Enlit 2022, MCEC Melbourne
Anna Collyer, AEMC & ESB Chair
Thanks Laura and good morning everyone.
I’d like to begin by acknowledging the Wurundjeri People of the Kulin Nation, who are the Traditional Owners and Custodians of the land on which the Convention Centre is located. I’d like to pay my respects to their Elders past, present and emerging and extend those respects to Aboriginal and Torres Strait Islander people present today.
It’s a delight to be here at my first fully F2F conference since the start of COVID. All the more so as I’ve just come out a week in isolation. My teenage son tested positive to Covid last week. Fortunately for our family, his symptoms were mild, the rest of the family managed to not contract COVID and so happily here I am today.
With everything going on in the world and in Australia at the moment, its good to be able to focus on something which is important and where we can make a difference. 2022 is certainly shaping up to be another crucial year for energy policy.
Right in the thick of it are the Australian Energy Market Commission (or AEMC) and Energy Security Board (ESB) – of which I have the privilege of being the Chair for both. As you know, the ESB was reset last year and is now made up of the heads of the three market bodies; myself as Chair of the AEMC, Daniel Westerman as CEO of AEMO and Clare Savage as the Chair of the AER.
Speaking from an AEMC perspective, we developed a new strategic plan last year which is about our role in the energy transition. In setting the scene for my talk today I wanted to draw out a couple of themes from our new plan.
The first is the context for all our current work. Not only is the energy sector decarbonising, it is also a critical enabler for other sectors to reach their net zero emissions objectives.
We very much see the AEMC role, including through the ESB, as contributing to the achievement of a net zero grid and a net zero economy.
Bearing that commitment in mind, I’d like you all to look at the photograph that’s on the screen behind me.
It was taken by a colleague of mine at the AEMC. We hold an annual photography competition and all the images I’ll be sharing this morning were taken by the talented team at the AEMC.
I think this is such a beautiful photo but the reason I picked it is because it also illustrates the second theme from our strategic plan I’ll be talking about today.
For me, this image is all about perspectives. The focus of the photo is the dandelion. But it helps us to remember 2 things. With any perspective, its always important to also see the bigger picture. And its always important to remember that there are other perspectives.
Our strategic plan recognises that AEMC makes an important contribution to achieving our common goal of net zero. But we also realise in order to find creative solutions to the challenges we’re facing, we need to harness different perspectives by working together collaboratively. There’s a nice quote that sums this up from American author Kenneth H. Blanchard who said, “none of us is as smart as all of us”.
Our job isn’t to have all the answers, but to deliver the right solutions together…. creatively and collaboratively.
When I looked across the program for this year’s Enlit conference, I was struck by how well it represents the broad spectrum of issues being tackled in the transition to net zero. It also occurred to me how every session in one way or another, relates to our current work program.
Bearing that in mind – I’ve picked three key areas you will be discussing over the next couple of days at to highlight areas of the AEMC and ESB work program that will contribute towards the goal of net zero.
- Integrating renewables into the system
- Electricity Networks in a 50% Renewable World
- Enabling Grid Integration of DER and Trends in demand response
Integrating renewables into the system
The work we are doing at the AEMC and the ESB is about getting the most out of renewables as a low-cost, emission-free form of generation – while at the same time ensuring we maintain reliability, security and affordability to achieve the best overall outcomes for consumers.
There are two key areas of this work. The first is the capacity mechanism work being led by the ESB, the second is the AEMC work on essential system services.
Lets start with the capacity mechanism.
In considering a new market mechanism for capacity, we are focussed on ensuring that we can provide seamless reliable energy for customers.
We know people are concerned that the mechanism will slow down the transition to renewables. Looking at the events of the past few weeks I think the transition to renewables is getting faster not slower. Its being driven not only by government policy but by investors and customers. The announcement by Origin Energy to bring forward the closure of its Earring power station, and the attempted take-over bid of AGL by Mike Cannon Brookes both represent the drivers for renewables which are both economic and climate change objectives.
