The submissions period for the Federal Government’s National Electricity Market (NEM) review initial consultation has officially closed, with industry providing a range of responses and recommendations.
The NEM wholesale market settings review is being conducted by an expert panel and supported by the Federal Department of Climate Change, Energy, the Environment and Water (DCEEW).
The terms of reference and release package was released for feedback in December 2024, with stakeholders invited to provide feedback.
DCEEW said these contributions will be key to forming the pathway to future market settings that deliver reliable, competitively priced and secure electricity services in the long-term interests of consumers while promoting investment in firmed, renewable generation and storage capacity in the NEM.
Industry submissions
Clean Energy Council (CEC)
The CEC’s submission identifies the need to address long-term uncertainty through well thought-out market design.
The submission sets out key principles to achieve this, including stronger long-term investment signals; self-sustaining markets to minimise government intervention; careful management of any intervention effects; markets internalising the value of meeting system needs; a liquid and diverse contract market; and boundaries, to ensure networks operate on a basis of competitive neutrality to support open access.
It also covers various solutions that might be considered by policy makers, ranging from centralised capacity markets to address uncertainty regarding coal closure and changing system needs; to certificate and credit schemes to drive new capacity; to ongoing energy only market reform.
The CEC’s submission also explores implications for contract markets, essential system services, and consumer energy resources.
Read the full submission here.
Australian Energy Council (AEC)
Led by several member discussions, the AEC’s submission outlines three key issues for the expert panel to focus on, and three correlating recommendations.
Issue one: coal exit and investment incentives – this may result in a shortfall of energy supply during certain periods that cannot be addressed by increasing renewables alone, resulting in both short (intra-day) and long duration (multi-day) supply shortages.
Recommendation one: the Panel should focus their efforts on mechanisms that provide investment signals for flexible, dispatchable energy sources on both supply and demand sides.
Issue two: contract markets role as variable renewable energy increases – with the exit of coal generation and high volumes of renewables in the system, wholesale markets and prices will be more weather-dependent, increasing price volatility, including notable periods of negative prices.
Recommendation two: the Panel should consider the role of the contracts market in providing the required investment signals for flexible, dispatchable energy sources.
Issue three: essential system security services must be valued – as thermal plants exit, system security needs must be met via non-traditional plants, for which there are no market mechanisms or investment incentives in place.
Recommendation three: in its consideration of investment signals for flexible, dispatchable energy sources, the Panel should ensure ESS is valued through the establishment of spot markets such as for the provision of inertia.
The AEC’s submission also includes seven principles to guide the panel when considering market design options, a high-level assessment of different market design options as well as responses to the key themes raised in the panel’s consultation paper.
Read the full submission here.
Australian Energy Market Commission (AEMC)
AEMC welcomed the opportunity to provide its expert advice in response to the NEM wholesale market settings review.
The submission primarily outlines the work AEMC has been doing over the last 18 months to understand the challenges facing the NEM to meet its reliability, security and emissions reduction goals, and consider the suitability of the NEM design in a renewable-dominated future.
It outlines five challenges within the current market design, based on AEMC’s research. These are:
Issue one: the need for large-scale investment in new capacity is considerably higher than historical levels
Issue two: Coincident variable renewable energy (VRE) production drives lower captured prices for wind and solar, causing revenue insufficiency for these technologies in particular
Issue three: Gas generation is more concentrated, raising challenges of gas supply
Issue four: geographic diversity is necessary to have an effective mix of renewable energy
Issue five: renewable intermittency places greater importance on adequate long-duration storage and interconnection capacity
The submission also summarises the elements of the current design that should be retained and leveraged, including that:
- The spot market provides strong operational signals thereby resulting in efficient security constrained economic dispatch
- The market provides clear signals for participants to manage short- and long-term risks
- Market forecasting provides transparent investment signals
AEMC said building on the market’s strengths is pragmatic and allows for faster implementation and resolution of some of the urgent challenges it is facing.
The submission also details the areas identified by AEMC as requiring new focus and solutions, before answering each of the questions raised by the panel in the consultation paper.
Read the full submission here.
