Australian Energy Market Commission MAKING MARKET TRANSFORMATION WORK OVERVIEW 2016-2017 Australian Energy Market Commission MAKING MARKET TRANSFORMATION WORK OVERVIEW 2016-2017
Building a better energy system The changing mix in generation sources means we have to manage the power system differently and evolve the market. There is no silver bullet. There are many options we could take. But we need to understand how different solutions would interact with the rest of the system, affecting JOHN PIERCE CHAIRMAN prices, reliability and security. Decisions made today will affect national economic development for decades to come. The AEMC is changing the energy market design so it can deliver more reliable, secure capacity and help keep bills affordable.
Transformation of the energy sector is being driven of what’s needed to fill capacity gaps, and encourage by consumer choices made possible by smarter the hedging contract market to underpin necessary technologies, micro generation, rooftop solar, storage, investment. and the move to large-scale renewables. Emerging We are working with the COAG Energy Council, consumer benefits from this energy revolution are very the Energy Security Board, the Australian Energy real – but at risk – because of cost pressures coming Market Operator and the Australian Energy Regulator from the wholesale generation sector. on implementing recommendations made by the Older coal-fired generators are retiring and more Independent Review into the Future Security of the large-scale renewable generators have connected. National Electricity Market. We have an extensive work This changing generation mix impacts the price and program underway which is consistent with the Finkel availability of electricity. While investments under the blueprint. Renewable Energy Target have increased the level of Our work program is focused on four key areas: to installed megawatts, there are times when the overall promote system security and reliability, provide analysis mix cannot deliver enough hours of electricity, or enough on integrating government emissions reduction and security services, at the right time to meet consumer energy policy, reform market arrangements so gas can demand. Meeting consumer demand with a new mix be bought and sold more efficiently, and develop the of technologies requires price signals to guide private new competitive energy services market with demand sector investment. In the national electricity market, these management opportunities to expand consumer choices price signals come from the spot price and the forward and help manage energy bills. contract price. These signals, if allowed to function, ANNE PEARSON will deliver commercial investment in a combination of We are working more closely with stakeholders and CHIEF EXECUTIVE technologies that can deliver secure, reliable and low other market bodies to evolve the Commission’s way of emissions power to consumers at the lowest price. working in more timely ways. Over the past year we have operated differently to increase collaboration, combining In these circumstances it’s critical that there are work on related reviews and rules, and involving more emissions reduction mechanisms in place that allow price stakeholder working groups to help inform our thinking. signals to work within the national electricity market. This means putting all technologies on a level playing field and letting prices do two things – inform investors Above all we want a secure and reliable A range of options are available to provide KEEPING THE energy system that keeps prices as low as the additional services required to strengthen possible for consumers. The way electricity the system. The AEMC is establishing new supply and demand interacts is changing approaches to keeping frequency within the LIGHTS ON because the technical features of new secure band – to enable more inertia services, generation technologies like wind and solar smarter emergency control schemes and are different. The Commission is working new standards for minimum network system with AEMO and the AER to build a stronger strength. power system. Synchronous generators like Our security and reliability work is developing coal, biomass, gas and hydro operate with new frameworks to keep the power system large spinning turbines that maintain constant as strong as possible as it transforms. frequency and voltage, keeping the system Many technical options are emerging in stable. They inherently produce inertia, the today’s electricity sector and we want to energy momentum that lets the system ride encourage further innovation – rewarding through sudden disturbances. Currently, the most efficient technologies over time. non-synchronous generators like wind or Energy markets are not static and there will solar have no or low inertia. Power systems be different challenges in different places with lots of non-synchronous generation are tomorrow. The changes that need to be weak. They have less time to recover from made centre on the physics of energy supply, sudden equipment failures before frequency transmission and meeting consumer demand. Changing the collapses and widespread blackouts happen. energy market design An effective emissions reduction policy that flexible enough to adapt to whatever supply supports contract market liquidity is vital for a and demand conditions the future might bring; vibrant, innovative retail energy sector which designed to be sustainable so investors in all can deliver benefits to consumers. kinds of generation are confident that policy objectives can be met. Energy and emissions reduction policies have different objectives and need to be developed The contract market is the direct link between so efficiency trade-offs and costs are well matching the financial incentives for generation understood. Environmental policies that are assets investment with the physical needs of appropriately designed and integrated can the system. Any mechanism for emissions achieve their objectives while minimising costs reduction must enhance the role of the faced by consumers in energy markets. contract market to maintain reliability and security in the power system. A well-integrated emissions reduction policy is: technology neutral to allow for the greatest number of technology options in the market INTEGRATING to increase competition between generation EMISSIONS POLICY sources and minimise costs; Gas market challenges make it more important help lower transaction costs, improve market BUILDING BETTER than ever for the COAG Energy Council to transparency and support greater competition in achieve its vision of a liquid wholesale gas the Victorian market. We have recommended a market, with an efficient and transparent staged approach to reforming the Victorian gas GAS MARKETS reference price for gas. In 2016 the energy market. The first stage announced in July will go ministers agreed to our proposals that will a long way to achieving a more liquid gas market concentrate wholesale gas trading at two key and harmonisation with other gas markets hubs, make unused pipeline capacity readily across the east coast of Australia. In time, more available across the entire east coast, and substantial reforms could be implemented to provide more information about prices and allow for continuous trading of gas and explicit, gas availability. These reforms are now being tradable capacity rights. implemented. We have answered Victoria’s Implemented in full the reforms have the potential request for advice on next steps to reform the to increase Australia’s GDP by $8.7 billion in net east coast market with recommendations to present value terms by 2040 through improved make it easier to buy and sell gas in Victoria viability of gas-using industries and flow-on and to trade gas between states. This should benefits to employment and tax revenues. Changing the energy market design Our power of choice reforms are focused changes in price signals. Distributed energy on consumer information and cost-reflective resources are becoming smarter and cheaper prices so consumers can choose products and we expect to see uptake accelerate. and services that are right for them facilitating That’s why we need to put consumers in innovation so the market can open up to new charge of their own decisions, giving them metering and technology options; and poles the means to optimise the value of household and wires reform so the way we pay for power or business energy investments. This work can keep pace with modern lifestyles. These will help consumers reduce electricity bills, three areas of change are key as distribution help electricity networks manage peaks in network services are transformed by demand, increase competition in the wholesale consumers who are buying and selling power. electricity market by exporting locally produced We also have a vision for a new competitive power and also provide services like frequency distribution market which enables consumers control that help keep the system secure. to get the most value out of their rooftop solar panels, batteries, electric vehicles and smart household appliances like refrigerators and GIVING CONSUMERS dishwashers, which can respond to short-term MORE CHOICES RULE CHANGES, REVIE S AND ADVICE STARTED AND COMPLETED C C C