The fourth annual assessment of the health of the national electricity market shows that while progress has been made, further reform through the post 2025 project is urgent.

The Energy Security Board (ESB) published its fourth annual report on the health of the national electricity market on 5 January 2021.

The report measures progress against six strategic energy objectives established by the former COAG Energy Council following the 2017 Finkel Review.

The 2020 report assessment finds that real progress has been made with improved generation capacity (reliability), emission reduction, competition and network investment.

But system stability (security) and investor confidence remain critical.

Falling wholesale and retail prices have improved affordability for most, but bill-shock is still a critical issue for customers experiencing vulnerability including people impacted by the economic downturn associated with Covid-19.

Table 1: Current 2020 status and forward outlook for the NEM

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At a glance: health of the national electricity market (NEM) 2020 report card

  1. Affordable energy and satisfied consumers
  • Affordability is improving for most but remains critical for vulnerable consumers.
  • Outlook is mixed as investment is needed in transmission and dispatchable generation to integrate more renewables.
  • These issues are being addressed through the actionable integrated system plan (ISP) and renewable energy zone (REZ) initiatives, alongside transmission access reforms being developed through the post 2025 process.
  1. A secure electricity and gas system
  • System security is the most critical issue in the NEM. Cheaper, variable renewables are displacing dispatchable thermal generation at great speed, making blackout prevention more difficult unless we move quickly to change the way we manage the whole power system.
  • Outlook is moderate to critical as low wholesale prices make coal more likely to exit.
  • ESB post 2025 market design work is addressing longer-term system security issues by valuing and procuring missing system services.
  1. Reliable and low emissions electricity and gas supply
  • No immediate reliability concerns with measures recently put in place to manage unforeseen events.
  • NEM emissions are 25 per cent below 2005 levels and are expected to be 50 per cent down by 2030.
  • Outlook is moderate with some concerns in NSW around 2023-24 as Liddell closes, balanced by progress on transmission links and increasing renewables.
  1. An effective development of open and competitive markets
  • Competition in wholesale markets is delivering good outcomes for consumers with spot prices at their lowest level in five years.
  • Retail competition is stable despite Covid-19 impacts and retailers following new requirements to manage customer debts and hardship.
  • Competition is underpinning a boon in innovation with capital technology costs expected to fall significantly in coming decades.
  1. Efficient and timely investment in networks
  • Improving with critical investments on track, interim rules concerning planning for REZ developments under consideration, and a workplan for DER integration underway.
  • Outlook remains at moderate rating as challenges emerge in building the expanded transmission network in time to connect renewable generation.
  • Significant distribution network investment is needed as distributed energy resources such as rooftop solar integrate further into the system.
  1. Strong but agile governance
  • Current status and the future outlook for governance has improved and remains vital to manage the pace of change in the NEM.

The post 2025 market design options will address these issues in addition to a number of reforms underway to manage short-term challenges.