Transitioning Australia's National Electricity Market to a secure, affordable and reliable future

A new report, "Preliminary Report of the Independent Review into the Future Security of the National Electricity Market", presented by Australia's Chief Scientist to the Council of Australian Governments, identifies the key observations of the Chief Scientist on the current state, and the necessary developments, of the National Electricity Market (NEM), and is calling for stakeholders' views on the requirements for Australia's electricity future by 21 February 2017.

What is the NEM?

The NEM is the wholesale electricity market that governs the States and Territories of eastern and southern Australia and covers the longest geographically connected power system in the world. In total, the NEM is responsible for approximately 200 terawatt hours of electricity generation per annum, and accounts for approximately 80% of Australia’s electricity consumption. 

Why the review?

The Australian electricity market is undergoing a significant transition as a result of changes to how power is generated and how Australians receive and use it.

COAG initiated the review to examine the role of the NEM and the transition to greater renewable energy generation. The review was brought into focus by events such as the state-wide blackout in South Australia in September 2016 and supply issues in Tasmania, which highlighted the need for prompt action.

What does the Preliminary Report say about the National Electricity Market?

The Preliminary Report focuses on what can be done to deliver a secure, affordable and reliable NEM, what can be done to facilitate the transition to a greater percentage of renewable energy, the technological changes that are yet to come, and what Australia's electricity future needs to look like.

New technology

New technologies create opportunities for a more integrated, predictable and responsive energy system, including the ability to better manage peak congestion and provide reliability at a lower cost. The Preliminary Report notes that the integration of these technologies must be well managed to ensure security of supply.

Consumers

Consumers are helping to drive the transition by embracing new technologies, choosing ways to better manage their energy costs and help reduce Australia's emissions. The increasingly active role of consumers is fundamental in supporting the future security and affordability of the power system, however the Preliminary Report identifies that this will require the right prices and incentives for consumer uptake.

Low emissions

The electricity sector has an important role to play in achieving Australia's emissions reduction target, and is a large source of opportunity for innovation, however the Preliminary Report acknowledges that stable and effective emissions reduction policies will be required to support innovation and the required investment in long-lived generation and network assets.

Integration of renewables

The closure of coal fired generators and their replacement with renewable energy generators has technical implications for security and reliability of the power system. The Preliminary Report identifies that the technical aspects of these generators must be explored and resolved to maximise grid security and reliability.

Market design

The Preliminary Report recognises that it is critical that the design of the NEM provides appropriate incentives for efficient investments that achieve a secure and reliable electricity supply.

Energy prices

The Preliminary Report acknowledges that where new measures are proposed to achieve a secure and reliable NEM, it is critical that the impact on affordability is minimised and reflects the long term interests of consumers. It notes that this will require an analysis of the costs associated with each element of the NEM, such as:

• distribution and transmission networks;
• wholesale electricity generation; and
• electricity retail.

Market governance

The Preliminary Report acknowledges that effective energy market governance is essential for managing the current transition.

What's next - have your say!

The Preliminary Report also serves as an issues paper, and requests submissions from stakeholders on a number of questions raised in the Preliminary Report. Submissions on the Preliminary Report and the future of the NEM are due on 21 February 2017.

This will result in the issue of a final report to COAG in mid-2017 and the subsequent production of a electricity blueprint, outlining updated national policy, and legislative and rule changes.