Energy reforms set to deliver billions in consumer savings

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A public forum being held today will outline how consumers stand to benefit by at least $6-$8 billion from major reforms to the way electricity transmission is accessed and energy is priced in Australia.

The transmission access reforms are one of seven key initiatives being developed under the Energy Security Board’s 2025 market design project. According to new modelling undertaken for the AEMC by global independent consultant NERA Economic Consulting, the benefits of transmission access reform alone will be felt immediately on introduction and will accelerate over time.

“This reform is about adapting the grid for the new tech energy that is coming onto the system, like renewables and storage, in a way that will stand the test of time–and keep power prices down and the lights on into the future,” Acting AEMC Chair Merryn York said.

“It will also see a greater proportion of cheaper, mainly renewable energy actually make it to market–and that will accelerate emissions reduction because transmission investment will be better used.”

Transmission access reform is a major rethink of price signals in the national electricity market, giving electricity generators sharper incentives to locate in ways that work better for consumers.

The reform involves paying generators the actual value of supplying electricity from the location they’re in, rather than a one-size-fits-all reference price for each region.

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When there’s congestion in a part of the grid, the value will likely drop, returning to the regional price when congestion eases. Generators will be able to manage the risk of changes in revenue from congestion by buying financial transmission rights in advance. This gives them both a stronger incentive to factor congestion into their locational decisions when investing and a tool to lessen uncertainty about revenue levels. It also gives batteries financial incentives to locate in congested areas where they will be most useful and operate most efficiently–storing energy when prices are lower and dispatching it when prices are higher.

“The existing transmission arrangements weren’t designed to manage the increasing amounts of smaller, spread out, mainly renewable generation and storage like batteries and pumped hydro that are coming into the system,” Ms York said.

“Essentially Australia has outgrown the way it prices and delivers energy and so congestion is increasing because there’s little incentive for generators to locate in ways that meet the power system’s needs. This is seeing customers pay more than they should, and cheaper energy can’t make it to market, slowing the energy transition.

“The solution to this has two parts. The first is to reduce congestion by building transmission identified through AEMO’s Integrated System Plan. The second is to reform the way transmission is accessed and priced to protect the value of that investment into the future by preventing congestion building up again to unmanageable levels. Ultimately, it will mean that the grid is used much more effectively, and that is important for energy prices and power system stability.”

The NERA report shows that the reform benefits will begin to accrue immediately on introduction, saving between $400 and $660 million in 2026 and cumulative benefits up to about $8 billion by 2040. These estimates exclude implementation costs, but initial estimates show these would be significantly smaller than the benefits.

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The societal benefits include efficiencies in the way energy is dispatched, capital fuel cost savings as a result of electricity generators being located more efficiently and savings from changing the method of calculating energy that is generated but lost as heat before it reaches consumers.

The AEMC, which is leading the ESB workstream on transmission access reform, commissioned the NERA modelling to quantify whether benefits for the Australian market would equate to the large benefits from similar reforms seen in areas such as North America, New Zealand and Singapore. Stakeholders also supported an independent assessment of the likely impact of the reforms.

NERA has restructured electricity sectors across six continents, working on virtually every liberalised electricity market globally and has been active in the Australian energy sector since the mid-90s.

Today’s public forum to discuss the modelling is the latest in a large and ongoing engagement program with stakeholders that has included hundreds of submissions, more than 200 bilateral meetings, and regular meetings of our technical working group, made up of more than 40 government, industry and consumer representatives.

“We will continue to engage with stakeholders on these proposed reforms as engagement has been central to key changes we have made along the way and steered the methodology used for the modelling,” Ms York said.

“While the scale of the proposed change will require new ways of working, it will be integrated with other key ESB reforms, will be phased in gradually with detailed transition arrangements in place and will ultimately deliver the best solution for the greatest number of people.

“There are a number of shorter-term energy concerns occupying people’s attention right now and it’s critical that in addressing those, we don’t lose sight of the forward agenda.”

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