The Australian Energy Markets Commission (AEMC) today published draft findings for the final two elements of a significant package of reforms designed to improve the effectiveness of the management of congestion in the interconnected electricity transmission system.
AEMC Chairman, John Tamblyn, said the Congestion Management Review Draft Report and an associated draft Rule on the process for handling future changes to trading regions released today would compliment other reforms already delivered. Earlier decisions by the AEMC have addressed the congestion problem in the Snowy Region, and improved the incentives for efficient transmission operation and investment.
"Through this package of reforms delivered over a period of time, the AEMC has analysed and addressed congestion issues in the National Electricity Market in an integrated and proportionate way."
"The Commission's analysis shows that the remaining congestion in the national grid is relatively low and transitory, outside of the congestion issue in the Snowy region that we have already addressed through an earlier Rule change."
"Our review recommends measures to address congestion that are in proportion to the size of the problem, through enhancements to the existing market arrangements in a limited number of areas, given the significant improvements already delivered."
The AEMC also released a draft Rule outlining a process for changing trading regions as a means of overcoming currently unforeseen congestion problems.
Dr Tamblyn said that the new Rule would provide a stable framework for considering future changes to trading regions based on economic assessment, and would address an important gap in the current regime.
Both the Congestion Management Review and the Process for Region Change Rule proposal were initiated by the Ministerial Council on Energy (MCE), a national policy body of Energy Ministers from Federal, State and Territory governments.
MCE Rule change proposal for the Process for Region Change
Congestion Management Review Background
- Elements of significant package of reform already delivered
The Commission's August 2007 Rule Determination to abolish the Snowy Region represents a significant part of the total package of reform, addressing the only problem of material and enduring congestion currently in the National Electricity Market. The Commission's December 2006 Rule Determinations on transmission pricing and revenue, and its March 2007 Determination on the Last Resort Planning Power (LRPP) establishes a new framework for promoting efficient investment by transmission companies in response to, and in anticipation, of network congestion issues. The Determination on the process for future changes to trading regions, also published today, represents another important pack of the overall package of reform.
- Review informed by new information on the materiality of congestion
The Commission has been keen to ensure that any recommendations for changes to the market arrangements are focused and in proportion to the problem. New information provided by the National Electricity Market Management Company (NEMMCO) and analysed by the Commission shows that, outside the Snowy region, congestion tends to be low level and transitory. It also shows significant variation between regions in congestion related to network outages. - Review identifies a set of further reforms within the NEM market design
The Commission is recommending a number of focused changes that will improve congestion management within the existing NEM framework. The recommendations relate to:- Measures to improve the predictability of pricing and dispatch outcomes - through greater transparency and certainty on how constraint are formulates, and through improvements in the release of information on constraints to the market;
- Measures to improve existing risk management instruments - by enabling market participants to buy Inter-Regional Settlement Residue (IRSR) units up to three years ahead of time, rather than the current 12 months, and by changing the arrangements for managing and funding negative settlement residues; and
- Measures to improve the information disclosed to the market on transmission capability - through the development of improvement measures of what transmission capability is being provided to the market, and when it is being provided.
- Review does not recommend further changes to locational pricing
The Commission does not find it appropriate to recommend increasing the extent of locational pricing within the market, outside the proposed process for changing trading regions. This position is based on the evidence on the materiality of congestion, and the fundamental nature of such changes. The Commission noted in particular the complex and significant implementation issues related to the specification and distribution of the new risk management instruments involved in such schemes.