In this context there’s two things we’re worried about. The first is replacing the thermal generation as it retires so we don’t end up with a gap. The second is replacing it with the right mix of firm flexible and variable resources.
There’s a couple of different scenarios we have in mind, that mean we need this mix of energy in the system.
If you have a sudden dip in power in the middle of the day due to cloud cover or an unexpected storm reducing solar panel output, you need something that can come on effectively instantaneously. Customers shouldn’t notice a thing.
On the other hand, if we had a wind drought scenario as was experienced last year in the United Kingdom, then we would be thinking about the kind of asset that may take longer to respond but can then be available over a potentially extended period of time. In some ways, this kind of arrangement could be considered more like an insurance product where you may not need it often but when you do, you’ll be happy that you had it there.
In order to focus on solving these problems, we have taken a step back in our work on capacity mechanisms this year. We have started by taking a scan of local and international examples of capacity markets to see what kinds of features they have in common or where they are different. We’ve also had a broad range of thoughtful submissions to our consultation paper at the end of last year looking at the various features of a possible mechanism.
As stakeholders have emphasised, we need to look both at the particular features of the NEM as well as the particular context of our rapid transition to come up with a creative solutions to meet our particular needs. And we will also be continuing to work with stakeholders to evaluate and articulate the reasons why we think any change we propose will meet those needs in a way that is better than what we have today.
The second area of work I want to talk about here is the AEMC’s essential system services reform work.
This is the other area where we need to complement current renewable technology so we can keep the grid stable and secure. This work started with the ESB deconstructing the inherent qualities of synchronous generation into clearly defined services that are needed to support the system.
The AEMC’s essential system services rule changes are now progressing this work with a strong emphasis on listening and learning.
One example of this, is the work we are doing with industry reps and our market body colleagues for an ‘Operational Security Mechanism’ or OSM.
This piece of work is looking at how we can price, procure and schedule the essential services that we need to stabilise the grid.
At the moment these services are being provided in the market through AEMO directing units online. For example, in South Australia, AEMO is issuing lots of directions to ensure we always have secure combinations online, which in South Australia means 2 synchronous generators must be online at all times.
Our work is looking to move away from this and have a more transparent, cost–beneficial approach to procuring these services.
This would restore the directions process back to a backstop measure like it was originally designed to be.
Given the technical nature of these issues, it is essential we have people with the right expertise involved in the process. We have technical working groups that provide us with key input and feedback on how things work practically and the real-world abilities of technology. We also need to think about how a market can evolve from new technology and what are the impacts on customers along the way, which means we need to bring that mix of thinking in as well.
So thinking back to our dandelion picture in relation to these two key areas of work. Its important to remember that the bigger picture for this work is the accelerating transition to renewables. We don’t want to impede that transition but we do want to make sure that we have complementary resource in the market to maintain reliability security and affordability.
And in each case we are looking for a broad range of different perspectives because these are novel problems. We don’t have off the shelf solutions ready to drop in so we need some out of the box creative thinking so we can develop new solutions.
Electricity networks in a 50 per cent renewables world
To give you an indication of the magnitude of transmission and generation investment we need to get to net zero, it was identified in AEMO’s latest draft Integrated System Plan that an additional 122 GW of utility-scale variable renewable energy is forecast to be installed in the NEM by 2050. Yes, we are talking about an eight-fold increase in large-scale wind, solar and hydro generation.
With this much new generation forecast to connect, it is self-evident that there is insufficient transmission network capacity to accommodate this. As Brett Redman commented last week, there can be no transition without transmission. The draft ISP anticipates actionable projects over the next 10 years totalling just under $14 billion.
We agree that investment in, and access to, the national transmission system is a key enabler of a successful transition. But we also need to remember that these are long-lived assets that consumers ultimately will be paying for over a long period of time, so we want to ensure we’re making the best investments we can on their behalf.
The ISP reforms which came into effect a few years ago are about finding the path for the best overall development of the system. The jurisdictions are also now putting in place arrangements to promote the development of renewable energy zones.
