Regulatory reform for the energy transition

By Kate Axup, Madeleine George, Jun Chong
Energy Renewable Energy

What's happening? 5 min read

Reforming the regulatory framework that underpins our electricity system is a key aspect of Australia's energy transition, and the current volume of reform initiatives can seem overwhelming.

So, here is a snapshot of five key regulatory reforms that are currently in progress or that have recently been implemented, and that are designed to facilitate the energy transition (such developments are covered more comprehensively in our monthly National Electricity and Gas rules update).

Five key regulatory reforms

1. Essential system services

What's the problem?

Essential system services, such as frequency control, inertia, system strength and operating reserves, help keep the electricity grid in a safe, stable and secure operating state. Historically, these services have been provided by thermal generators and, as we transition to renewables, a new approach is needed.

What's the solution?

The Australian Energy Market Commission (AEMC) is considering a number of rule changes to address essential system services, which include:

  • reforms to improve security frameworks, formerly the 'Operational Security Mechanism' rule change request. The solutions proposed under the revised rule change request include aligning inertia and system strength frameworks and creating a new transitional non-market ancillary services framework which will enable the Australian Energy Market Operator (AEMO) to procure security services to meet system needs. A final determination is expected to be published in December 2023.
  • efficient provision of inertia reforms to introduce an ancillary service spot market for inertia in the National Electricity Market (NEM). A draft determination is expected to be published in February 2024. However, the AEMC will focus on completing the reforms referred to immediately above before considering more complex inertia options under this rule change request.

2. Transmission access reform

What's the problem?

Transmission access and congestion is a real stumbling block in the buildout of renewables in Australia. This needs to be addressed to ensure we have new sources of generation as coal-fired power stations are closed.

What's the solution?

The proposed congestion relief market (CRM) will be a new voluntary spot market to reward congestion relief. It will adjust the energy market dispatch and aims to encourage more cost reflective bidding. In addition to the CRM, the proposed priority access model will assign connecting generators a priority level based on when and where they connect to the grid, and will affect the generator's access to the regional reference price when bidding at the market floor price. Stakeholder feedback is being sought on elements of the CRM and the design choices for the priority access model.

3. Data

What's the problem?

Efficient use and sharing of energy-related data (including existing energy data and data related to new technologies, such as virtual power plants and electric vehicles) will be an important part of managing the energy transition, and changes are needed to the current regulatory framework to enable this.

What's the solution?

The initial reforms on data strategy aim to remove regulatory barriers and enable more effective access to existing energy data by permitting AEMO to disclose protected information to certain bodies, such as the Australian Renewable Energy Agency and the Clean Energy Finance Corporation. The Energy Security Board released a final policy position paper and draft Bill in June 2023 for the Energy Ministers' consideration. It is expected the reforms will be enacted during the second half of 2023.

4. Consumer energy resources

What's the problem?

The high uptake of consumer energy resources (CER) in the NEM (eg rooftop solar) needs to be carefully managed and utilised as part of the energy transition.

What's the solution?

The CER Implementation Plan focuses on three horizons: 'Now', 'Next' and 'Future'. It sets out high-level recommendations, including the development of standards for new technologies (eg electric vehicle charging standards), CER access and pricing rules, and ways of removing barriers and building foundations for consumers to benefit from flexible energy use.

In line with the recommendations in the CER Implementation Plan, the AEMC is currently considering a rule change request that seeks to improve the flexibility and trading of CER and that will facilitate better integration of CER into the power system. The draft determination for this rule change is expected to be published in December 2023.

5. Resource adequacy and capacity

What's the problem?

The retirement of coal-fired generation raises security-of-supply issues and there is a continued need for government support to secure supply and encourage the rapid buildout of renewables as part of the energy transition.

What's the solution?

This federal Capacity Investment Scheme will aim to secure adequate capacity in the market through competitive tenders (which will only be available to clean renewable generation and storage projects). Projects selected through the tender process will be offered long-term federal underwriting agreements for an agreed revenue 'floor' and 'ceiling'. Registrations for the first tender round for South Australia and Victoria are expected to be open in October.

As part of the resource and adequacy reforms, the T-3 Ministerial lever rule change also commenced on 14 April 2023 and gives the Minister of a participating jurisdiction the ability to trigger a 'T-3' reliability instrument, if they believe on reasonable grounds there is a real risk to the supply of electricity. Previously, only AEMO could trigger this.