COAG Energy Council discusses transformation of the energy sector

Gas prices and supply

Informed by recent ACCC and AEMC inquiries, the COAG Energy Council has released a reform package (15 reform measures) that has five key pillars:

1. Gas Supply – increase overall supply and number of suppliers
2. Market Operation – create trading hubs in the North and South of the country
3. Gas Transportation – easier access to transport infrastructure
4. Market Transparency – better information for trading purposes
5. Implementation – Dr Michael Vertigan AC has been appointed as the Independent Chair of the newly formed Gas Market Reform Group. 

One of the first and most sensitive implementation tasks is to review the access declaration criteria under the National Gas Law given the potential impact this could have on investment incentives in the transmissions pipeline sector. It is reasonable to say that the emerging reliability of supply issues in the National Electricity Market (NEM) given an increasing proportion of renewable generation in the energy supply mix has arisen due to reasons other than the declaration (or not) of gas transmission and distribution pipelines.

Review of Limited Merits Review

The SCO is required to undertake a review of the limited merits review regime by December 2016 as foreshadowed when major changes were made to the regime in 2013. The Terms of Reference state that the SCO is to consider all feasible options ‘including the removal of limited merits review’. The review will assess the extent to which the regime has met its policy intent having regard to the National Electricity Objective (NEO) and National Gas Objective (NGO), including advising on the optimal review mechanism to achieve the objectives.

The timing of the review, while as originally planned, is interesting given that all of the current large number of appeals under the existing mechanism have yet to be resolved. This in itself suggests the COAG Energy Council’s frustration with what was intended to be a streamlined review mechanism. Given a robust review regime is critical to good regulatory design, a key focus of the review should be on how appeal processes can be expedited while balancing the interests of all affected stakeholders.

Energy market transformation

The COAG Energy Council endorsed the release of three consultation papers focused on transformation in the energy sector: (1) Stand-alone systems – currently not captured under the national regulatory framework; (2) Consumer protections – ‘behind the meter’ services that fall outside of the current frameworks will be reviewed/consulted on to consider what consumer protections are appropriate; (3) Energy storage – consideration of the most appropriate registration system for batteries to support market operation and emergency response.

The first of these consultation papers raises important issues about the supply of electricity to existing grid and/or off-grid consumers, with stand-alone systems now capable of providing improved reliability and safety outcomes at a lower cost than standard network solutions. However, the existing regulatory framework applied to networks prevents such non-network solutions being implemented.

Consultation is also to be undertaken in coming months on the regulatory test for investment for new transmission assets, recognising the potentially increasing importance of interconnectors in the NEM. SCO will also be asked to assess the economic and operational impacts of existing state and territory emissions reduction policies on the NEM. Both pieces of work are important because they ultimately go to the heart of how much and who should bear the cost of decarbonising Australia’s energy generation.

Review of Governance Arrangements for Australian Energy Markets

Since the last meeting, the Council has prioritised reforms from the 2015 Review of Governance Arrangement for Australian Energy Markets including enhancing the COAG Energy Council’s strategic focus. There was also a commitment to provide additional AEMC Commissioners to expedite the rule change process, as part of ‘wider measures to strengthen the AEMC’s governance structure and future capacity’. It is good to see these governance enhancements being prioritised which should provide a more cohesive and responsiveness national energy policy and regulatory framework in future.