Australian Energy Week, Melbourne Convention and Exhibition Centre

Anna Collyer, AEMC & ESB Chair

 

Thank you and good morning – it’s a pleasure to be here 

I acknowledge that we are on the lands of the Wurundjeri people who have been custodians of this land for thousands of years, and acknowledge and pay my respects to their Elders past and present

I know this morning there are many reasons to fix our gaze on the current environment – a change of government, some big movements in the sector, a lot of anxiety the magnitude of current  prices.

But despite – or actually, because of – those immediate, urgent concerns, it feels even more important for me to draw our focus back out to the big picture.

Because it’s the longer-term reform that’s crucial if our sector is going to serve the community the way we must, to reach Net Zero by 2050.

That means more renewables, firmed up by storage and transmission.

It means implementation moving along at a cracking pace so we give some relief to the short-term issues at the same time as building long-term solutions.

It means delivering the capacity mechanism, congestion management model, and transmission planning and investment review, with a host of interdependent work, and balancing – throughout – the benefits for consumers.

We live in a very volatile world, and we are trying to land the most significant transformation of the energy sector this generation. Today’s crisis is something we need to learn from and prepare for the next problems we face.  It’s an example of why we need to speed up reform, not slow down. And to speed up – we have to do it together.

There was a stage, not too long ago, when the phrase ‘post-2025 market design’ might have sounded futuristic.

Right now, however, there are fewer than 1000 working days until January 1, 2026.

P2025 implementation is a day-to-day practical exercise taking place in a complex environment:

• The stakes are high – implementation aims to set Australia firmly on the road to decarbonisation.
• There are four substantial workstreams, but between them and within them there are myriad links and interdependencies.
• There are countless customer touchpoints in businesses, governments, institutions and homes – no one will be unaffected by this work.

So despite the topic of my speech – I’m not here to talk about what the AEMC or ESB are doing to implement the P2025 market design reforms. I’m here to talk about how we are implementing them – market bodies, governments, businesses, investors, advocates, media, academics, customers. All of us.

Because we are all in this together. I’ll say it again: we are all in this together.

Working together is how we can implement these ambitious and essential reforms to reshape our magnificently complex energy market in time for 2025, for 2030, for 2050.

Working together will give us the balanced approach we need to deliver good outcomes for our whole community.

But I’m not stepping away from the guiding, designing and constructing roles that the AEMC and the ESB and our colleagues bear in this process.

We employ many strategies to ensure we can meet the reform goals, and there are three important tools that I’ll cover this morning:

• Firstly, how the creation of new markets becomes a mechanism driving innovation and greater efficiency in the focus and timing of your investments.
• Secondly, how you contribute to consultation with us directs implementation in ways that we value highly, and which you may not yet fully appreciate.
• Thirdly, how establishing social licence underpins implementation in so many ways – like agreement on decarbonisation targets and changes in personal energy consumption.

One thing that marks our reform implementation journey more than any other is that we know – usually – where we are going, but we don’t always know the best way to get there. What we do know is that market-based solutions are often the quickest, smartest way to work that out.

That’s why our reform program is around ‘market design’. We are seeking to address future problems that we can’t even define yet. Once we do – or come close - we can write the rules that create new markets, rewarding participants for solving those problems.

This is what we mean when we talk about creating a ‘space’ where innovation can occur.

We also often remind people that we are technology agnostic – we don’t pick winners. And this is true. But putting in place market frameworks that encourage innovation effectively lets the consumer pick the winner, and that has long been central to everything we do, both at the AEMC and the ESB.

As I said at the start – today’s problems are an example of why we need to move quickly, together to put in place a market design that will help us with more renewables and what is needed to firm them in the market through storage.

At its heart it will be offering rewards for providing something we need in the transition to net zero.

First, it seeks to provide confidence that we will have enough capacity as we see the massive retirement of the old fleet.  The scale of the new build required is enormous and a clear signal to guide that will support better outcomes for customers.

Secondly, it’s ensuring that we have the right mix of capacity to ensure a seamless service for customers.  We’re building capacity with the growth of variable renewables, but we need other resources and methods to come out on those cloudy, still days.

Batteries, pumped hydro, demand response and potentially hydrogen may all play a part, and, of course, the better we get at describing the problems we’re going to face, the better the solutions that emerge.

Because, in very simple terms, we can define a need for these services without defining how they will be delivered, or by who. That falls to the market, and the freedom to innovate, and this is the ‘space’ we create by designing rewards for those who come up with solutions.

• Another example is that shortly we’ll begin work on a rule change requested by the Australian Energy Market Operator, AEMO, to look at flexible trading arrangements for consumers.
• This could mean allowing ‘sub-meters’ to be added to household and business meter boxes – just microchips really – so consumers could choose to let a third party manage the power use of specific equipment, like their air conditioning or pool pump. On a public equipment level, it could apply to contracting out the power management for streetlights or phone kiosks.
• The rule change, if it proceeds, would create a ‘space’ where brand new business models could step in and offer benefits to customers and the power system, while being rewarded for it financially.

