At its meeting on Friday 22 November 2019, the COAG Energy Council noted the work of the AEMC on its Coordination of Generation and Transmission Investment (COGATI) review, which is considering reforms needed to deliver new generation and transmission to underpin our future power system.
The AEMC’s recent discussion paper has proposed reforms to the way generators access and pay for transmission infrastructure. The proposed reforms would:
- give new connecting generators more certainty around getting their energy into the grid and delivered to consumers
- reduce the costs and risks for consumers when it comes to building and funding new transmission infrastructure.
The COAG Energy Council noted that it will consider the final report for COGATI, which will outline the final proposed model and implementation approach, at the March 2020 Energy Council meeting.
In light of this, the Commission will now publish the final report in March 2020.
We will publish a short update paper on 19 December 2019. This will set out a brief update on next steps reflecting on stakeholder submissions to our October discussion papers. This will update stakeholders on our approach to modelling, as well as our thinking around considerations for implementation timing, which will need to take into account the sequencing and project management of complementary reforms.
In addition, the Commission also intends to consult extensively with stakeholders about the proposed access model over the coming months. In particular, this will allow the Commission to work with stakeholders on key issues raised with the proposed design, including: the length and firmness of the proposed financial transmission rights; as well as market power and contract market liquidity considerations.
The Commission welcomes requests from stakeholders for meetings and to discuss the project – please contact Tom Walker on tom.walker@aemc.gov.au.
Background
In the NEM today, generator investment decisions are made by private entities that are paid for the energy they generate once it is sold into the grid. If generators can’t dispatch or sell their energy they are not paid. The risk of investment in generation is therefore borne by the private sector.
Transmission investment decisions on the other hand are made by regulated network businesses (publicly or privately owned). The network business does a cost/benefit analysis for each new investment and, if the benefits to consumers outweigh the costs of the investment, the regulator determines how much revenue can be collected from consumers to pay for the asset. The risk of transmission network investment decisions are therefore borne by consumers.
If there is too much congestion on the transmission network generators can’t sell their energy and are therefore not paid, and consumers pay higher wholesale prices as more costly generators are dispatched instead. If too much transmission is built, consumers pay for assets that are not required.
A lack of coordination between generation and transmission investment decisions can mean that consumers pay more than necessary.
The AEMCs proposed reforms to transmission access and charging are designed to remove this disconnect, by exposing generators to the local marginal price through dynamic regional pricing, and giving generators the ability to purchase transmission hedges to manage price risks that may arise under congestion. Transmission hedges would offset transmission use of system charges. This means that the TUOS component of a customer’s bill should decrease, potentially significantly.
Media: Prudence Anderson, 0404 821 935 or (02) 8296 7817