The Australian Energy Market Commission has released its final report for the COAG Energy Council on the optional firm access model. The final report does not recommend implementing the model in the current environment.

AEMC Chairman, John Pierce, said overall electricity demand has been falling in recent years and the benefits of optional firm access would be greater in an environment where significant new investment in electricity transmission and generation is likely and where there is a high level of uncertainty about what that pattern of investment will be.

“The report concludes that under current market conditions, the costs of implementing optional firm access outweigh the benefits and the model would not contribute to the efficient investment in, and use of, electricity in the long term interests of consumers,” said Mr Pierce.

The report says in circumstances where there is a need for additional generation and transmission investment, and where the location and type of investment is highly uncertain, the balance of expected benefits and costs of optional firm access would shift in favour of implementation.

The AEMC therefore proposes a reporting and assessment regime on the drivers of transmission and generation investment so the model or other improvements could be implemented if conditions change in the future.

“No one knows what the future holds and it is important energy market arrangements and regulation are robust and flexible enough to respond to change in future. A reporting regime would contribute to that objective,” said Mr Pierce.

Were optional firm access to be implemented in the future, generators would have the option of buying firm access rights to manage congestion risk.  These financial rights would take the form of compensation payments typically funded by generators without such rights and made when network congestion occurs.

Mr Pierce said issues to do with congestion management and generator access have been the subject of no fewer than eleven major reports and reviews since 1997, including the Parer Review in 2002 and the Energy Reform Implementation Group review in 2007.

“Given the extensive work undertaken on the design and testing of optional firm access, the intent of the Commission is that this will be the last such report for many years to come.

“The recommendations are a proportionate response to the issues and provide a stable but flexible framework going forwards,” said Mr Pierce.

The Final Report’s recommendations will now be considered by the COAG Energy Council.

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