A challenge for many of you today may be picturing yourselves, your established businesses, plunging into a new market like that. As an incumbent of the current market, particularly a very large operator, one of the hardest things is to innovate against yourself.

I do understand that when we create new markets, to gain innovative solutions to the problems we see coming, it can be hard to break away from the traditional successful business model. In some ways, though, we’re doing you a favour by giving you the competition you need.

How so? Because we’re also creating new ways that you could be rewarded.

Incentives for service innovation are just one way to be rewarded by participating in the new markets we need. Another way is by responding to signals to invest in infrastructure, when and where we need it.

We know in the transition we are going to need more storage and more transmission. Not one – or the other – but more of each – in a way that is efficient for consumers. 

Two ways we are looking at this is through our work on the Transmission regulatory framework and modernizing the regulatory framework so it’s fit for purpose for how storage actually works.

Combining innovation and investment signals, we recently completed our Integrating energy storage systems into the NEM rule change.

The rule facilitates innovative business models that deliver efficient market solutions to address the needs of the transitioning energy system.

It’s a first step along the path to a two-sided market, sending signals that we need more participation from demand-side resources and are looking for solutions to enable it.

The rule change created a participant category called the Integrated Resource Provider.

This category enables storage and hybrids to register and participate in a single category.

Compliance with dispatch can also be measured at the connection point.

This means hybrid facilities such as load with co-located generation will be able to consume energy behind the connection point when there is congestion on the network.

And that means lower cost energy during periods of congestion, rather than limiting on-site generation, which is what currently occurs in these situations.

The rule change also allows aggregators of small generating and storage units to move into the new category, which will allow them to participate in the ancillary services market.

This change would send clearer investment signals by allowing aggregators to provide more services.

It is a relatively low-cost change that will allow more participants access to more revenue streams, and deliver services the market needs. Essentially, this change is about providing greater flexibility for customers to get the best value out of their energy assets.

And, last week, we released a draft report and recommendations from stage 2 of our Transmission Planning and Investment Review. The draft recommendations would allow variations to the depreciation profile for big network investments in the grid, removing some financing obstacles for major construction projects.

As an audience like this knows, it’s not enough just to invest in more renewable energy generation. We have to transport it, too, and often from locations very different to the historic generator hubs near coal mines and gas fields.

Our current transmission network was built in a time so foreign to our own that it might have been for a different country. It’s an area ripe for the right kind of investment, and we hope we’ve taken steps towards that with our recommendations last week.

Of course, reports like the Transmission Review don’t just appear.  Many of you here, or your colleagues, may be actively involved in discussions and submissions on a raft of these papers that are moving us towards P2025 reforms.

We don’t have all the information needed to complete the implementation reform process yet. No one does. That’s another place where you come in – where we’re in this together.

As businesses, advocates, governments, consumers and researchers, we call on you time and again to consult, consult, consult.

Just this month, the AEMC will receive submissions on five projects, release four more papers for fresh consultation, and hold three public forums and many more meetings with stakeholders drawn from every part of the energy sector and government.

We rely heavily on stakeholder engagement to guide our decision-making, not just to endorse it.

But when yet another call goes out from AEMC and other market bodies for you to write a submission, attend a forum, respond to a consultation question, we also know it can spark exhaustion at best, cynicism at worst.

We get it! Both AEMC and the ESB are small organisations and we try to contribute as much as we can to the consultation calls from other bodies too.

We took a necessary decision at the end of 2021 to re-sequence our work program for this year, which gave us all some breathing space around the most significant consultation projects.

Even so, the pace is relentless and we ask that you keep on reading our work, writing your thoughts, attending the forums, and helping drive the implementation forward.

I thought I’d share an example of why it’s so important:

The ESB began consultation on its Congestion Management Model – CMM – with a solution we thought was a good starting point.

Putting it bluntly: our stakeholders hated it and we thank them – you – for that.

Because – when we then asked you for alternative models we got a much clearer articulation of the problem, and 8 or 9 possible solutions. Two of the four new models being considered came directly from you.

That’s a particularly crisp example of how genuinely we seek your views, how highly we value the additional perspectives and critiques you bring.

We are all in this together, and we don’t have much time. We could have put a great deal of effort into developing, alone, an alternative to our original CMM. Thanks to the willingness of this sector to contribute in consultation for all our benefit, we didn’t have to.

Along with innovation and investment, your imagination and experience is helping to speed the implementation of the P2025 market design reforms.

While the CMM example emerged when we took an open-minded approach to traditional consultation, I’d like to share a less conventional example of consultation from the ESB. This is the Customer Insights Collaboration, which is changing the way we think about consumer outcomes.

Consumer Energy Resources (CER – our preferred term for DER like rooftop solar) are at the pointy end of this focus on consumer outcomes, in part because it’s arguably the area of the transition in which customers are most engaged.

Ensuring we are designing a system that works for the full spectrum of customers is central to the ESB’s Customer Insights Collaboration.

So what are we doing differently?

We know we have to start with customer preferences and behaviour and see how we can ensure the system works for consumers (not the other way around).

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.

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.

