The Energy Security Board (ESB) handed down its final advice on the National Electricity Market (NEM) redesign to Australia’s Energy Ministers on 27 July 2021 and the advice was publicly released yesterday. National Cabinet is now considering the full suite of recommendations.
The ESB was tasked by the former Council of Australian Governments Energy Council (COAG) to develop advice on reforms to the NEM to meet the needs of the transition up to and beyond 2025.
The ESB recommends four key pathways for reform to manage the orderly exit of old technologies (particularly coal-fuelled generation) and pave the way for new technologies:
- Resource adequacy mechanisms: To provide the right incentives to drive investment in an efficient mix of resources (that is variable renewables, storage, and flexible and firm generation) to minimise costs and maintain reliability;
- Essential system services and ahead scheduling: To ensure that the essential services required (frequency, control, operating reserves, inertia and system strength) are available to maintain system security;
- Integration of distributed energy resources and flexible demand: To deliver benefits to customers through the integration of rooftop solar, battery storage, smart appliances, electric vehicles, and other distributed energy resources into the system in an efficient way; and
- Transmission and access: To ensure timely transmission investment, better use of capacity on the network to lower costs for consumers and reduce uncertainty for investors by making future patterns of congestion more predictable.
The ESB said: “The job is to get firm and flexible supply that is affordable. To achieve that we need improved information, harmonised jurisdictional schemes, orderly generator exit and timely entry of investment in new resources. We also need a capacity mechanism alongside the energy only market to bring forward the right mix of firm, flexible and variable resources when needed. That capacity might come from pumped hydro, batteries, wind, gas or coal, with those most able to be fast and flexible most likely to be relied upon and most likely to receive revenue.
Participants need sufficient incentives and confidence to invest in new capacity. While that confidence is present for wind and solar generation, along with some battery storage, it is not evident for pumped hydro or gas peakers that can provide ‘deep’ storage on the probably few occasions when it is needed.
Jurisdictions need assurance that participants will meet the power system’s physical needs at all times and if that assurance is not there, governments will intervene (as they have done) to provide missing gas peakers and pumped hydro as thermal coal exits.”
The Australian Energy Council (AEC) welcomes the ESB’s advice, in particular its call for coordination and a common approach by jurisdictions but notes there is still much work to be done on the detail.
The AEC also noted that the recommendation around the development of a capacity mechanism for agreement by Energy Ministers in mid-2023 needed to be approached carefully.
“We have consistently said that Ministers need to take time to ensure any capacity mechanism brought forward is fit for purpose and does not lead to unintended consequences,” AEC Chief Executive, Sarah McNamara, said.
“With the dramatic shifts underway in the electricity sector it is critical any reforms focus on security of supply, avoid disorderly closure of existing capacity and, at the same time, do not impede the energy market’s transition to lower emissions generation.”
For more information on the Energy Security Board’s final advice, visit here.