the evolution of the australian electricity market

“The evolution of the electricity market, the stakeholders, and how the market players are working together”

SEPA Australian Fact Finding Mission

14/11/2016

Ian McLeod

Evolution Of The National Electricity Market (NEM)

Formation Of The NEM

The Perfect Storm – Economic Boom to GFC, Security,

Carbon & Subsidies

Market Disruption

Formation Of The National Electricity Market

• 25 Years since inception• 1991 - Industry Commission Report identifies significant

GDP increases available through:– Vertical disaggregation– Competition in generation & retail– Privatisation– Enhancement & extension of interconnection

• Council of Australia Government (COAG) establishes National Grid Management Council to coordinate the planning, operation and development of a competitive electricity market

Source: Australian Government, Department of the Environment: Fact Sheet

Formation Of The National Electricity Market

• April 1995 – National Competition Policy reforms agreed– Resulting in National Competition Council– Incentive payments to states for loss of monopoly rents

• 1996 – Nationality Electricity Law passed• Dec 1998 – National Electricity Market established• Energy and ancillary services – Frequency & Black Start


The National Electricity Market (NEM)

Source: Australian Energy Market Commission


Source: Australia Energy Regulator: State Of The Energy Market 2015

Number of Retailers = 30Number of Transmission Co’s = 5Number of Interconnectors = 3Number of Distribution Co’s = 13



• No Nuclear• Gas being impacted by exploration & fracking moratoriums/bans• Hydro needs to play a different market role to secure

intermittent renewables


Source: Australia Energy Market Commission 2014/15 Annual Report

The Western Australian Electricity Market (WEM)

Source: Australia Energy Market Operator Annual Report 2016

NEM Governance

Source: AEMC Annual Report 2014/15




Carbon & Subsidies

Market Disruption

The Perfect Storm

• The seeds of the storm started early• Brisbane outages in 2004 led to higher government imposed

security standards in Queensland. Outages in Sydney results in the same outcome in NSW

• Victoria Smart Meter program mandated by government with no customer value proposition on implementation

• Queensland mining & economic boom to 2008. Inappropriate pricing model & government predict “mining tsunami” post 2010 with high SDP forecasts

• Economic boom results in some regulatory determinations being overspent

The Perfect Storm

• Rudd government elected in 2007 on strong climate platform including an Emissions Trading Scheme proposed for 2010.

• Around 2008 various States introduce Premium Feed-In Tariffs. Queensland’s liability is estimated at $4.4B

• Mandatory Renewable Energy Scheme introduced in 2001 for 2% of all electricity to be sourced from renewable – In 2009 this was increased to 20% (41,000 GWh) by 2020 and in 2015 it was reduced to 33,000 GWh

• Carbon Tax ($23) introduced in July 2012 and removed in July 2014

The Perfect Storm

• Carbon Credit multiples introduced around the same time a Premium Feed In Tariffs

• In 2010 Cost of Capital increases for five year regulatory determinations

• Consumption comes off pushing prices up

The Perfect Storm

NEM Established

Source: AER- State Of The Energy Market 2015

Global Financial Crisis

Electricity Retail Prices


Electricity: Affordability - Future

Network Prices

Energy Prices

Source: ENA – Network Transformation Roadmap (CSIRO)




Carbon & Subsidies

Market Disruption

Federal Government Policy & Resources

Policy & Strategy

Carbon Reduction• 5% off 2000 levels by 2020• 25-28% off 2005 levels by 2030Renewable Energy • 33,000 GWH by 2020• Small Scale Renewable Energy Scheme• Large Scale Renewable Energy SchemeNational Energy Productivity Pan• 40% increase by 2030National Strategy On Energy EfficiencyNorthern Australia PlanPower Of Choice

Resources

Australian Renewable Energy Agency (ARENA)• $800M over next 5 yearsEmissions Reduction Fund • $1.7B committed of $2.5B funding• Third auction average price $10.23 per

tonneNorthern Australia Infrastructure Facility• $5B in concessional fundingClean Energy Finance Corporation• Clean Energy Innovation Fund 50/50

renewables/efficiency

• Federal Government Energy & Environment portfolios now merged under one minister improving policy formation and alignment

State Misalignment

• Impacting efficient deployment of capital & technology• Driving up electricity prices and reducing security

State Carbon Renewable Efficiency OtherNew South Wales Nil • Energy Efficiency Scheme

• 5% pa to 2020Victoria 25% by 2020

40% by 2025• Victorian Energy Efficiency Target to 2029.

