ELECTRICITY MARKET REFORM: What still needs to be done? JULY 2019 - - PowerPoint PPT Presentation

JULY 2019

ELECTRICITY MARKET REFORM: What still needs to be done?

WHERE EXACTLY ARE WE AND HOW DID WE GET HERE?

2

Electricity sector emissions were rising – pricing the externality and leaving markets to resolve the issue has proven politically too difficult

WHERE EXACTLY ARE WE AND HOW DID WE GET HERE?

3

Unsustainable growth in retail prices coupled with poor customer experience has led to further interventions

Source: ABS 6401.0 Consumer Price Index, Australia

WHERE EXACTLY ARE WE AND HOW DID WE GET HERE?

4

Directions and interventions by AEMO are now necessary to keep the system secure but distort market price signals

WHERE EXACTLY ARE WE AND HOW DID WE GET HERE?

5

The level of market distortion and the pace of transition raises questions about the ability of the existing market design to deliver adequate level/mix of generation investment

CENTRALISED ELECTRICITY SYSTEM – CURRENT/EVOLVING MARKET DESIGN

6

CENTRALISED ELECTRICITY SYSTEM – CHALLENGES TO MEET

7

Accelerated closure reflects pressure from renewable build and coal costs. Timing to reflect avoiding major overhauls

Potentially rapid exit of existing plant due to: carbon constraint; aging infrastructure; reduction in cost curves of new technologies; consumer preferences; and lack of flexibility in existing fleet Lowest risk investments in short-term asynchronous and variable in output and not able to deliver full suite

• f system security services and in new locations

without strong existing connections to the network

CENTRALISED ELECTRICITY SYSTEM – CHALLENGES TO MEET

8

In addition to policy and demand risk, technology risk complicates investment decisions

CENTRALISED ELECTRICITY SYSTEM – KEY QUESTIONS

9

• Will the current, evolving market design be capable of meeting these challenges and:

➢ deliver smooth exit of existing generation capacity and deliver sufficient new investment to reliably meet future demand for energy and capacity without the need for government intervention? ➢ provide the right signals for the efficient provision of the full range of system security services required to keep the system secure – frequency, inertia, system strength, voltage, black start etc? ➢ deliver least-cost generation for customers?

• Are there better ways to provide more efficient locational signals for new investment in

generation and transmission?

• Who should pay for transmission and what should they get for it?

KEY RISKS THAT COULD PREVENT CURRENT MARKET DESIGN FOR CENTRALISED ELECTRICITY FROM MEETING FUTURE CHALLENGES

10

Affordability Price volatility Lack of longer-term price signals Inefficient risk allocation Unexpected closure Lack of confidence in/visibility of physical resources Inadequate system security services Inefficient locational signals for new investment Lack of (financially) firm access for generators to network

DISTRIBUTED ENERGY SYSTEM

11

DISTRIBUTED ENERGY SYSTEM – CHALLENGES TO MEET

12

Policy and regulatory frameworks for the distributed energy system are struggling to keep pace with the scale of consumer adoption

DISTRIBUTED ENERGY SYSTEM – KEY QUESTIONS

13

• What changes are required to policy and regulatory frameworks to support DNSPs’ role as efficient platforms

for energy services?

• Are sufficient incentives and regulatory arrangements in place to drive innovation in the supply of distribution

services and for distributors to use services from DER to minimise their costs?

• What is the best way for DNSPs to send signals to consumers (or their agents/intermediaries) about the

relative system value of their imports and exports at different times and places?

• How do we maximise the opportunities for customers to take-up service options that meet both their needs and

the needs of the system?

• How do we ensure regulatory frameworks do not prevent innovation but also do not bias against grid-based

services?

• How do we enable business models that take the complexity of the emerging grid - a system of 2-way flows

and potentially more dynamic and granular pricing signals - and turn this into simple customer value propositions without completely dissipating the signals?

KEY RISKS THAT COULD PREVENT CURRENT MARKET DESIGN FOR DISTRIBUTED ENERGY SYSTEM FROM MEETING FUTURE CHALLENGES

14

Affordability Capex bias Lack of price signals to retailers, intermediaries and customers Split incentives between DNSPs and retailer/intermediaries Ineffective consumer protections Lack of visibility/control of physical resources Regulatory inertia that stifles innovation

15