The Australian Energy Market Commission (AEMC) today released its draft report on the proposed optional firm access model, which 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.

“Under current market conditions, optional firm access would not contribute to the efficient investment in, and use of, electricity for the long term interests of consumers,” Mr Pierce said.

The AEMC’s analysis concluded that the costs of implementing the optional firm access model under current market conditions outweigh the benefits.

However, the report says that if drivers of a major transformation of the generation and transmission capital stock emerge, where the outcomes are highly uncertain, the balance of expected benefits and costs of optional firm access would shift in favour of implementation.

 Mr Pierce said the model which has been developed can be implemented if conditions change in the future, so the Commission has proposed a monitoring regime to ensure maximum lead time for implementation.

“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. This report contributes to that objective.”

The AEMC developed the optional firm access model at the request of the COAG Energy Council to improve co-ordination between transmission and generation in the National Electricity Market under circumstances of major changes in energy demand and supply.

Under these circumstances, 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.

In choosing to acquire firm access, generators would also fund and guide the development of new transmission to underpin their access rights. This would mean generators operating in the competitive part of the energy market, rather than regulated transmission businesses, would drive some decisions about future transmission development.

This would likely result in better coordination between transmission and generation investment, more efficient investment decisions and ultimately less risk and cost for consumers.

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.”

Mr Pierce said the recommendations are a proportionate response to the issues and balance a range of stakeholder issues and views which were heard in the AEMC’s broad consultation over the last year.

Submissions on the draft report are requested by 30 April 2015 and the final report that is needed is due with the COAG Energy Council in by mid-2015.

The draft report and further information is available at www.aemc.gov.au

For information contact:

Media: Communications Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817