There are two further key pieces of work underway that will build on the ISP and REZ reforms.
First, the AEMC’s transmission review is looking at how the regulatory framework can support transmission investment in a timely way while still keeping costs down for customers.
Second, the ESB’s work on the transmission access is focussed on how to get the most out of those transmission and generation assets so we don’t build more than we really need.
Starting with the AEMC’s transmission review.
This review had the potential to be bigger than ‘Ben Hur’ and so we started by asking stakeholders what they thought the most important issues were for us to address. Through stakeholder responses, we were able to identify our areas of focus and prioritise our work. We’re starting with some near term issues which we think are critical, before moving to some of the broader issues which have also been raised.
One critical issue is the question of how emissions reductions are taken into account in transmission planning.
What we found was there’s currently a pretty broad range of views about how the current process works.
We have spent time working closely with our market body colleagues to understand the interaction between emissions reduction, the ISP process and the regulatory test for investment, the RIT-T process.
What we’ve found is that AEMO does explicitly build emissions reduction into its scenarios for the ISP based on jurisdictional policies or targets, and that those scenarios form the basis for the cost benefit evaluation of the RIT-T.
By examining these processes and getting an aligned understanding of how they work, we’ll have a common baseline. We can then ask the question whether anything further should be done in the national regulatory framework.
A range of other issues will be addressed in our initial report which is due for publication in April. This includes potential reforms to support networks in the way they work with communities, as well as balancing needs for networks to be able to finance these significant projects with appropriate checks and balances on the costs of the projects.
The transmission review is a significant piece of work and we have taken a collaborative approach in working with others to both identify issues and develop policy options. Alongside our usual stakeholder engagement, we have established market bodies working and advisory groups and jurisdictional reference groups and leverage these groups for their strong subject matter expertise and keen interest in the work we are doing. This has been a successful model and one that we intend to continue to use going forward.
The second piece of work that’s relevant to how much customers will pay for transmission is the ESB work on transmission access. This is really about getting bang for buck in relation to transmission investment.
The ESB’s put forward a proposal last year for a congestion management model – a system of rebates to provide incentives for new generation to locate in areas, or zones, where transmission capacity exists. However, listening to stakeholder feedback on this proposal, late last year we also called for new, alternative models from industry.
We received really great engagement from industry and are working with them to consider these models along with the CMM as to which should be progressed to a detailed design for ministerial consideration.
We’ve collectively identified that there’s 2 problems we’re grappling with – one is where assets are built in the first place, and the second is once built, we expect some level of congestion to remain and so how do we dispatch those assets in operational time-frame so we get the best use of assets for the benefit of customers.
We’ve also identified that this isn’t just about generation. Its also really relevant to batteries and to other flexible load and the way they can operate in the grid to relieve congestion if they get the right rewards for doing so.
We will be continuing to work closely with stakeholders – including many at this conference – on what exactly the model will look like and how it will work.
Remembering our dandelion photo (although I do like this one as well), our bigger picture here is the importance of transmission investment to achieving net zero and getting the best deal for customers from that investment. And both workstreams are examples of where we are using different perspectives to solve complex problems that come with the transition and our commitment to net zero. We think the steps forward we’ve achieved this year are the result of listening to each other and working through the issues from different points of view.
Enabling grid integration of DER and trends in demand response
Customers have led the way in our transition to net zero through investment in their own assets.
Whether to manage their electricity costs, make a contribution to tackling climate change or both we have the fastest uptake of solar panel investment in the world and this is set to continue.
Consumer investment in rooftop solar PV is expected to grow from 15 GW today to 35 GW in 2030. By 2050, rooftop solar and other types of distributed resources will contribute more than 45 per cent of Australia’s electricity.
We need a system that works for customers with solar panels as well as predicted new waves of investment in household batteries and electric cars. But we need to have regard to the full range of customers as they certainly are not homogenous. There are
- those who are really engaged and have the app to prove it
- those who buy the assets but want to set and forget and
- those who don’t or can’t participate – either way, we need to look after everyone.