And in a pop quiz I took recently at a CEC dinner, where we had a higher proportion of people with EVs than at your usual gathering, I found a range of philosophies and strategies for charging, and none of them related to the value they could provide to the grid.

So if we want to understand how customer behaviour will impact the system, and how to design a system that works best for all customers, we need to start with the customer.

What we learned when we did the pilot was that starting with the customer gave us a meaningful way for all participants to engage on complex issues and find common ground.

That’s 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 with 6 monthly releases over the next 3 years 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.

We’re part way through the first release  – barriers and enablers to customers getting the most out of their flexible demand.  The 2 key barriers/enablers which we’ve identified are recognising the diversity of customers and trust.

While these aren’t surprising the collaborative work in highlighting them and commitment to sharing and using these knowledge-sharing reports provides a better basis to ensure they are given the necessary consideration in our work.

And in mentioning ‘trust’, I land at the third area I want to discuss regarding the way we’re implementing market design reforms. Initially, I called it a tool, but really it’s more like the door to the toolshed – you need it to be open before you get to work.

I’m referring to social licence, which is a phrase you’ve been hearing more and more in the energy sector as the transition increases in pace.

The term ‘social licence’ has been around for many years. In some contexts it’s synonymous with consumer confidence, or, simply, trust.  Businesses and governments can operate legally without social licence, of course, but typically not over long periods, or wide territories, or with resounding success.

And when we talk about the changes we need to implement P2025 market design reforms, to meet the targets of 2030 and 2050, we do need long, broad, stable trust and agreement from the community.

We need social licence at many levels to implement the reforms. We need people to be willing to change their behaviour, adopt new technologies, allow access to properties, and invest in innovative solutions.

• • Let’s talk about the link between innovation and risk. I spoke earlier about the importance of innovation to help us implement the market design reforms. However, in terms of social licence – or consumer confidence – product and service innovation also poses some challenges.
  • When a consumer invests in a product or service they are told will be good for them and also the planet, they expect it to work as it should. If it doesn’t, at present, they should be able to seek remedy.
  • But the very new nature of some energy-related goods and services means the consumer isn’t always going to find it easy to make a complaint to traditional authorities, or get action when they do.
  • We’ve had some interesting discussions lately with state-based Energy and Water Ombudsmen’s offices and where they see the gaps and potential loss of public trust, of social licence.
  • A question to consider is whether the Ombos’ remit could and should be expanded so our customers have somewhere to go for dispute resolution, the way they do for traditional energy products?
  • It might seem odd to want more ways for people to complain, but it makes sense if our ultimate goal is to build confidence in the new things we want people to buy, the new services we want them to employ.

It’s not only that consumer laws might take time to catch up to the very new innovations coming to the energy sector, it’s the sheer scale of what we’re moving towards.

Right now, and for all our history in electricity networks, the number of generators in Australia has been manageable in the literal sense. They could be counted, monitored, tested. Types could be matched to standards, maintenance could be mandated.

With the rise of CER, however, we’re looking at a future where consumer confidence in Australia relies heavily on 3 million tiny household generators – and they won’t be managed by 3 million tiny engineers!

We’ll need ways to ensure a level of quality in household generation – CER – that balances consumer needs and the power system’s requirements.

AEMC, ESB and AER each are considering standards and consumer protections within our respective scopes. Strong, enforceable quality standards encourage consumer confidence and social licence, and that in turn may enhance the implementation of some of our reforms.

The second stage of the AEMC’s Transmission review also highlights building social licence as a significant issue. It notes that obtaining community – and landowner – acceptance of major transmission projects is critical for their timely and efficient delivery.

The draft report found that existing regulatory obligations for stakeholder engagement are largely appropriate for TNSPs to build and maintain social licence. This doesn’t mean a TNSP can call it ‘job done’ with a tick and flick adherence to the regs.

The task of gaining trust, of building social permissions and not just legal ones, is larger than any rules we could write.

The current issues in the sector are bad for all of us – in particular – consumers. 

We know we need to move quickly to get in place reforms that reduce the risks that we see materialising today.

To get to net zero we need more renewables, firmed by storage and the transmission to get electrons where they are needed.

The title of this speech – Implementing the ESB’s post-2025 reforms – could be misleading. These reforms are not just the ESB’s. They belong to all of us.

A capacity mechanism may not be your preferred energy market model, but we need you involved in how we design it, define it and refine it.   Continued uncertainty at a policy level just increases the risks of consumers continuing to be on the receiving end of outcomes we see today.

The implementation process is not a typical government-down approach. Neither are we leaving the field wide open, because the National Energy Objectives ensure that consumer interests will always be at the forefront.

What we are discovering in the implementation process, alongside you I hope, is that placing consumer benefits at the front of our considerations helps everyone.

When consumers are our focus, we create stronger markets that naturally reward innovation and encourage investment because there are customers waiting for those solutions.

When consumers are our focus, our consultations are more effective and deliver more meaningful and direct ideas to our work programs.

And when consumers are our focus, it’s of course easier to build social licence because we are always thinking about what will attract them and repay their trust.

We are all in this together, and it’s a great pleasure to be on this implementation path with every one of you.

Thank you.