Well, energy sector acronyms seem to come and go* quicker than market rule change proposals – but the gist of the story seems to be that the Energy Security Board (ESB) today handed final advice on its redesign of the national electricity market (NEM) to Energy National Cabinet Reform Committee:
… two cases in point in terms of branding and buzzwords:
1) What once was the MCE became COAG Energy Council (or was it the other way around?) and apparently now is the ‘Energy National Cabinet Reform Committee’ (ENCRC does not roll off the tongue).
2) What once was mooted as (a grand-sounding?) NEM 2.0 became ‘post-2025 something’ (too measurable, in terms of a date?) but now seems to just be a vaguer sounding ‘Energy market redesign’.
(A) Small document (i.e. Media Release) but big ideas
We’ll have to wait until the ENCRC (really does not roll off the tongue!) releases the ESB’s final advice to see for ourselves how much meat there is on the four big bones noted below … but Kerry Schott is quoted in the Media Release as saying:
“This isn’t just a tweak around the edges; it’s about a whole redesign of the national electricity market. We expect governments will need time to develop their responses”
(B) Four ‘market design reform pathways’
This two-and-a-bit-page media release references the Options Paper released in April 2021 … which contained four ‘critical areas’ referenced.
In today’s three page media release, there’s a one-to-one correlation between these ‘critical areas’ and what are described as four ‘market design reform pathways’:
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ESB Options Paper |
ESB ‘Final’ Advice |
Initial Comments |
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The Options Paper spoke (in Chapter 2) about: ‘Resource adequacy and aging thermal generator retirement’ … 18 pages |
In this Media Release, it talks about ‘Preparing for aging coal fuelled generation retirement by giving incentives for the right mix of resources’ … in noting that: ‘This will restore confidence that energy is there when it is needed, reducing both the risks of extreme price volatility and the need for expensive government interventions. ‘ |
When we prepared our GRC2018 many months ago now, we included many pages (of the 180-page analytical component) in exploring some of the issues emerging with looming coal retirements. We’re part-way through updating (and expanding on) this focus for GenInsights21. |
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The Options Paper spoke (in Chapter 3) about: ‘Essential system services, scheduling and ‘Ahead’ mechanisms’ … 14 pages |
In this Media Release, it talks about ‘Backing up power system security by getting services like inertia, voltage and frequency control into the market, and optimising their procurement and dispatch to save money while keeping the lights on. ’ |
Also in the GRC2018, we highlighted the schism emerging between ‘Anytime/Anywhere Energy’ and the need for ‘Keeping the Lights on Services’ This approach (in broad terms – noting no detail has been published) seems focused on addressing this. |
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The Options Paper spoke (in Chapter 4) about: ‘The integration of distributed energy resources and demand side participation’… 20 pages |
In this Media Release, it talks about ‘Unlocking benefits for all energy consumers of recent changes including solar PV, batteries, and smart appliances by putting the necessary arrangements in place to make better use of existing rooftop solar and customer batteries and open further opportunities for these and other smart appliances so all customers can benefit from not having to pay for unnecessary investments.’ |
There’s not many words in the media release, but some warning bells went off for me in reading this that there may be too much focus on residential energy users and not enough focus on the sectors which represent a much higher proportion of the total volume of energy consumed in the NEM … being Commercial and Industrial. Perhaps I was reading too much in (scant) tea leaves? |
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The Options Paper spoke (in Chapter 5) about: ‘Transmission and access’ … 17 pages’ |
In this Media Release, it talks about ‘Opening the grid to cheaper large-scale renewables by reducing the costs associated with getting new, geographically dispersed generation to customers.’ |
Clearly congestion is an issue that is already impacting on operations of, and return for, solar and wind developments. That’s no surprise to us (though i do think we may have ‘killed with kindness’ by the form of support for wind and solar that has been used to date). Numerous articles on WattClarity have been written about how this (and the general degree of correlation) has impacted on poor LWA Prices seen by solar and wind farms in various locations. However, will what the ESB is proposing actually help? The initial responses I have seen have not been too complementary…. |
Apparently (according to the media release’ there is also ‘the medium and longer term direction for how the national electricity market needs to evolve.’ … but we’ll need to wait until the ESB ‘final’ advice is published to know more about what they are actually talking about, moving forwards. Perhaps that speaks more about NEM 2.0?
(C) How has this been received?
For reasons that have not been made explicit (or at least are not clear to me), there seems to have been advanced copies of this advice circulated fairly widely even before it has been submitted to the COAG Energy Council … as there has been a cacophony of condemnation in what I have seen in the general media – including:
1) In the AFR I noted that yesterday Angela Macdonald-Smith wrote that ‘Power market reforms to ‘chill’ green investment’ (made it to page 3 of this morning’s print copy) … though I do note this afternoon’s more supportive follow-on note that (some other!) ‘Generators back power reforms to keep lights on’.
2) In the Australian yesterday, Perry Williams wrote that a ‘Battle brews over Energy Security Board’s plan for reforms to power grid’.
3) In RenewEconomy yesterday, Giles Parkinson wrote a ‘Big win for coal generators as ESB pushes for Taylor’s favoured capacity markets’ (of particular interest was NEXA Advisory’s categorisation of responses in relation to the Physical Retailer Reliability Obligation (PRRO) ) – and then today Michael Mazengarb wrote that ‘Propping up coal: Clean energy sector says ESB reforms will distort market’.
4) In PV Magazine today, David Carroll wrote that ‘ESB’s final advice on market redesign draws criticism’.
All-in-all, that seems quite orchestrated?
Where to from here?
We’ll be sure to be thinking deeply about each of the four areas above as we continue to push ahead with the collation of GenInsights21
1) Some components are well underway (and some appendices 90% completed)
2) But others have further to go
3) We’d like to have a Q3 release, but that’s dependent on the heavy workload that existing reforms that Five Minute Settlement and the Wholesale Demand Response Mechanism represent!
(D) Key Dates?
The media release says nothing about this.
However it is worth noting that our article (published 30 April 2021) following the Options Paper did suggest that around today’s date the ESB anticipated:
“In around three months, the Energy Security Board (ESB) will be providing final recommendations for comprehensive reform of Australia’s energy markets to ministers on the Energy National Cabinet Reform Committee.”
So, at the very least, they seem to have hit their own target date.
(E) How Final is ‘Final’?
One question that pops up (perhaps conditioned by ageing rockers going around again in repeated ‘Last Time Ever’ tours in a weird form of Groundhog Day) is how true it is that the ESB’s advice is really ‘final’. Time will tell on that one…
Orchestrated criticism of anything that might delay renewable nirvana? No way!
The fact that an organisation titled ‘Energy Security Board’ even exists is a living example of how the market has been manipulated to achieve poor outcomes.
The options paper described how the market redesign would incorporate subsidies and targets for renewables, as if this is now ‘the new normal’… a phrase I’m beginning to dislike!
I cannot see how the NEM can achieve the best outcome for customers when the market design is becoming more and more a central planning behemoth, catering to lobby groups and political whimsy.
Security – as if.
I think Ben underestimates the professionalism of the team that Audrey Zibelman recruited before she handed over to another proven performer in clean Energy implementation.