The Australian Energy Market Commission (AEMC) has released proposals to overhaul wholesale pricing and transmission access to lower the costs and risks of getting new generation and battery storage into the grid.
The coordination of generation and transmission investment (COGATI) blueprint redesigns the market to make sure that new generation and storage are connecting to the power system in the right place and at the right time to meet future needs.
AEMC Chairman, John Pierce, says the increasing growth of dispersed renewable generation and batteries across the national electricity market (NEM) means comprehensive market reform is needed to effectively integrate these new resources.
“At the same time, we need to manage the transformation of the power system in ways that stop lower-cost generators being cut off congested networks – that can lead to unnecessary costs for consumers,” Mr Pierce commented.
On Monday, two AEMC discussion papers were released for public consultation:
- Coordination of generation and transmission infrastructure proposed access reform model
- Renewable energy zones
Mr Pierce explained that the proposals essentially do two things – they create better investment signals for generators to locate in more cost-effective places and make it possible for them to use the transmission network more efficiently.
“Regardless of what happens in the future, these reforms need to be in place so new generation can have access to the grid in the cheapest way possible,” he said.
“These structural changes to the market framework are an essential element to deliver on AEMO’s integrated system plan (ISP) to keep the lights on at least cost.”
The ISP identifies what investment is needed to enable this to happen. Mr Pierce says that COGATI complements this by reducing risk attached to new investment for consumers, generators, transmission networks and financiers.
The proposed new rules are expected to be prepared by the end of the year.
If the energy ministers agree to proceed with the rule requests, reforms could be implemented without delaying the ISP timeframe for new connections.
In addition to the package of COGATI reforms to be applied across the whole network, the announcement includes additional reforms focused on making renewable energy zones happen faster across the market.
The AEMC is proposing to introduce locational investment signals to the market which would encourage generators and investors who want to build large-scale renewable power stations and storage.
Other new tools would deliver assured access to the grid. If the level of generator commitment supports the renewable energy zone, networks would work out the best way of delivering the capacity and the investment would continue to form part of its regulatory asset base.
COGATI reform package at a glance
It is proposed that this market redesign could:
- Lower costs for consumers by generators paying some of the costs of new transmission and ensuring the lowest cost combination of generation is dispatched at any given time.
- Increase the ability for generators to access the grid at more cost-reflective prices and give them more control and certainty over how and when they use the network.
- Improve locational pricing that reduces the likelihood of needing to over-build the transmission network and encourage the right generation to connect to the grid at the right place and the right time.
- Help offset the cost to consumers of building extra transmission through the money paid by generators for financial transmission hedges.
- Increase reliability through better coordination of generation and transmission investment decisions.
- Improve access to the grid for new generation, linked to reforms which are focused on making renewable energy zones happen faster across the whole market.
- Deliver better financial risk management for generators to manage congestion, and marginal loss factors – ultimately reducing their cost of capital.
- Reduce transmission network costs in managing inter-regional settlement residues.
What happens next?
The COGATI and REZ discussion papers were released on Monday at the request of generators and other stakeholders, so further consultation can happen before the review is concluded at the end of the year.
The AEMC is collaborating with jurisdictions to deliver the reforms as soon as possible, and is working with the Energy Security Board, the AEMO and the Australian Energy Regulator to ensure these reforms fully integrate with the Energy Security Board’s post-2025 process.
Submissions on both papers are due by 8 November 2019.