AEMC reveals new grid plan for renewables

Western Power, transmission, Jemena, TransGrid, RERT, distribution networks, transmission

The AEMC has released proposals to overhaul wholesale pricing and transmission access, aiming to lower the costs and risks of getting new generation and battery storage connected to the grid.

The COGATI (co-ordination of generation and transmission investment) blueprint will financially encourage generators to build in more cost-effective parts of the grid.

Further, for the first time, the AEMC has proposed large-scale generators would be paid a localised price for their power at the wholesale level. It says this better reflects the marginal cost of supplying power in the particular location.

AEMC Chairman John Pierce said the increasing growth of dispersed renewable generation and batteries across the national electricity market (NEM) means comprehensive market reform is needed to effectively integrate these new resources.

“At the same time we need to manage the transformation of the power system in ways that stop lower-cost generators being cut off congested networks – that can lead to unnecessary costs for consumers,” Mr Pierce said.

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Two AEMC discussion papers were released today for public consultation:

  • Coordination of generation and transmission infrastructure proposed access reform model
  • Renewable energy zones.

“The proposals we are releasing today essentially do two things. They create better investment signals for generators to locate in more cost-effective places, and make it possible for them to use the transmission network more efficiently,” Mr Pierce said.

“This work underpins our collaboration with the Energy Security Board on its 2025 market design project.

“Regardless of what happens in the future, these reforms need to be in place so new generation can have access to the grid in the cheapest way possible.

“These structural changes to the market framework are an essential element to deliver on AEMO’s integrated system plan (ISP) to keep the lights on at least cost.

“The ISP identifies what investment is needed to enable this to happen. COGATI complements this by reducing risk attached to new investment for consumers, generators, transmission networks and financiers.”

Mr Pierce said proposed new rules would be prepared by the end of the year. If the energy ministers agree to proceed with the rule requests, reforms could be implemented without delaying the ISP timeframe for new connections.

In addition to the package of COGATI reforms to be applied across the whole network, today’s announcement includes additional reforms focused on making renewable energy zones happen faster across the market.

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COGATI reform package at a glance

The AEMC says this market redesign would:

  • Lower costs for consumers by generators paying some of the costs of new transmission and ensuring the lowest cost combination of generation is dispatched at any given time
  • Increase the ability for generators to access the grid at more cost-reflective prices, and give them more control and certainty over how and when they use the network.
  • Improve locational pricing that reduces likelihood of needing to over-build the transmission network and encourage the right generation to connect to the grid at the right place and the right time.
  • Help offset the cost to consumers of building extra transmission through the money paid by generators for financial transmission hedges.
  • Increase reliability through better coordination of generation and transmission investment decisions
  • Improve access to the grid for new generation, linked to reforms which are focused on making renewable energy zones happen faster across the whole market.
  • Deliver better financial risk management for generators to manage congestion, and marginal loss factors – ultimately reducing their cost of capital.
  • Reduce transmission network costs in managing inter-regional settlement residues.

Next steps

The COGATI and REZ discussion papers were released today, at the request of generators and other stakeholders, so further consultation can happen before the review is concluded at the end of the year. The AEMC is collaborating with jurisdictions to deliver the reforms as soon as possible, and working with the Energy Security Board, the Australian Energy Market Operator and the Australian Energy Regulator on to ensure these reforms fully integrate with the Energy Security Board’s post-2025 process.

Submissions on both papers are due by November 8, 2019.

A public workshop on the COGATI reforms will be held on October 18, 2019.