Energy Security Board outcomes from 23rd Energy Council Ministerial Meeting
Publication date: Friday, 27th March 2020.
Outcomes from COAG Energy Council meeting on 20 March
At its meeting on 20 March, COAG Energy Council (Council) was briefed on a comprehensive plan for reliability, security, networks and affordability in the National Electricity Market (NEM).
The plan will be coordinated through the post-2025 market design project and will involve three key phases of program development and delivery, as follows:
1. Immediate Actions (12-18 month) including:
Interim Reliability measures
Interim Security Measures including national standards for distributed energy resources
Action to implement priority Renewable Energy Zones
Actionable ISP Rule Changes
Governance of Distributed Energy Resource (DER) national Technical Standards
2. Intermediate deliverables relating to development of Ahead Markets, Two-Sided Markets and Access Reform via Coordination of Generation and Transmission Investment (COGATI), to be developed for decision at the framework level by the end 2020 with implementation for some aspects likely ahead of 2025.
3. Longer term deliverables relating to investment signals, aging thermal generator strategy and initiatives relating to development of DER markets with implementation after 2025.
Ministers approved action to implement the short term interim measures and endorsed the work on intermediate and longer term measures.
Further work will also be undertaken to review the methodology used in national transmission pricing.
Interim measures on reliability
Ministers considered advice from the ESB and supported the recommendation to establish an out-of-market capacity reserve; and to amend the trigger for the Retailer Reliability Obligation (RRO). Both measures will be based on AEMO’s forecast exceeding 0.0006% unserved energy (USE) in any region in any year. This trigger level is intended to ensure that the electricity system remains reliable during a 1 in 10 year summer.
The out-of-market reserve is an interim measure ahead of the post-2025 market design project making more permanent recommendations, with the following features:
the volume of reserve capacity to ensure expected USE is no more than 0.0006% in any region in any calendar year based on Electricity Statement of Opportunities (ESOO) modelling
AEMO to procure the reserve
At least part of the reserve to be procured through a reverse auction process
Contract terms of up to 3 years
Long notice RERT to be absorbed into the reserve (the short term RERT to remain in place)
the last date AEMO can enter into a 3-year contract for reserve capacity will be 2022 for the 2024/25 summer.
The trigger for the RRO will also be amended so that it is based on the 0.0006% USE level and that the T-1 instrument will no longer require a T-3 trigger to first be made. Amending the T-3 and T-1 instruments will require law changes, which means the earliest possible date for making the T-1 instrument would be in 2021/22 for the following year.
The other design features and assessment of compliance with the RRO will otherwise remain unchanged. If triggered, liable entities will be on notice to cover their share of a one-in-two year peak demand. If a reliability gap remains one year out, liable entities must disclose their contract positions to the AER. If actual system peak demand exceeds an expected one-in-two year peak demand, the AER will assess the compliance of liable entities.
The ESB recommended no changes to the Reliability Standard that is associated with the market settings. These are interim measures that are intended to support reliability in the system while more fundamental reforms are designed and implemented.
The ESB notes that based on the analysis in 2019 ESOO, the RRO is unlikely to be triggered in Queensland and Tasmania for the foreseeable future.
The ESB will shortly begin consultation on changes to the National Electricity Rules that reflect Council’s decision.
Interim measures on system security
Ministers discussed the issues around system security and agreed that the ESB should coordinate action across the market bodies to implement interim measures to improve visibility of, and confidence in system security services, while more fundamental reforms are designed and implemented.
System security is the most critical issue facing the NEM today. There has been substantial progress in putting in place new and amended regulatory frameworks, and a significant future work program underway to assist. The ESB has developed a forward work program to monitor and track the work being undertaken to promote system security.
The ESB and Market Bodies have identified a range of interim steps that could help to improve the visibility of and confidence in resources that are needed to operate the power system. These include:
Requirements on scheduled generators to provide information on commitment timeframes, and cost and operating information that would assist potential intervention decisions.
