That means the arrangements in place now are no longer fit for purpose as our energy system transitions. We need a set of systems, tools, and regulatory frameworks that can evolve to meet changing consumer and system needs.
The Energy Security Board (ESB) was tasked by the nation’s energy ministers in March 2019 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 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 consumer 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.
The post 2025 Project is taking a holistic look at what should change so 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 four reform directions which are addressing 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:
- Resource adequacy through the transition – critical to ensuring reliable and affordable energy as the power system continues its transition to lower emissions and new technologies.
- Essential system services and scheduling and ahead mechanisms – building a stronger power system that can keep the lights on as change happens is the most critical issue.
- Demand side participation – unlocking opportunities for households and businesses to make the energy choices that suit them best like shifting consumption to off-peak periods, installing more efficient appliances and investing in their own locally based generation or storage.
- Access and transmission – providing networks to meet future needs including connection of renewables, at the lowest possible cost.
The former COAG Energy Council initiated the post 2025 project 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 of 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, followed by a consultation paper in September 2020 that set seven market design initiatives (MDIs) for stakeholder feedback.
In response to this feedback and rapidly changing government policies and incentives, the seven market design initiatives (MDIs) have been consolidated into four directions. The options being considered for reform have been narrowed, including removal of proposed measures to deal with the exit of ageing thermal generation which will instead be addressed through other resource adequacy mechanisms.
Similarly, the focus on integrating distributed energy resources like the exponential growth of rooftop solar becomes a key part of the pathway towards developing a two-sided market in the long term.
During the next three months, the ESB will develop detailed market designs for further consultation in March, before making final recommendations to government in mid 2021.
The post 2025 Project is not happening in isolation from the day-to-day challenges facing the electricity sector or the variables that will continue to evolve during this period. The NEM must 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 during 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 from stakeholder groups to highlight issues of potential congruency or interdependencies that may exist.
As projects or rule changes 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 options. 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.