5.4m VEEC’s 2016• $20m new energy jobs

fundQueensland 50% by 2030 • 1M solar rooftops or

3000MW of solar• Govt support for 60MW

large scaleSouth Australia 0 by 2050 50% by 2025 • Dwellings 15% & Govt 30% by 2020

• Retailer Energy Efficiency Scheme• National Energy Efficient Building Project

• $10B target for Low Carbon Generation by 2025

Western Australia 20% by 2020 • 500,000 LGC’s tendered by Synergy to meet 20% renewable target.

Northern Territory 50% by 2030Promise during election campaign

Tasmania • $10m energy efficiency loan scheme • Predominantly renewable (hydro) now

ACT 100% by 2020 • Energy Efficiency Improvement Scheme• 2016-20 8.6% reduction pa

• 36MW of energy storage to 5000 homes by 2020

Cleaner Electricity

• Queensland worlds highest residential rooftop solar penetration• Little utility scale & hydro resources

Source: Australian PV Institute (APVI) Solar Map, funded by the Australian Renewable Energy Agency, accessed from pv-map.apvi.org.au on 22 July 2016.

http://pv-map.apvi.org.au/

Rooftop Solar

Penetration: % Dwellings with PV• Queensland highest penetration

in the world• Initial growth fuelled by subsidies

Source: Australian PV Institute (APVI) Solar Map, funded by the Australian Renewable Energy Agency, accessed from pv-map.apvi.org.au on 22 July 2016.

Installed PV Generation Capacity• 5.4 GW of capacity• Larger scale now accelerating• RET certificate price increasing• Crowding out other investment

>100kW>10kW<100kW<10kW

http://pv-map.apvi.org.au/

Reducing Solar Feed In Tariffs

State

Closed subsidy scheme(s) Current FiT policy / regulation

QLD 44c/kWh net scheme until 2028Available to customers consuming less than 100 MWh per annum

No regulation in south east Queensland. Market offers.Mandatory FiT in regional Queensland based on retailers’ avoided cost. FiT of 6.348c/kWh in 2015–16 for small customers.

NSW 20c/kWh or 60c/kWh until 31 Dec 2016Gross scheme grandfathered, but option available to convert to net schemeAvailable to customers consuming less than 160 MWh per annum

Voluntary benchmark solar FiT set at 4.7 to 6.1c/kWhMandatory retailer contribution towards the closed SBS of 5.2c/kWh

Victoria Three closed net schemes 60c/kWh to 31 Dec 2024

25c/kWh until 31 Dec 20161-for-1 until 31 Dec 2016

Mandatory FiT paid by retailers Minimum FiT for 2016 is 5.0c/kWh

WA Net scheme available for 10 years Pre 1 July 2011 – 40c/kWhPost 1 July 2011 – 20c/kWh

Retailers, Synergy and Horizon Power must offer customers a buyback scheme at rates subject to regulatory approvalSynergy customers receive 7.135c/kWhHorizon Power (regional) rates are 7.14– 51.41c/kWh depending on location

SA 44c/kWh to 30 June 2028 and 16c/kWh to 30September 2016Maximum export of 45 kWh per day applies in some circumstances

R-Fit of 6.8c/kWh to apply from 1 January 2016 to 31 December 2016.Available to customers consuming less than160 MWh pa system up to 10 kVA (single phase) or 30 kVA (three phase)

Tas Net 1-for-1 FiT until 1 January 2019 Mandatory FiT of 5.5c/kWh for 2015–16ACT Five premium FiT rates (30.16c/kWh– 50.05c/kWh) gross

scheme for 20 yearsActewAGL’s 1-for-1 gross FiT until 2020

No regulation. Market offers are 6.0–7.5c/kWh based on net metering

NT For new connections, the feed-in tariff is 1-for-1 (based on the customer’s consumption tariff). Customers under the Alice Springs Solar City initiative receive 51.28c/kWh, capped at $5/day.

