Post-2025 Market Design: will it solve or add to the chaos?

The Energy Security Board (ESB) has released its 127 page Post-2025 Market Design Consultation Paper today. The biggest question asked by the paper isn’t in its executive summary or anywhere else on its website, and that is: what exactly are we trying to do here?

The review was circular in design, the ESB in late 2018 asking COAG Energy Council Ministers to ask it to review how fit-for-purpose the design of the energy-only National Electricity Market was given the sustained and radical changes in electricity generation since the market was first introduced in 1998.

At the time the tactics underpinning the review were to head off specific one-off reforms like moving to a day-ahead market being pushed by single agencies like The Australian Energy Market Operator (AEMO), even though its supposed to be a market operator not a policy body.

The idea of a post-2025 review was to allow enough time for a broader and more holistic review to take place, and then enough time to implement the changes needed.

The process has been bogged down ever since, with the ESB hopelessly under-resourced for such a mammoth undertaking, and the release of a discussion paper today when the review and re-design process was supposed to be concluding.

The Consultation Paper catalogues the well understood problems which stem from chronic and multiple market interference yet no basic market signal (like a price) to constrain emissions. This has been exacerbated by the radically different technical and commercial properties of renewable generation, and then trying to use a 20th century market to build a 21st century grid.

Even the idea of using renewables as the core energy generation technology is only inferred. It hasn’t actually been agreed as a policy objective or enshrined in any market rules. So the ESB is trying to rebuild a complex national market based on a feeling.

The NEM is already at the point where almost all new investment is co-funded in some way by some government scheme or other support arrangement.  Its reasonable to assume that fundamental tenet is likely to continue unless the post-2025 review can find a better way.

That appears unlikely. The Consultation Paper is based on seven different areas of reform:

  1. how to ensure there will be enough power  at any time in the future;
  2. managing the closure of old coal generators;
  3. ensuring adequate supply of ancillary services like frequency and system strength;
  4. how to schedule generation and demand management in a highly non-dispatchable system;
  5. increasing consumer participation in the market;
  6. realising the value of demand flexibility and distributed generation, and;
  7. what transmission  gets built and who pays for it?

The dense, complex and at times confusing Paper outlines a vague range of policy options and ideas for each, including development of a reserve generation market, beefing up the retailer obligations to contract peaking generation, possible reforms to the existing regulatory test for transmission just to name a few.

This post-2025 review is occurring at the same time as The Australian Energy Market Commission is considering more than 20 rule changes dealing with many of these issues.

Market stakeholders have a few weeks to get submissions back to the ESB which plans on wrapping up its advice to Ministers by the end of the year. But what will that look like and how will the ideologically divided Board members agree?

The process can be expected to attract a wide range of often totally conflicting ideas, based on fundamentally different ideas of what the purpose and design of the market should do and look like. How does the ESB plan on resolving these without simply picking its own policy winners?