It has been a year in which energy policy was front and centre of the national conversation once again – a focus which was only exacerbated by the New South Wales and Federal elections.
Although the Federal Government’s Divestment (or so-called ‘Big Stick’) Bill managed to pass the Parliament post-election despite widespread and substantive opposition, there have also been more impactful regulatory reforms introduced, which were less high profile. For example, retail price re-regulation came into being, with the introduction of default tariffs from 1 July at both a federal (SE Queensland, New South Wales and South Australia) and state level (Victoria).
These reforms signal the end of an era – for some years now the sector has relied upon a general appreciation of the fact that deregulated markets deliver efficiencies and lowest cost opportunities for customers. The Australian Competition and Consumer Commission’s (ACCC) REPI Report suggested otherwise, and with limited consultation opportunities, governments were attracted to the ability re-regulation gave them to forcibly lower standing offers.
Retail businesses have since been busy implementing the Federal Default Market Offer (DMO) set by the Australian Energy Regulator (AER), and the Victorian Default Offer (VDO) set by Victoria’s Essential Services Commission (ESC), which both came into effect on 1 July. These regulated price caps replaced standing offers and are intended as a reference point for customers. It remains too early to fully assess the impact that these changes may have on competition and the market offers in the retail market, but for the moment they have been publicly well received.
It should also be acknowledged that industry worked extremely hard to deliver these reforms in an impossibly short implementation timeframe, with little to no customer disruption. The teams in member businesses that achieved this are to be congratulated.
More recently the early start to the bushfire season, a prolonged drought in parts of Australia and predictions of extreme weather during summer led to the annual debate on the effects of climate change and raised concerns about the reliability of the grid. That in turn prompted the only COAG Energy Council meeting for the year to ask the Energy Security Board (ESB) to review the existing Reliability Standard by March next year.
The Australian Energy Market Operator’s (AEMO) Electricity Statement of Opportunities (ESOO) highlighted the importance of reliability as a priority issue for the industry, the economy and customers.
The most recent review of the reliability standard was completed last year and found that the standard and its settings were still achieving their purpose and were likely to continue to do so. Under the auspices of the Australian Energy Market Commission (AEMC), the panel included generators, energy users, retailers, networks and AEMO.
Reliability will continue to be hotly debated given the changing shape of the electricity grid and heightened political concern about keeping the lights on. The important thing from an industry perspective, as noted in the Reliability Panel’s most recent assessment, is that in the current environment of a transforming sector, stability in market frameworks is extremely important. But reliability will continue to be critical in considering how we best manage the energy transition that is now well underway.
There were a number of other significant or notable developments in the energy sector during a demanding 2019. Below we take a look at a few of them:
The Retail Reliability Obligation (RRO) came into effect on 1 July 2019 and AEMO considered whether it should be triggered, in its most recent ESOO that was released in August this year. It was the first time the RRO had come into these considerations. AEMO found that it should not be invoked in this period.
Under the RRO, AEMO will identify at least annually any potential reliability gaps in each National Electricity Market (NEM) region in the coming five years using its ESOO. If AEMO identifies a material gap three years and three months out, it will apply to the AER to trigger the RRO. The South Australian minister can also invoke this.
If triggered, liable entities are on notice to enter into sufficient qualifying contracts to cover their share of a one-in-two year peak demand. A Market Liquidity Obligation will ensure there are enough contracts available to smaller market customers by requiring obligated parties to make contracts available to the market. AEMO will also run a Voluntary Book Build mechanism to help liable entities secure contracts with new resources.
Post 2025 Market Review
The ESB’s Post 2025 Market Review also got underway with a series of forums and conferences. The ESB has also sought feedback on:
The AEMC released a discussion paper as part of its Coordination of Generation and Transmission Investment Review (COGATI) that outlined the Commission’s proposed approach to transmission access reform. COGATI is intended to introduce nodal pricing in place of regional pricing in order to better align generation and transmission investment incentives.
Earlier in the year the AEMC published a directions paper and undertook engagement with generators, distribution businesses, investors, consumer groups, and governments. It subsequently changed the proposed model and sought further submissions.
The final report for COGATI, which will outline the final proposed model and implementation approach, is now expected to be considered at the March 2020 Energy Council meeting.
The Energy Charter is a world-first initiative to unite Australia’s energy industry to improve customer outcomes.
Launched on 31 January 2019, the Energy Charter’s vision, Together, deliver energy for a better Australia, focuses on all participants in the energy supply chain working together with customers sitting at their centre. The Energy Charter is about genuine customer outcomes and industry collaboration to achieve them.
The signatory energy companies from across the supply chain focused on their first-ever provided their first public disclosures under the charter in September 2019.
In September, the Clean Energy Regulator (CER) announced that it had approved enough generation capacity to meet the 33,000 GWh Renewable Energy Target.
The CER stated that 6,400MW of large-scale renewable capacity had to be built between 2017 and 2019 to generate sufficient electricity to meet the target and on 30 August, the milestone was met ahead of schedule with the approval of four large wind and solar power stations, with a combined capacity of 406MW. The CER also reported that Australia is now leading the world in per capita deployment for renewables [ii].
Demand Response Mechanism
In July, the AEMC published its draft determination on a Wholesale Demand Response Mechanism (DRM). The concept first emerged in the AEMC’s Power of Choice (PoC) Review in 2011, and was subsequently developed, assessed, rejected and re-emerged.
The AEMC proposed to open up the wholesale electricity market so consumers can be more easily paid for reducing their demand on the power system. In early December the time for making a final determination for the Wholesale Demand Response Mechanism rule change request was extended until 11 June 2020, with an expected second draft determination to be released in March 2020.
This extension follows the provision of supplementary information by AEMO, on implementing the proposed mechanism. AEMO’s analysis found that the initial cost estimates for the mechanism range between $40m - $95m, and that some of these features and systems would run the risk of being redundant or requiring significant modification in a transition to a two-sided market.
In Western Australia an Energy Transformation Taskforce was established, led by Steve Edwell, former Horizon Power Chairperson, to implement the State Government’s transformation strategy.
The taskforce reports directly to the state Energy Minister and is working on a whole of system plan for the South West Integrated System.
Queensland’s newest publicly-owned generator, CleanCo took over the 570MW Wivenhoe pumped storage hydro station, the 385MW gas-fired Swanbank E power station and the Kareeya, Barron Gorge and Koombooloomba hydro power stations from the state’s other publicly-owned generators, Stanwell and CS Energy at the end of October.
CleanCo will also complete the Queensland Government’s Renewables 400 reverse auction, bringing up to another 400MW of solar and wind energy and battery storage into the market. CleanCo will seek binding bids and is expected to recommend projects to the state government early next year.
A perennial discussion in energy market policy is the contest between what we are ultimately trying to achieve: “customer benefits” or “market benefits”. When making market rules, or building monopoly assets, rules require that we assess “net market” benefits. A number of recent government policies have been justified on customer benefit assessments alone.
The economics of traditional plants are well understood, but since their construction, the way they need to operate has changed substantially. This has been driven by a combination of the age of the plants as well as the large influx of renewables, which is changing the supply and demand patterns of the grid.
Yallourn has been home to a coal-fired power station for 100 years, but it was recently announced that this would come to an end in 2028 with the closure of the current four unit Yallourn W power station. In providing seven years notice of closure, EnergyAustralia has given the market, policy makers and government time to adjust and avoid shocks. We take a look at the announcement and some history of the power station.
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