Prem

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Typic

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Cost

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Source: Queensland Productivity Commission Draft Report: Solar Feed In Pricing in Queensland.

Renewable Costs Reducing

• Over the last 3 years ARENA grant funding for large scale solar has dropped from $1.60 to 19 cents per watt & project costs are down 40%.

• In regards to leverage—the amount of 3rd party investment for each government $ —is up dramatically, from 80c to about $10 for each $ the public invests.

Achieving A Cleaner Future But At High Cost

• Australia expected to surpass its 2020 abatement target by 78Mt CO2e• Well placed to achieve 64 to 65% decrease in emissions per $ of GDP; &• 50 to 52% per capita between 2005 & 2030


…And Impacting Electricity Security

Stakeholders - Working Together?International Political Regulators Industry Disruptors Customers

Stakeholders

• United Nations Framework Convention on Climate Change (UNFCCC)

• Conference of Parties 21

Federal & State Parties• LNP• Labour• GreensFederal & State Govts• COAG Energy Committee

Federal• AEMC• AER• AEMO• CECState (QLD)• QCA• QPC• ESO

• Generators• Gentailers• Retailers• Transmission• Distribution• Associations

• Aggregators• Non Traditional Retailers• DER vendors• Microgrids• International Gas• Associations

• Residential• Commercial• Industrial• Social• Prosumers• User Associations• Advocacy Groups (solar

citizens)

Implementing

COP21 ratified • Agreement on 33,000 GWh’s of large scale renewable by 2020

• Emissions Reduction Fund

• Energy Productivity Plan

• National Energy Market & economic regulation

• Power Of Choice• Reforming Tariff

Structures• Tariff rebalancing of fixed

and variable charges

• Networks now all revenue capped – not volume driven

• Flat network prices• Electricity Network

Transformation Roadmap

• Power Of Choice

Needs To Be

Resolved/negative

• Emissions Trading • Traditionally a one dimensional focus – choosing winners

• No bipartisan agreement• Different Federal & State

renewable targets – Market Distortion & capital inefficiency

• Different carbon targets• States setting feed-in

tariffs• Cross subsidies hidden in

network tariffs

• Lack of agility• Lagging technology

driven change• State based security

standards

• Rising energy costs• Competition & ring

fencing beyond the meter

• Ability to role out Smart Meter (DNSP & Retail)

• Split of ESAA• Lack of standards

• High domestic gas prices influenced by international exports

• Avoiding network costs & opponents to increase fixed cost

• Equity – Industry left holding the bag

• Support premium feed-in tariff

https://en.wikipedia.org/wiki/Conference_of_the_parties

The Disrupted NEM

The Disrupted NEM

• Point of use renewables will be a strong influence on the market• Demand following supply will be critical• Regional security is being compromised by NEM and State

based renewable policies• Re-purposing of Hydro Resources needs to be considered• International gas market parity will effect the transition• Customer centricity and data will be critical• Energy transaction and market operations will spread to the

edge of the grid enabled by DER & IOT.• The market must enable other low costs resources to be

deployed

The Disrupted NEM

• Tariff structures will help improve network and market efficiency

• Capacity payments will emerge• Storage will play a number of roles• Network becomes a market enabler to ensure the most efficient

resources are deployed.• Information access and visibility is required to improve to

reduce duplication and improve innovation

[email protected]+61 7 3229 0644Lvl 11, 111 Eagle Street Brisbane Q 4000

the evolution of the australian electricity market

Presentations & Public Speaking