The Australian Energy Market Commission (AEMC) has made draft changes to the National Electricity Rules to keep the electricity system reliable for households and businesses as aging coal fired generation retires and we transition to more renewable energy.
The proposal is set out in a draft determination for stakeholder consultation, following a rule change request by the AEMC’s Reliability Panel, a panel of advisers representing consumers, the energy industry, and the Australian Energy Market Operator (AEMO).
The AEMC sets the rules for the National Electricity Market (NEM) and provides independent expert energy advice to Australia’s State and Federal Governments. It is strongly focused on providing a framework for a reliable electricity system and affordable electricity prices, particularly in light of current cost of living concerns.
An essential part of this work involves implementing arrangements to make sure there is enough electricity supply in the wholesale electricity market to meet the needs of households and businesses over the coming years and reduce the risk of outages.
Analysis from the AEMC has shown that price settings in the wholesale electricity market are currently set too low to ensure there is enough generation and battery storage to keep the system reliable as it transitions.
Additionally, pressure will continue to be placed on the electricity system as aging coal fired generation retires, with AEMO forecasting in its 2022 Integrated System Plan that 60 per cent of coal generation will exit the market by 2030.
This pressure will create reliability risks, with AEMO’s latest Electricity Statement of Opportunity update showing NSW and Victoria will begin to experience reliability pressures between 2025 and 2028 without new investment.
In order to meet our electricity needs, the AEMC has made draft rules to progressively increase the existing Market Price Cap, Cumulative Price Threshold and the Administered Price Cap.
These proposed changes would provide more scope for investors to deliver new generation and storage when it is needed most during times of high demand and in rare emergency situations.
Critically, the draft rule, alongside jurisdictional schemes, would also help facilitate the integration of emerging technologies, including batteries, to advance the decarbonisation of the electricity system.
Under these draft rule changes:
- the Market Price Cap, which sets the price ceiling in the wholesale electricity market, would increase from $16,600/MWh currently to $22,800/MWh by 1 July 2027
- the Cumulative Price Threshold, which serves as a trigger point to end a sustained seven day period of extreme high prices in the wholesale electricity market, will increase from the equivalent of 7.5 hours at the Market Price Cap to 8.5 hours at the Market Price Cap by 1 July 2027; and
- the Administered Price Cap, which caps the price in the wholesale electricity market once the Cumulative Price Threshold has been reached, will be set at $600/MWh from
1 July 2025.
These price settings would have no impact on wholesale electricity prices over 99 per cent of the time but should deliver additional capacity that will have substantial benefits in reducing the risk of outages and ensuring our electricity system remains reliable for households and businesses.
As these price settings apply rarely, the proposal is expected to result in a relatively small impact on retail electricity prices. The Reliability Panel’s modelling predicts a small increase in retail electricity prices by 2027, but ultimately the adjustment will lead to lower long-term prices for consumers than would otherwise have been the case.
AEMC Chair Anna Collyer said we must consider making the adjustments in order to help manage the transformation and to support decarbonisation of the electricity sector.
“These changes would encourage more generation and battery storage into the system when we need it most, reducing the risk of damaging outages for electricity consumers and keeping the system stable as we rapidly transition to higher levels of renewable energy and decarbonise our economy.
“Importantly, this proposal is designed to have no bearing on electricity prices under typical market conditions. Rather, it enables price fluctuations to encourage new market entrants, thus fostering competition to the benefit of all consumers.
“The Reliability Panel will continue to monitor, review and report on the safety, security and reliability of the electricity system to assess whether any further changes are needed to maintain a stable and reliable system for households and businesses into the future”, she said.
Consultation on the AEMC’s draft determination will close on 26 October 2023.
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