Controversial NEM reforms for further assessment

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The National Energy Cabinet Reform Committee announced the latest reform package for the post-2025 National Electricity Market (NEM), with two contentious reforms that should be the subject of more design work. thorough.

The reforms will be provided to the National Cabinet in October 2021 and have been based on recommendations provided by the Energy Security Board (ESB).

The proposed reforms include:

  • Adoption of principles for jurisdictional investment plans
  • The option of a ministerial lever for the T 3 instrument within the framework of the existing retailer reliability obligation
  • Progress of a distributed energy resources (DER) implementation plan
  • Adoption of a ministerial lever for emergency stop measures for minimum load conditions
  • Improvements to transparency of generator availability
  • Establishment of a jurisdictional strategic reserve

Ministers also agreed to continue design work on a mechanism that specifically leverages the capacity of the NEM.

This needs to be underpinned by principles that ensure that the design of a market mechanism allows for investment in an efficient combination of variable and firm capacities that meet reliability at the lowest cost, allowing jurisdictions to continue to meet their reduction targets. energy and emissions.

Ministers also agreed to support further design work to develop a congestion management model.

The capacity mechanism has raised concerns from industry that it will pay coal producers to stay on the grid longer than necessary, while the congestion management proposal has been criticized for its potential to generate too much uncertainty around new projects, causing funding difficulties.

The set of reforms should ensure that the NEM remains responsive and able to provide the full range of services necessary to provide consumers with an affordable, safe, reliable and low-emission electricity system.

Ministers agreed on a package of transport reforms to recommend to the National Cabinet, including the adoption of the Interim framework for renewable energy zones (REZ) to support a nationally coherent framework for connecting to a REZ; promote the adoption of the REZ; and encourage participation.

Ministers also agreed to publish the Interim framework for renewable energy zones final recommendations after consideration by the National Cabinet, and to advance work on equitable cost allocation.

Clean up the electricity sector

ACT Energy Minister Shane Rattenbury said ministers also agreed to establish an environmental element that the NEM rules lacked.

Rattenbury said he proposed amendments to ensure that the capacity mechanism only applies to new zero-emission capacity to avoid unnecessarily extending the lifespan of coal and gas-fired power plants.

“Although our proposal to target the capacity mechanism to new zero-emission capacity was not accepted today, the guiding principles now reflect an intention to reduce emissions from electricity,” said Mr Rattenbury .

“The BSE will be subject to design principles, which should ensure that the program won’t be the coal subsidy that many of us feared.

“The principles reflect the need to reduce greenhouse gas emissions from electricity and recognize the emission reduction programs of states and territories like ACT.

“We also got an agreement for ACT to lead the work to integrate emission reductions into the National Electricity Goal (NEO).

“This is important to ensure that the emission intensity of production is taken into account and that reducing emissions is a priority.

“All states and territories aim to achieve net zero emissions by 2050 at the latest, which means rapidly reducing emissions from Australia’s electricity sector.

“Reflecting these goals in the NEO will help ensure national coordination and appropriate investment certainty as we make this transition. “

An industrial body calls for a focus on the energy transition

The Clean Energy Council (CEC) welcomed the agreed reforms which recognized its previous concerns about the initial BSE proposals.

The CEC said it was “pleased and relieved that state and territory ministers have not endorsed or rushed reforms that may exacerbate uncertainty and risks for investors in our industry.”

These CECs express that the industry is concerned that the initial ESB proposals included the concern that establishing a capacity mechanism and introducing a congestion management model could adversely affect reliability, extend the life of existing coal production and slow the transition to a clean energy system.

The CEC pledged to ensure that further reforms would help ease the transition to a reliable, inexpensive and clean energy system, and welcomed a proposal to revise the NEO.

The future of BSE

As agreed by ministers at their meeting on August 20, 2021, following the end of the current terms of President (Dr Kerry Schott) and Vice-President (David Swift) on October 31, 2021, the CSE will be reformed to ensure that it can continue to undertake its essential role in the energy market.

The proposed reforms will streamline the BSE by reducing its composition to the heads of the three market organizations (the Australian Energy Market Commission (AEMC), the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER)).

The head of the AEMC will chair the ESB, although energy ministers retain the power to appoint an independent chair if necessary.

The reforms aim to help the ESB coordinate the three market organizations in their roles of regulating, operating and regulating the NEM.

They will also pivot the BSE towards the implementation of the Post-2025 Market Design Project, ensuring that Australia’s energy markets remain secure, reliable and affordable in the face of unprecedented structural changes across the industry. energy.

The ministers agreed on a set of governance protocols to guide their future decision-making.


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