NEM reform: do you ignore the rules, change the rules or change the game?

The transformation from a conventional to renewables based electricity system has revealed multiple technical and operational challenges, not the least of which is the very design of the electricity market itself.

There is general agreement that the existing design of the National Electricity Market is, at best, incomplete. Solving this has become an intellectual and institutional rolling maul for greater control over the market.

The first responder was the Australian Energy Market Operator (AEMO), which sits at the front line of having to operate an increasingly unstable and volatile electricity system. Its approach has been to bypass the niceties of market design and lobby for greater central planning to get new plant and equipment installed as quickly as possible.

This has manifest itself in the development of a grand architecture for the future design of the grid (Integrated System Plans), escalation of the Reliability and Emergency Reserve Trader (RERT) to mange short term peaks in demand, while pushing for a more directed approach to re-building the grid.

This approach was contained by the suggestion of a more strategic review of the market design by the Energy Security Board in March 2019, resulting in the development of the Post-2025 review of the market. As the name suggests, this review identified that any market re-design would need to be carefully considered and implemented with sufficient notice for the existing participants to adjust to any changes.

The push by AEMO and the counter push by the ESB marginalised the main agency charged with considering policy and managing the rules of the NEM: The Australian Energy Market Commission (AEMC).

This year the AEMC has quietly responded with a raft of carefully choreographed rule changes that propose solutions to some of the more critical issues facing the grid. Of course, the AEMC can’t formally propose rule changes, but it can make helpful suggestions to others.

These suggestions have materialised in the form of two rule changes proposing day-ahead reserve or capacity markets to ensure there is always sufficient capacity available (a market replacement for RERT). A rule change to formalise the process for how system strength should be delivered by transmission providers, rather than simply commissioning the construction of synchronous condensers.

Then there is a package of rule changes to better manage rooftop solar PV, applying minimum standards for suture installations for grater controllability and enabling network providers to charge solar households for their electricity exports, so they can fund the network upgrades needed to manage increased distributed generation.

The not-too-subtle point being made by the AEMC is that perhaps neither bypassing the market nor completely upending it are prudent or necessary. The most effective and expeditious solutions to reforming the NEM may lie within its existing operational arrangements. If only everyone bothered to use them.