The AEMC and ESB and many other bodies and institutions are undertaking a myriad of work in this space and so I’ve just picked two areas I want to highlight.
The first is the work the ESB is leading on gaining insights into customer perspectives.
This started life as the maturity plan but through the pilot we did last year, we realised that the actual value of the work was bringing together key stakeholders to talk about the issues from a customer viewpoint.
Of course, all of the work we do, as I’ve highlighted today, is about getting the best overall outcomes for customers. But its particularly pertinent when talking about an asset that sits on a customer’s roof or in their garage, to start with the customer’s perspective.
While we may think it's exciting to contemplate electric vehicles as batteries on wheels, most customers buy an electric vehicle because it’s a really cool car that goes from zero to 100kph in 2.7 seconds. So if we want to understand how customer behaviour will impact the system, and therefore how we design a system that works best for all customers, we really do need to start with the customer. In fact the ECA is now talking about CER ‘customer energy resources instead of the more system focussed ‘DER’.
When we did the pilot last year we found that starting with the customer gave us a really meaningful way for all participants to engage on complex issues and find common ground. Regardless of whether they were from industry, retail, government or consumer organisations – when we put the focus on what most benefits customers we created a shared language and purpose.
Our current vision is for this program to run over the next 3 years is to gain insights into customer perspectives on a range of key issues. The idea is we can then share those insights across the range of market bodies and other institutions working in this area so they can take them into account in their work.
The second piece of work, which AEMC will be recommencing shortly, is on smart meters.
Through the extensive stakeholder work we did last year we think there’s broad alignment for the view that the data and operational visibility that can be delivered by smart meters are the foundations of a connected, modern, and efficient energy system. We think they support future technologies, services and innovation for the benefit of customers.
That is why we have put forward a policy position to accelerate the deployment of smart meters as part of our. We have 2 areas of focus for this review this year.
First, we will be working very closely with a broad group of stakeholders to consider how to better roll out smart meters in a way that benefits all customers, and where costs are met in a way that make sense.
We also want to look at ways we can facilitate better access to valuable data that can be captured by those meters while still ensuring privacy and confidentiality concerns are appropriately considered and managed.
For a review that touches on many aspects of a customer’s electricity usage, it is important to have a clear focus on the problem we are trying to solve. That is why we partnered with Energy Consumer Australia as well as consumer advocates such as ACOSS to develop a clear problem statement for the review. We have also created a cross industry reference group where people have collaboratively come up with the best possible solution to a multi-faceted problem. We have around 60 people from all parts of the electricity supply chain represented in this group.
From a big picture perspective, we believe that the future electricity system is one where the customer’s energy resources will feature highly. Making that system work for all energy users will take more than the perfect technical solution. That’s why it is important that in all our work in this area, we need to focus on gaining those different perspectives, coming up with both technical and creative solutions that work – that are implementable and that will make sense for customers.
Which brings me full circle back to this image.
What I wanted to do was to emphasise two things today. The first is that we are all working towards a net zero grid and a net zero economy.
The second is that I believe very strongly that we’ll get better outcomes if we can take on different perspectives and work collaboratively together.
I hope that you’ll experience that in our work at both the AEMC and ESB we are seeking to harness the value of different perspectives, by moving to a more collaborative model of working. We are emphasising openness, creativity and transparency to build trust – so we can develop solutions together.
There’s one more point that I hope has also come through and that I want to leave you with. That at the end of the day the reason we are doing all of this is about human beings. The rapid transformation of the energy sector will affect almost all aspects of our daily lives.
And we think that people want to be confident the transition to a net zero grid will meet all of their needs which are for decarbonised, reliable and affordable energy.
I’d like to finish by thanking my staff at the AEMC who are not only highly committed and smart, but also – as you’ve seen from the photos this morning - very creative.
We look forward to continuing to work with you collaboratively to develop creative solutions for the energy transition.
Have a wonderful couple of days here. Thank you for having me.