The Australian Energy Market Commission (AEMC) has begun consultation on its review of frameworks needed to support the reliable supply of electricity as the power system transforms.

Reliability of the power system is about having sufficient capacity to produce and transport electricity to meet consumer demand. A reliable system requires an adequate supply of dispatchable ‘on demand’ energy, as well as reliable transmission and distribution networks, and a secure operating state.

The review will focus on dispatchable energy, and will identify and recommend any changes needed to market and regulatory frameworks in the future so that electricity is available to be supplied to consumers when they need it at the least cost.

Dispatchable energy can be supplied through:

  • Generation, including large-scale coal, gas and, and distributed energy resources such as battery storage
  • Demand response and other demand-side mechanisms, for example when customers are paid to curtail their electricity consumption.

An adequate supply of dispatchable energy in the national electricity market is underpinned by investment decisions by market participants on the basis of market signals: expectations of future spot prices, and the need for investors in new capacity to enter into contracts to hedge against future price risk.

The changing generation mix, with increasing penetration of non-dispatchable variable generation as well as the exit of thermal generators, and a decrease in the liquidity and duration of hedge contracts, has implications for maintaining reliability of the system, particularly on extreme weather days.

The review will take into account learnings from initiatives such as the demand response pilot program being trialled by the Australian Renewable Energy Agency (ARENA) and AEMO. It will also consider recommendations from the Finkel review such as the Generator Reliability Obligation, day ahead markets, and mechanisms to address demand response priorities.

The intervention mechanisms that AEMO has at its disposal to address potential shortfalls of supply, in case the market fails, will also be a focus of the review.

A reference group, comprising AEMO, the AEMC’s Reliability Panel, ARENA, the Clean Energy Regulator and the Clean Energy Finance Corporation, and federal and state officials, is providing input into the review. A technical working group will also be established, including representatives from conventional and renewable generators, demand response providers, networks, retailers, large energy users and consumer groups, to provide advice.

AEMC will provide a progress report on the review to the COAG Energy Council by the end of 2017, with a final report due in mid 2018.

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