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‘Critical’ reforms needed for Australia’s National Electricity Market

Australia’s electricity supply security is the “most critical [energy] issue at present”, the 2020 Health of the National Electricity Market report reveals. 

On Tuesday, the Energy Security Board (ESB) published the Health of the National Electricity Market (NEM) report. It found that Australia is at risk of major supply interruptions, making the security of electricity “the most concerning issue” for the NEM.

“The Health of the NEM clearly shows the repercussions of rapid change in our electricity system and highlights the absolute urgency of addressing them,” said ESB Independent Chair, Dr Kerry Schott.

“We are concerned about security constraints in some parts of the NEM and the increasing pressure on distribution networks from growing rooftop solar penetration. 

“This, combined with growing large scale renewable generation and low wholesale prices, means it is vital that post 2025 reforms are put in place that can work alongside government policy schemes. 

“We’re moving in the right direction, but major changes are needed to unlock value to customers and ensure capital investments are made in an efficient and timely manner to deliver the affordable, reliable and secure electricity consumers need.”

The growing penetration of wind and solar is increasing the complexity of the power system and reducing its resilience as events become less predictable. 

The report welcomed this growth because renewables will “substantially” lower emissions, however Dr Schott has urged Government to redesign the electricity marketplace to protect consumers throughout the transition to renewables.

“We are focused on modernising the market, unlocking value for consumers and boosting consumer protection, removing red tape and making it easier for businesses to get in and offer the services customers may want to buy,” Dr Schott said. 

Federal Energy Minister Angus Taylor has agreed that action to improve electricity security is vital. 

“The NEM needs to adapt to address risks to reliability, security and affordability, particularly sudden, unexpected exits of thermal [coal] generators,” said Mr Taylor.

“We need a coordinated approach to market design to keep the lights on and costs down.”

The ESB has identified four key areas of reform needed in Australia’s electricity supply.

  • Resource adequacy through transition: this is necessary for energy reliability and affordability 
  • Essential system services and scheduling ahead mechanisms: scheduling to improve energy security
  • Demand side participation: this will empower consumers to make energy choices that suit them best 
  • Access and transmission: new technologies, such as renewables, will need to be connected at the lowest possible cost

“These reforms address the critical challenges facing the energy sector – affordability for all consumers, reliability and security; renewable energy zones; integrated system plan rule changes, enabling new generators to have adequate access to the grid, and national standards for distributed energy (or behind the meter) resources,” said Dr Schott.

“While many people in the energy sector have different perspectives on the possible solutions or priorities, everyone agrees on the problems we identified earlier in this process. What we have in place now is no longer fit for purpose for the energy transition and beyond. 

“The time to tackle these problems is now.”

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