Case study (Australia): Reforming national electricity markets

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Industry sector

  • Distribution Network
  • Generation and Wholesale Market
  • Supply and Retail Market
  • Transmission Network

The rapid uptake of domestic distributed energy resources continues to outstrip all forecasts in Australia, with the largest generator now owned collectively by customers. The Energy Security Board on its upcoming post-2025 reform agenda on the design changes needed to support more flexible, greener power use.

This case study is supplied by Phil Blythe,
Distributed energy resources (DER) Markets Lead at the Energy Security Board (ESB) for Australia.

  1. The challenge

    In Australia, we are nearing completion of a one in 20-year reform of the electricity market. The ESB was tasked by the state and federal energy ministers to advise on design changes needed in the National Electricity Market (NEM) as it transitions from largely coal-fired generation to more renewable generation. Known as the ‘post-2025 reform agenda’, ESB is due to submit its final advice to ministers in late July 2021.

    Distributed energy resources (DER) are producing a significant amount of energy and flexibility across Australia. They are one of four main pillars of the market reform process. The largest generator in the NEM is now owned collectively by customers. 

    The rapid uptake of domestic DER continues to outstrip all forecasts with solar now on over 2.7 million homes across the NEM. The emergence of digital and battery technologies is likely to drive further growth in batteries and electric vehicles, supporting new choices and potential value streams for customers as they offer new forms of flexibility in their load to the grid.

    Technology is changing at such a fast pace that the reform process must consider new arrangements and remove barriers so new business models can emerge to offer greater choices to customers, while ensuring they remain protected. 

    Much like how mobile plans have evolved – driven by customer needs and technology – customers will be offered a different range of products to what is in place today. With these new products come new risks. Not all customers have access to DER assets, but the efficient market integration of these assets has been created to deliver value to all customers. 

  2. The approach

    Making the market arrangements more technology neutral and getting the protections settings right means that customers can benefit from a broader range of service providers, with innovative service offerings to meet our needs in ways we cannot even imagine today.

    However, the biggest gains to the market and consumers come from increased flexibility across the system. Without the benefits of additional flexibility coming from demand response, storage, EVs, and eventually from hydrogen electrolysis, large-scale storage systems are forecast to be needed to trade stock between low prices in the middle of the day and the evening peak. 

    Initial emerging modelling from a publicly funded study in Australia suggests billions of dollars in large-scale storage investment could be avoided through enabling flexible resources in our future markets. The results of this study are due in August 2021.

  3. Impact and outcomes

    In April, we ran a public consultation that covered several policy areas being examined to strengthen the integration of DER into markets, promote new products and services, ensure the system limits are recognised and respected, and to ensure there are adequate protections for customers.

    This includes:

    • Improvements to consumer protections The introduction of a risk-based assessment tool has been proposed, based off the UK Energy Catapult work on modernisation of consumer protections approaches.
    • Measures to tackle minimum system load. The rapid onset of minimum system load is one of the major drivers of system operations. New information provisions, emergency backstops and DER standards are being considered to address growing security concerns across all regions of the NEM.
    • Introduction of dynamic limits for DER. To ensure that DER can meet the physical limits of the low-voltage distribution network, as well as emerging system issues from minimum load, dynamic limits at each DER connection point are being piloted as the solution to be rolled out across the market.
    • Introduction of mandatory technical standards for DER, and compliance with dynamic limits. To enable DER to be connected to the internet, to become price responsive to wholesale market signals, and to enable the switching of providers that use a set of common protocols, new interoperability and communications standards are under development.
    • Changes to the role of the network. The role of the distribution network will need to support the two-way energy flows from DER, to set dynamic limits at each connection point to maintain security and find ways to optimise the network by having DER respond more dynamically to price signals and incentives.
  4. Next steps

    These reforms are urgently needed as the market in Australia is experiencing drastic changes to its energy mix and technologies. These could provide valuable insight to other jurisdictions around the world.

    Australia is pioneering the role of high penetration DER into energy markets, and into a market that is transitioning towards variable renewables at breakneck speed. The new chief of the Australian Energy Market Operator (AEMO) has announced an ambition for Australia to be able to handle 100% instantaneous renewable energy by 2025.

    In a market without nuclear or significant hydro, this will be a remarkable achievement. But it is also crucial to help manage the trajectory towards 100% renewable grids over the coming decade.

Consumer benefits

  • A significant rework of market rules has been proposed that allows customers with DER to contract with multiple providers, and across multiple markets, with improved visibility.
  • Customers will be offered a different range of products that are driven by customer needs and technology.
  • There will be modern improvements to consumer protections with the introduction of a risk-based assessment tool.