Response to the ESB’s Post 2025 Market Design Options Paper

The Australian Energy Council has welcomed the release of the Energy Security Board’s options paper, which is the result of a substantial consultation process. 

The AEC’s Chief Executive, Sarah McNamara, said the ESB’s work recognises the challenging conditions created by the energy transition and a number of individual jurisdictional schemes. 

“The importance of this work is that it offers a consistent approach. The ESB is right that a national approach will lead to better and more efficient outcomes for consumers and investors.” 

"The AEC and its members will carefully consider the detailed options put forward and look forward to providing its feedback,” said Ms McNamara. 

Resource Adequacy Mechanism 

We welcome the ESB’s recognition of the challenging conditions created by the energy transition, and a number of individual jurisdictional schemes, to confidence in the continuity of supply to the National Energy Market (NEM). The AEC will consider the proposals for new requirements on ageing coal plants. 

The AEC also supports the desire to reduce the compliance burden of the Retailer Reliability Obligation (RRO). We are concerned though that proposal to remove triggers will be counterproductive. The proposal for a Physical RRO is a major reform which the AEC will need to consider in more detail along with its members. 

The AEC acknowledges the ESB’s efforts to create a set of national principles to guide state-based generation investment schemes, and hopes this work moves forward and is able to meet its stated objectives. 

Essential System Services 

The AEC supports all of the recommendations in this section, noting that the AEMC should retain freedom to decide exactly how, when and whether the new services markets should be implemented.  

The AEC considers this line of work the most urgent, and in some ways the most important, reform for the ESB. We are pleased with the ESB’s recognition of its significance and welcome the positive signs of progress in the detailed work presently being carried out at the AEMC. 

Integration of Distributed Energy Resources (DER) and Demand Side Participation 

The world leading uptake of DER by Australian consumers is resulting in a challenging reform agenda. The AEC acknowledges the incremental approach the ESB is proposing for DER and Demand Side Participation as a way to minimise risks as we develop and integrate what are innovative market reforms. Steps to prioritise the development of appropriate protections will be critical to ensure customers are effectively able to engage with, and benefit from, new markets for DER and Demand Side Participation.  

While the AEC welcomes steps from the ESB to better enable customers to access more cost reflective tariffs, in particular thorough consideration of retailer portfolio level tariff charges, we will need to further analyse the operational and cost impacts of other key reforms such as flexible trading arrangements.  

Transmission 

We welcome the ESB’s attempts to provide national structure to the development of Renewable Energy Zones.  

The AEC supports the cost/benefit principles for monopoly network investment enshrined in the existing Regulatory Investment Test for Transmission (RIT-T). We are concerned about proposals to lessen the RIT-T’s role and to include social benefits in the RIT-T, which are highly subjective and prone to distortion. 

The AEC also supports the recent rejection of a Rule Change proposed by network companies seeking to alter the financing arrangements for transmission infrastructure, and we are concerned that the review proposed by the ESB into financing transmission may seek to reverse this decision. 

The AEC welcomes the ESB’s efforts to thoroughly investigate the challenging area of congestion management and the work on the additional options the ESB has provided as an alternative to full Location Marginal Pricing (LMP). These alternatives could provide many of the benefits of full LMP but with lower costs and risks to existing investors. These alternatives will need to be explored further. 

About the Australian Energy Council

The Council represents 21 major electricity and downstream natural gas businesses operating in the competitive wholesale and retail energy markets. These businesses collectively generate the overwhelming majority of electricity in Australia, sell gas and electricity to over 10 million homes and businesses, and are major investors in renewable energy generation.