Jun 13 2024

Transmission Access Reform: Has the time passed?

Last week submissions to the Australian Energy Market Commission’s Transmission Access Reform consultation paper closed. It is the latest in a long running consideration of how best to ensure both efficient dispatch and investment in new generation to ensure new kit is sited in the best locations. But this continued pursuit of reform brings to the fore the question of whether other policy initiatives have already superseded the need for the proposed changes.

We take a look at where the reform proposals have come from, as well as concerns about the suggested approach that have emerged among market participants and investors. (You can also see the Australian Energy Council’s full submission to the consultation paper here).

How did we get here?

The NEM’s “open access” arrangements allow any generator that meets the appropriate technical standards to connect to the grid regardless of whether the investment provides value to the power system or leads to congestion.  Over time this has been considered to lead to inefficient investment and less than ideal use of an increasingly constrained transmission network.

There has been debate on different mechanisms for transmission access since the establishment of the National Electricity Market (NEM).  The emergence of current proposals for reform effectively began at the end of 2018 when the Australian Energy Market Commission (AEMC) released its final Coordination of generation and transmission investment review report. The report recommended a reform package to better coordinate investment in renewable generation and transmission, to facilitate having “transmission and generation in the right place at the right time at an efficient cost”. That work emerged from a COAG Energy Council request and followed the release of Australian Energy Market Operator’s first Integrated System Plan (ISP) in 2018. That ISP flagged the dramatic changes that could be expected in our generation mix and the challenge of connecting more dispersed generation.

In 2021 the now disbanded Energy Security Board (ESB) was instructed by National Cabinet to progress detailed work on transmission access reform. The view was that if the transmission access regime was not changed, “we are likely to end up with a larger generation and storage fleet and transmission network than necessary to achieve the same decarbonisation and reliability outcomes”. The work was again aimed at achieving a more coordinated process for bringing new generation into the grid. The ESB’s work led to a hybrid model which was outlined in a November 2022 directions paper.  Modelling was also undertaken to determine cost benefits.

With the ESB concluding, Energy Ministers asked the AEMC to continue to progress the design of the hybrid model. The Commission initiated a transmission access reform review and is expected to make final recommendations to Energy Ministers later this year.

The hybrid model being considered and subject to the current consultation process has two elements:

  • Priority access: Originally proposed by the Clean Energy Investor Group, priority access is said to provide locational signals for investment efficiency and enable investors to manage congestion risk more effectively.
  • Congestion relief market (CRM): Originally proposed by Edify Energy, and at the time supported by the Clean Energy Council (CEC), the CRM is intended to achieve operational efficiency and congestion relief.

The CEC has since flagged its concerns with the hybrid model and recommended work on this be paused[i].

Where are we now?

Since the extended process of considering transmission access reform began there have been a range of policy initiatives that have addressed (or will over time address) the key issues. These include the Federal Government’s Capacity Investment Scheme (CIS), state-based Renewable Energy Zones (REZs), and NSW’s Long-term Energy Service Agreements (LTESA). These are likely to be more effective in addressing the issues.

The CIS seeks to incentivise the national deployment of 23 GW of renewable capacity and 9 GW of clean dispatchable capacity by 2030. It will encourage investment by providing revenue underwriting for successful CIS tender projects, with an agreed revenue ‘floor’ and ‘ceiling’.  This mechanism will provide a long-term revenue safety-net that decreases financial risks for investors with taxpayers carrying the risk of funding revenue shortfalls. As a result, new investment can be expected to now be driven largely by the CIS.

To qualify for a CIS agreement, applicants are assessed against multiple merit criteria across three process stages. Merit Criteria 1: Contribution to system reliability and system benefits, is relevant to managing network connection issues[ii]. This “will be used to assess the impact each project may have on the electricity system, including congestion, reliability, and the project’s ability to provide essential system services and/or contribute to system strength”. Below is table outlining the assessment process and what projects the CIS is seeking.

Merit Criterion 1 – Contribution to system reliability and system benefits

Source: Department of Climate Change, Energy, the Environment and Water

It seems clear from the criteria that the Commonwealth is seeking to avoid underwriting projects that are likely to experience heavy congestion and curtailment, resulting in revenue shortfalls that will be funded by taxpayers. It also does not want projects that could adversely impact other CIS backed projects.

For REZs we are seeing the implementation of “sterilisation” areas around the zones, with both NSW and Queensland implementing this measure and Victoria likely to follow suit.  This initiative will see jurisdictions preventing new generators locating outside a REZ and adversely impacting it. Hence, jurisdictions have policies in place to reduce curtailment and congestion risk for investors in REZs through a form of limited access.

As a result, there are unlikely to be many problematic project proposals located outside REZs and a case-by-case approach should be manageable. It would be much simpler and easier to implement by creating a rule that allows a project to be vetoed based on set criteria prescribed in the rules, with provision for the rules to also allow an avenue for appealing decisions.

Investment Implications

Across the investment community there is a view that the proposed transmission access reforms are likely to lead to an increased cost of capital. There is the potential for what are complex and untested changes to actually introduce further risk that will be factored in by lenders.

The extent of any benefits outlined via the cost benefit assessment (CBA) are also being questioned. Over time the CBA’s forecasts have deteriorated to such a point that it is not likely to be fit for purpose now. If one still accepts its results, they appear trivial when considered against the NPV of forecast spot market revenues and they are extremely sensitive to any variance in its assumptions. (Full discussion of the CBA and modelling can be found here). And as noted above there are now multiple policies at Federal and state level that will largely address the objectives of the reforms, so will impact earlier assumptions.


The AEMC is well intentioned and seeking to solve a perceived problem, but the evidence now suggests the proposed solutions will prove to be counterproductive, particularly with a range of Federal and state policies that will largely address the objectives of the transmission access reforms. Continuing with increasingly complex and untested solutions that will undermine how the regional reference price is determined and create additional uncertainty for investors is unlikely to satisfy the National Energy Objective. Given the scale of the energy transition, it may be an opportunity to allocate scarce resources to other reforms to the NEM that can contribute to a cleaner and reliable system with efficient prices for the benefit of consumers.







[i] CEC briefing paper to Energy and Climate Change Ministerial Council, November 2023.

[ii] nem-tender-1-market-briefing.pdf (aemoservices.com.au)

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