Statement on the Energy Security Board’s market design advice

The Australian Energy Council welcomes the release of the Energy Security Board’s advice to Energy Ministers, and 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.

A key recommendation is around the development of a capacity mechanism for agreement by Energy Ministers in mid-2023.  

The Australian Energy Council’s Chief Executive, Sarah McNamara, said this 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. 

“With the dramatic shifts under way 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. 

“The ESB should be commended for its acknowledgement of stakeholder concerns.  Its anticipation that market bodies will need 12-18 months to complete work on the detail and consult with stakeholders is also welcome.  

“This detailed consultation phase provides an opportunity to overcome apprehension from some market participants about the implications of any new market mechanism, particularly for consumers. 

“Everyone wants an orderly transition to a lower emissions grid, one that ensures reliability and can deliver lowest cost to customers. Wind and solar will remain the focus for future grid investment,” Ms McNamara said. 

The AEC welcomes the recognition of the importance of focus on Essential System Services (such as frequency control for grid stability) which we consider the most pressing issue. We welcome the desire to progress market mechanisms for inertia and primary frequency response.  

The AEC considers existing transparency measures on generation provide adequate information to support the transition. 

In regard to state strategic reserves, the AEC considers that ideally reserves should be provided through national market mechanisms. However, states have the legal power to introduce their own departures from the National Electricity Market (NEM), and this has already occurred in South Australia, Victoria and New South Wales. The AEC recognises that by providing states this new mechanism, the ESB is attempting to corral state variations into a form that is less distortionary to the national market. 

The AEC considers the Australian Energy Market Commission (AEMC) well equipped to conduct a transmission review. Whilst additional transmission will be part of the transition, it is critical that these large investments remain subject to a careful and predictable cost-benefit assessment, both to reduce the risk to consumers and to provide confidence to market investors affected by them. 

The AEC understands the ESB’s desire to price congestion in the NEM and is pleased to see the desire to link any changes to the Renewable Energy Zones. Adapting to any congestion pricing scheme will however be very challenging for participants and it will be critical to consider these impacts in depth before committing to it or any timeframe.

About the Australian Energy Council

The Council represents 20 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.