The pace of change

With little fanfare, the AEMC recently (it’s not even clear when this decision occurred) punted one of its flagship reform projects, COGATI, into the NEM post-2025 project. Cynics might suspect that NEM post-2025 stands for “the long grass” in this case. COGATI is the snappy acronym for the co-ordination of generation and transmission investment and was considered by the AEMC to be a both important and urgent set of reforms to support the efficient delivery of the energy transition.

The whys and wherefores of reforming the ways generators access the transmission network (in an economic rather than a physical sense) cannot be done justice in a short blog post. But it’s an illustration of the challenges in getting major electricity market reforms through the regulatory and political process. Even under the AEMC’s timetable, the reforms were going to take at least four years to implement. This stately progress is at odds with the rapidly changing world we live in.

Electricity market and regulatory design  – and electricity planning processes back in the monopoly state energy commission days – was implicitly built around a stable and slowly changing system. Demand was expected to increase steadily along with economic growth and major infrastructure was planned out over a horizon of five to ten years. Fuel costs were stable, as they were mostly from local sources not connected to international markets.

The NEM’s governance process was itself designed with plenty of checks and balances, meaning that even deciding to make a reform can be a 12 month or more process. First, someone has to propose a rule change to the AEMC. There is no set deadline for the AEMC beginning the consultation process, but the standard timeframe works out around six months. But passing the rule change is not the end of the process. Depending on the type of rule, it will usually then fall either to the AER to develop guidelines of how it will monitor and enforce the rule, or to AEMO to operationalise the rule. Where this requires significant systems changes, this can be lengthy. The five-minute settlement rule change, which was passed in November 2017, will only start from 1 July 2021. This assumes the implementation timetable – already considered challenging by industry – is not derailed by the COVID-19 measures.

Meanwhile global markets can turn on a dime as illustrated by the oil price collapse following a failed OPEC deal. Or the impact of the virus itself. Oil prices now feed through to Australian gas prices via LNG, which in turn frequently set electricity prices. The modular nature of new technologies such as wind, and batteries mean that utility-scale projects can be commissioned in 12 months or less following planning approval rather than the three years plus for a coal power station – the record is 100 days for the Hornsdale Power Reserve battery. Rooftop PV and smaller batteries can be installed in a  few days. Transmission investment approval processes can’t keep up with the rate of renewables installation, ultimately resulting in the Victorian government deciding to short-cut the process and announce new projects by government fiat.

In short, the world of electricity really is getting faster and more dynamic. Can the regulators and rule-makers keep up?