The Chairman of the Australian Energy Market Commission (AEMC), Dr John Tamblyn, today released the Final Report of the Congestion Management Review which was presented to the Ministerial Council on Energy (MCE) on 10 June 2008. The Review has examined Rules for the National Electricity Market (NEM) which govern how network congestion is managed and considered how those Rules could be improved in ways that enable market participants to manage the associated risks more efficiently and recommended four specific changes.
"Based on the available historical evidence on the level and duration of network congestion, our review has concluded that congestion has not been a sufficiently material problem in the NEM to justify significant further change to the market Rules at this time," Dr Tamblyn said.
"We have formed this view in the context of the other significant reforms that have already been made to the regulation of transmission and the wholesale market over the past three years. It has also been informed by our soon to be completed work on delivering a detailed implementation plan for the COAG initiative to establish national transmission planning arrangements.
"Looking forward we have highlighted the need for further review as climate change policy responses are more clearly defined - particularly the planned implementation of an Emissions Trading Scheme (ETS) and the focus on renewable energy technologies through Mandatory Renewable Energy Targets (MRETs).
"The MCE has now agreed to a review by the AEMC of the energy market framework in light of the introduction of climate change policies. These policy responses to climate change carry potentially significant consequences for behaviour in the NEM. The continuing ability for the existing Rules to deliver efficient outcomes needs to be better understood and tested in that context," he said.
The Congestion Management Review Final Report (PDF) does however, recommend four incremental but important improvements that could be made to the Rules to improve the Congestion Management Regime. These recommendations complement reforms already made:
- formalising in the Rules NEMMCO's use of fully co-optimised network constraints and improving the availability and quality of information;
- amending the Rules to implement a new funding arrangement for negative settlement residues;
- creating a Congestion Information Resource, published by NEMMCO, consolidating and enhancing existing sources of information on congestion risk; and
- clarifying and strengthening the Rules in respect of rights for generators who fund transmission augmentations as a means of managing congestion risk so that future connecting parties contribute to those funded investments where they benefit from them.
With these recommendations and the other reforms in place, the NEM's Congestion Management Regime will be comprised of the following key elements:
- a reformed regional pricing structure to address the material and enduring Snowy region congestion issue, and capable of further change through the new, economic assessment process;
- fully co-optimised dispatch supported by transparent guidelines and information disclosure;
- firmer and longer-term instruments for hedging price risk between regions; and
- effective economic regulation of transmission revenue and pricing, informed by a National Transmission Planner, a framework for nationally consistent transmission reliability planning standards, and supported by the AEMC's Last Resort Planning Power (LRPP).
For information contact AEMC Chairman John Tamblyn (02) 8296 7800
AEMC Communication Manager, Prue Anderson (02) 8296 7817 or 0404 821 935