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Client Update: Steps taken to progress Strategic Energy Plan

27 November 2018

In brief: Tasked with preparing a draft Strategic Energy Plan on behalf of the COAG Energy Council, the Energy Security Board has developed five key outcomes and a list of objectives for the National Electricity Market, and is seeking industry feedback on the proposed metrics for evaluating market performance against these objectives. Partner Anna Collyer (view CV) and Associate Luisa Colosimo discuss the ESB's proposal, and opportunities for stakeholders.

Background

In an effort to ensure a clear strategic focus for the future evolution of the National Electricity Market (the NEM), the COAG Energy Council, in consultation with the Energy Security Board (the ESB), is taking steps to develop a Strategic Energy Plan. After presenting a draft Strategic Energy Plan to the COAG Energy Council at its meeting on 26 October 2018 (the Draft Plan), the ESB has released a consultation paper on the proposed metrics for the Draft Plan and is seeking feedback from interested stakeholders.

What is the Strategic Energy Plan?

The concept of a 'strategic energy plan' was introduced in Alan Finkel's Independent Review into the Future Security of the National Electricity Market (the Finkel Review), released in June 2017. The Finkel Review highlighted the importance of a strong, well-designed system of governance to ensure a secure, stable and efficient energy market, and provide clear accountability for different responsibilities and outcomes in the market. It recommended that the COAG Energy Council produce, by mid-2018, a strategic energy plan, informed by the other recommendations in the Finkel Review, with an overarching purpose of providing clear direction on energy policy, to allow for growth within the energy market.1

Building on this recommendation, in November 2017 the Australian Energy Market Commission (the AEMC), in consultation with the Australian Energy Market Operator (AEMO), the Australian Energy Regulator (AER) and Energy Consumers Australia (ECA) and industry stakeholders, published an advice on the strategic priorities for the NEM, aimed at assisting the COAG Energy Council to develop a strategic energy plan.

The consultation paper notes that the Draft Plan the ESB has prepared draws on both the Finkel Review's recommendations and the AEMC's strategic priorities advice.

How will the Strategic Energy Plan be used?

The consultation paper provides it is intended that, once developed, the Strategic Energy Plan will form the basis of the Statement of Expectations issued to the AEMC and AER, and Statement of Role issued to AEMO, which should include performance indicators to clarify the market's expectations for these bodies. The ESB's annual Health of the National Electricity Market Report will also report on the energy market's performance against the objectives set out in the Strategic Energy Plan.

In addition, the Finkel Review recommended that the COAG Energy Council report annually to COAG leaders on the market's progress against the Strategic Energy Plan, on key areas of concern that require particular attention and on its revised strategic priorities for the next 12 months.2

The Draft Plan's objectives and proposed metrics

The ESB's Draft Plan sets out five key outcomes for the energy market, each accompanied by a list of key objectives.

To ensure that there is a quantifiable way of measuring the NEM's performance against these objectives, the ESB has proposed establishing specific evaluation metrics for each objective – the subject of the consultation paper. Examples of the types of objectives and working draft metrics the ESB has proposed are set out below.

Outcome

Sample objective

Sample metric

1. Affordability and energy satisfied customers

Consumers able to easily identify and secure best price electricity offers

Consumers able to change retailers in 'five clicks' or less, and be switched to new provider within two business days

2. Secure electricity and gas system

Safe, secure and efficient operation of market with minimum regulatory intervention

Market deemed to be operating in secure state more than X% of the time

3. Reliable and low emissions electricity and gas supply

Efficient delivery of emission reduction targets and reliable supply

Electricity and gas sectors meet respective emission reduction targets

4. Effective development of open and competitive markets (where appropriate)

Competitive wholesale and retail markets, delivering effective consumer outcomes

Number of consumers on standing offers reduced to X%

5. Efficient and timely investment in network

Monopoly infrastructure regulated efficiently

Performance and productivity metrics for regulated networks developed

Opportunities for stakeholders

The development of a Strategic Energy Plan is an important step towards ensuring that the NEM is continuously improving and adapting in the face of shifting energy policies and the technology evolution. However, both the COAG Energy Council and the ESB have acknowledged that the success of any Strategic Energy Plan is contingent on the establishment of a clear and well-designed benchmark system by which to measure and evaluate market performance.

This consultation presents an important opportunity for interested stakeholders to weigh in on appropriate and tangible targets for the energy sector. The consultation process is open until close of business 28 November 2018, and the submissions will inform the ESB's advice on the final draft of the Strategic Energy Plan, to be delivered to the COAG Energy Council at its meeting in December 2018.

Allens will continue to track the development of the Strategic Energy Plan and wider energy policy reform. To follow these updates, visit our Energy Reform Hub.

Footnotes
  1. Independent Review into the Future Security of the National Electricity Market – Blueprint for the Future (Finkel, June 2017), recommendation 7.1.
  2. Independent Review into the Future Security of the National Electricity Market – Blueprint for the Future (Finkel, June 2017), recommendation 7.4.

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