Requirements on semi-scheduled plant to provide ongoing information on restrictions to their available capacity.
Requirements on large loads to provide information on their intent to respond to spot markets.
Requirements on scheduled generators and timeframes on commitment and decommitment decisions.
Requirements on semi-scheduled generators to follow dispatch targets.
A review of compensation mechanisms following a short notice commitment or decommitment decision.
The ESB and Market Bodies are currently examining these interim measures. Further information will be provided and consultation will occur in the near future. As work on the detailed implementation of these proceed, they may be modified to meet the intent while minimising any additional imposts on market participants.
Implementation of Renewable Energy Zones (REZ)
Ministers considered the need for interim arrangements to support the development of a number of priority REZs in the NEM ahead of longer term access reforms, and requested that rule changes be prepared to support the development of REZs.
The interim approach proposed by the ESB involves a two-step process:
Rule changes that require the jurisdictional planner to develop a detailed and staged development plan for each priority REZ identified in the ISP.These changes would build on the current ‘actionable ISP’ changes; and
the development of a framework for the staged development of connection hubs within a REZ development plan. This framework would be supported trial rules that are ideally developed under the regulatory sandbox provisions.
The ESB will shortly undertake consultation on rule changes required to implement step 1. The ESB would coordinate implementation of Step 2, which would be developed by the AEMC in consultation with key stakeholders.
Actionable ISP Rule Changes
Ministers agreed to the rule changes to action the Integrated System Plan for the NEM. The Final Decision document and associated rules have been published. These rules have been provided to the South Australia Minister who will make the rules by publishing them in the South Australian Government Gazette.
Governance of Distributed Energy Resource Technical Standards
Ministers agreed to implement measures to improve the governance of DER technical standards and develop new coordinating arrangements for DER technical standards. The recommended standard will be incorporated into the Rules and made nationally consistent and effective through complementary measures by jurisdictions and other bodies. Recommendations will be developed with thorough stakeholder consultation, and provided for Energy Council for approval in October 2020.
Fair Cost Allocation Methodology for Inter-Regional Transmission
Minister’s discussed a range of options for progressing the work on a fair cost allocation methodology. Minister’s agreed that the ESB would progress work and analyse the differences between the Status Quo and a Beneficiary Pays model; providing analysis on the impact on consumers by jurisdiction and also on the scope of defined beneficiaries. The ESB will report back to the COAG Energy Council by the end of May with a final report due by the end of September.
Over the coming months, the ESB and market bodies will concurrently develop the market design for new frameworks for system services and ahead market arrangements as well as the two-sided market designs, evaluating the various options and identifying a recommended design by the end of 2020. This work will be undertaken as part of the 2025 work program and other work streams of the market bodies.
Public consultation will be conducted as part of the development process.
For the COGATI work, the AEMC will continue to work with stakeholders over the course of 2020, to refine the access model and develop a set of draft rules. It is important to fully develop the detailed access model:
in conjunction with possible intermediate and 2025 reforms, to make sure that the package of reforms including changes to transmission access frameworks is integrated
with significant stakeholder feedback and input
as soon as possible, in order to have a detailed specification set out as soon as possible. This is in part driven by stakeholder feedback. Having the completely developed model available as soon as possible will allow participants to fully understand the proposed approach, and so provide a more concrete basis for them to consider its implications, and so factor this into their investment and operational decisions.
A key component of the work on intermediate measures will be determining the most appropriate sequencing of reforms. The next stage of work will look at the optimal sequencing of the current reforms that relate to the transition to a two-sided market, including any ahead market and the COGATI reforms.
Longer Term Measures
The ESB will shortly release a Directions Paper that will provide an update on the post-2025 market design project. This paper sets out the reform topics and directions the project is examining, how these directions relate to the immediate and intermediate measures, provides an update on progress made to date and sets out the structured approach and timing intended for assessing and implementing the proposals for future market reform.