Postcard from Australia
A National Electricity Market Overview: decentralisation of electricity is not a future possibility, it is happening now
Helen Poulter, IGov Team, 16th April 2018
Over the last few months, I have reported on a number of issues within the National Electricity Market (NEM), the electricity market for the eastern states of Australia, and its governance. These issues have arisen from the world leading levels of DER penetration in some of those States and also the rise of large-scale renewable energy generation within the NEM, particularly in South Australia (SA). What is noticeable is that the concerns in Australia are similar to the concerns and questions being raised currently in the UK, and other areas of the world, which are also undergoing energy system transformation.
This is the fifth and final postcard from Australia and it tries to draw conclusions about NEM Governance. The first blog was an introduction; the second from Canberra, in the Australian Capital Territory; the third from Melbourne in Victoria and the fourth from Adelaide in South Australia. They followed on from two earlier blogs – an introduction to the Australian situation, and another concerning the Finkel Report which looked at the causes of a blackout. There is also a presentation given to BEIS.
The central issue for Australia, and why Australia is so interesting for the rest of the world, is that decentralisation of electricity is not a future possibility, it is happening now and it is happening both behind-the-meter and at community level. Australia will have to find governance reforms to ensure that there is value in decentralisation for all consumers.
Summary of Previous Postcards
The main points from the previous postcards and from the interviews that were recently carried out by the IGov project with industry, government and energy experts were:
- Due to various electricity market reforms since the 1990’s the current governance structure of the NEM is optimised for a centralised, top-down electricity market and questions are being asked whether this is ‘fit-for-purpose’ for a decentralised, decarbonised, digitalised and democratised energy system.
- The ‘big 3’ retailers (or gentailers) in the NEM have too much power over changes to the current electricity rules and the NEM in general. Research undertaken as part of the Finkel Review (see below) recognised this as an ‘incumbency bias in favour of the status quo’.
- There is a lack of understanding, by the NEM government bodies, of the disruption that could be caused by the increasing levels of DER if current governance is maintained.
- There is a lack of clarity within the current rules and regulations concerning the ownership and operation of microgrids and Virtual Power Plants (VPP).
- There is a lack of trust from consumers towards the energy companies and networks.
These points have then led to questions about how to incorporate the current disruptions and encourage consumer engagement to ensure a reliable, decarbonised and affordable electricity system:
- Should NEM governance be decentralised? If so, at what level and for which industries?
- How can it be ensured that the energy market is a level playing field that will allow for new entrants and innovation?
- How does the NEM market operator ensure grid reliability?
- How should visibility be created for behind-the-meter DER within the NEM?
- If there is a rise in the use of microgrids and VPP’s, what changes are needed to the rules and regulations within the NEM to ensure competition and consumer protection?
- How do the energy industries regain consumer trust and confidence?
Potential Technical and Operational Change
There are innovative trials underway for technical solutions in response to some of these questions.
- The transmission grid operator for South Australia, ElectraNet, is using synchronous condensers to provide inertia which has been lost as thermal generation has dropped off, one of the reliability challenges.
- GreenSync’s DeX, an open access digital platform, is creating a market platform to enable trading between decentralised energy, the networks and the market operator.
- Jemena, one of the distribution network operators in Victoria, is trialling Power Changers, a demand response initiative providing community benefits.
- At a local level, due to world leading percentage rates of domestic DER installations, Australia has also recognised that affordability and reliability could be achieved by community renewable energy projects. There are projects such as TRY, Totally Renewable Yackandandah. Yackandandah is a small, rural community in Victoria, hoping to provide all its energy needs from renewable resources by 2022. If this TRY effort is successful then it can be expected to become a blueprint for other similar small, rural communities – and there are many in Australia.
Potential Governance Change
For governance, there have been some changes to NEM policy which recognise that the energy system is transforming.
- The Finkel review, commissioned by the Council of Australian Governments (COAG) Energy Council in 2016, made recommendations for system security and reliability. This included the recent appointment of the Energy Security Board (ESB), whose member are the CEOs of the Australian Energy Market Commission (AEMC), the Australian Energy Regulator (AER) and the Australian Energy Market Operator (AEMO) and also an independent Chair and Deputy Chair. The role of the ESB is to provide whole of system oversight for energy security and reliability. They also will report annually to the COAG Energy Council on the progress of the implementation of the review recommendations.
- A report released in November 2017 by the AEMC, who are responsible for changes to the National Electricity Law (NEL), National Electricity Rules (NER), National Electricity Retail Law (NERL) and the National Electricity Retail Rules(NERR), recommends changes within these Laws and Rules for embedded generation to allow for new business models and the technological developments that have recently occurred (it is possible that these may be able to be adapted for microgrids).
- There is also a consultation paper out for a new National Energy Guarantee (NEG) which contains a Reliability Guarantee and an Emissions Guarantee, to replace the current Renewable Energy Target (RET) after 2020.
- There is a new Demand Response Initiative and Innovation Allowance Mechanism from the network regulator to encourage networks to use non-network solutions.
- There has also been a consultation on improving resources for consumer groups to participate in the Australian Energy Regulator’s (AER) revenue determinations for networks.
Lessons for the UK
So although energy system policy in Australia is beginning to adapt to transformation, currently it is more of a ‘sticking plaster’ approach as governance struggles to keep pace with the unexpected speed of DER adoption and technological innovation. Australia’s energy system is fast approaching what we, in the UK, are calling the future energy system. Given this, it is worrying that Australia is not further ahead in creating ‘fit-for-purpose’ governance.
The lesson for the UK is that you cannot predict the speed of disruption. We cannot keep talking about flexible governance to allow for disruptive technologies, we need to act. The future energy system will happen globally regardless. It is essential that governance in Great Britain is flexible now to allow for an efficient transformation to a decarbonised, decentralised, democratised and digitalised energy system, accessible and affordable to all.