Many stakeholders have committed significant time and resources to provide input into the Post-2025 reform process. The ESB and market bodies welcome this continuing commitment to shaping the future arrangements for the NEM.

As a result, rather than a single ‘big bang’ reform, the ESB is proposing a suite of reform pathways. Each of the pathways includes a range of shorter-term actions that need to be implemented to address more urgent issues. They also set out a way forward to enable the market to navigate the transition and deliver long term benefits to consumers.

Decisions between options or recommending a direction for development for a reform may impact on how the reform should be categorised on the pathway.

Quantitative analysis

Quantitative analysis will be undertaken to:

  • evaluate the benefits and the costs of the proposed pathway to consider whether it is likely to promote the national electricity objective.
  • provide evidence to inform specific design decisions where multiple options for reform have been identified on a pathway.
  • provide stakeholders with a more detailed explanation of the ESB’s final recommendations.

Identifying the costs of the reform will be an important input into the quantitative analysis that will be done. Ahead of mid-year 2021 the Energy Security Board will also consider how implementation costs, in particular, are recovered.

The costs of the reform will include the:

  • implementation costs for industry and the market bodies
  • ongoing costs for participants and market bodies, including transaction costs.

Given the scale and nature of the reforms, modelling of implementation costs must be supported by qualitative assessment.

Modelling is an important tool to assist with understanding how outcomes of the proposed reform pathways might vary in different states of the world and give insights into their potential impacts. While the ESB will not be undertaking a detailed cost benefit assessment, we consider that it is possible to indicate the relative 'size of the prize’ of the outcomes that each reform pathway is seeking to achieve.

Phase one - assessment of individual workstreams

To test the relative impact of a proposed pathway, we will define the reference case – the ‘no reform scenario – against which a proposed pathway or ‘reform scenario’ can then be tested. Given the power system’s rapid evolution, our initial view is that the Integrated System Plan (ISP) step change scenario is appropriate for the no reform scenario.

The reform scenario to be tested against the base case will be the same pathway used to develop estimates of implementation costsThis involves developing a common baseline model of the NEM, using the current rules framework and AEMO’s current work on the ISP.

The modelling approach taken will not be the same for each MDI. For example resource adequacy and aging thermal will require price modelling while others like essential system services may be more suited to least-cost/whole of system modelling.

Phase 2 – holistic assessment

Broadly, phase 2 assessment will incorporate the results of each of the phase 1 assessments, but then take these analyses further, either by:

  • adjusting the cost assessments underpinning the modelling, depending on the data revealed in estimating implementation costs; or
  • where practicable, reapplying the modelling frameworks used to complete the phase 1 assessments in combination, rerunning a least cost planning model to incorporate one or more of the pathways.

We anticipate that this will produce a set of costs and benefits (whatever form those benefits take) to implement each pathway in isolation, and a set of costs and benefits to implement all four pathways in combination.

In this phase the interdependencies between the pathways will be considered.

The other key modelling task will be policy design including

  1. assessment of the network benefits of active DER conducted by Baringa Partners to examine benefits of active demand management to reduce the need for more infrastructure spending in an environment of EV uptake.
  2. Scheduled light analysis undertaken by the AEMC to inform the draft determination in the generator registrations and connections rule change request.
  3. A load flex study conducted by ARENA is underway to analyse the magnitude of flexible capacity on the demand side out to 2040.

Next steps

The appendices to the options paper (see Part B) set out further detail on the options. The ESB welcomes stakeholder feedback on proposals outlined by 9 June 2021

Details for how to engage can be found on page 96 of the options paper.

Final recommendations

The recommendations will set out a series of reforms that can be implemented over time as the market develops and that can be coordinated to minimise system implementation costs on participants and the market operator. This is opposed to a ‘big bang’ reform that commences on 1 January 2025.

The proposed reforms will be at varying levels of maturity. For example, some reforms may relate to urgent system security matters and be progressed through AEMC or ESB rule change processes, as is proposed to occur with fast frequency response.

The ESB will work with jurisdictions to develop governance arrangements that guide the implementation of the post 2025 reforms. We anticipate that many proposals will need to go through an AEMC rule change process to be implemented. However, governance arrangements will be needed to coordinate decision making between the market bodies, jurisdictions and others responsible for implementation. This will be critical to maintaining a coherent market development path.