Independent Review into the Future Security of the National Electricity Market Preliminary Report, Dec 2016 (docx 04 mb)

Consultation Questions

Effective energy market governance is essential for managing the transition that is currently underway in Australia’s energy market. The Review is considering whether the current institutional architecture can do this and support effective national coordination of energy policy.

7.1 Is there a need for greater whole-of-system advice and planning in Australia’s energy markets?

7.1.1 If so, what are the most appropriate governance arrangement to support whole-of-system advice and planning?

7.1.2 Do the roles of ministers and energy market institutions need further clarification?

7.2 What lessons can be drawn from governance and regulation of other markets that would help inform the review?

7.3 How should the governance of the NEM be structured to ensure transparency, accountability and effective management across the electricity supply chain?

7.4 Are there sufficient outcome statistics for regulators and policy makers to assess the performance of the system?

7.5 What governance measures are required to support the integration of energy and emissions reduction policies?

7.5.1 Should the AEMA be amended?

7.5.2 Should the NEO be amended?

7.6 How can decision-making be appropriately expedited to keep up with the pace of change?

Appendix A: International Energy Agency Country Comparisons

Electricity security issues arising from an increase in variable renewable electricity (VRE) generation can be addressed using best practices and lessons learnt from other markets in the world. This section draws out some of those lessons and is primarily based on material prepared for the Review by the International Energy Agency (IEA).

Several countries in Europe and North America are modernising their market design and regulatory framework to allow high shares of VRE generation while ensuring security of electricity supply.

New interconnectors and grid reinforcements to increase resilience are often useful for better integration of markets and renewables. Deploying large shares of VRE generation requires modernisation of technical network codes.

The September 2016 blackout in South Australia was mainly due to a storm. Electricity grids in other countries have faced similar problems, with a few examples being:

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  France, which in December 1999 saw 3.4 million consumers without electricity after a cyclone.
  
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  Eastern states of the United States, in October 2012 had 8 million consumers without electricity after Hurricane Sandy flooded the coastal regions of eastern United States.
  

Electricity grids are affected by extreme weather events and this is a bigger concern with the increase in the number of weather-dependent electricity generation sources such as wind and solar. Integration of large shares of VRE generation in Denmark, Ireland, Spain and Germany is being achieved without any detrimental impact on electricity security. The annual share of VRE generation in many systems around the world is forecast to increase considerably over the coming years. This could create a significant challenge for grid security but can be managed by implementing appropriate policy and regulatory frameworks:

According to the IEA key market design improvements in these countries include:

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  increasing the temporal and geographical resolution of prices;
  
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  improving the balancing and ancillary services markets; and
  
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  scarcity price formation and better-designed capacity mechanisms.
  

Many of these markets are also working to develop appropriate distributed market platforms to better integrate fast-growing distributed energy resources such as rooftop solar, battery storage and other behind the meter resources and by improving coordination and communication between distribution and transmission networks.

Countries with large shares of VRE generation are:

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  Denmark and Ireland. They on track to reach almost 60 per cent and 40 per cent share of VRE generation, respectively, by 2021.
  
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  Germany, UK, Belgium and Spain. They are anticipating over 20 per cent share of VRE generation by 2021.
  

Several countries as well as the Nordic market, the EU, Texas and New Zealand have demonstrated that it is possible to manage the challenge of integrating a rising share of VRE generation into their electricity networks.

The right set of policies to support the development and implementation of grid connection codes is essential for successful integration of VRE generators and for maintaining the security of the electricity system.

According to the IEA, with declining electricity demand and various incentives for renewable energy, most countries are seeing an increase in wind and solar installed capacity, which depresses wholesale electricity prices. This reduces the annual load factor of conventional electricity generators that are still needed to maintain system security and complement variable renewables.

The great challenge is designing markets that are fit for purpose for high shares of renewables. Achieving cost-effective and secure integration of VRE generators by transforming electricity systems requires better integration of VRE generators through the development of flexible technologies that provide dispatchable generation, improved grid infrastructure, storage and demand side management. Successful system transition involves:

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  improving short-term system and market operations to ensure efficient dispatching and ensure security of electricity supply;
  
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  ensuring resource adequacy in the longer term, including system-friendly VRE deployment to maximise the benefits of VRE and investment in additional flexible resources;
  
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  better coordinating policies and actions across several jurisdictions on a regional basis; and
  
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  tapping the potential of distributed resources to boost retail competition and supply security: micro generation, demand response, storage, behind the meter.