, and interim security measures and reliability framework measures,
  2. Intermediate deliverables: relate to substantial reforms to be designed by December 2020 with implementation (at least in part) before 2025. These primarily relate to development of Ahead Markets, Two-Sided Markets and Access Reform via CoGATI, to be developed for decision at the framework level by the end 2020 with implementation for some aspects likely ahead of 2025, and
  3. Longer term deliverables: relating to Investment programs, an aging thermal generator strategy and initiatives relating to development of DER markets with implementation after 2025.

Final recommendations on all reforms will be made by mid-2021 and required legislation and rules then developed and introduced over time. 

How other initiatives interact with the Post 2025 Project

The post 2025 Project is not happening in isolation from the day-to-day challenges facing the electricity sector and the variables that will continue to evolve over this period to continue to meet the changing needs of consumers as well as to maintain secure, reliable and affordable supplies of electricity.

The set of systems, tools, and arrangements to support the effective and secure operation of the NEM over the transition period will need to continue to evolve in relation to the impacts of these changing variables while the 2025 Project is completed.

There are a range of projects and initiatives being pursued by the AEMC, AEMO, the AER and other agencies and organisations that seek to address some of these more immediate challenges as well as those we identify in this paper.  This has been an area of considerable attention within the project, and ESB has welcomed feedback received from across stakeholder groups to highlight where issues of potential congruency or interdependencies may exist.

As projects or rule changes will continue to emerge in the future, a focus of the Post-2025 program is to ensure that the design and development process delivers viable and coherent market design option(s).  Where rule changes are already being considered, these are considered where they are relevant to the workstreams. 

Regular and ongoing collaboration across market bodies and the program workstreams is continuing to ensure initiatives remain aligned, and to reduce duplication where possible