Home Insights Energy Security Board launches next stage of long-term National Electricity Market reform

Energy Security Board launches next stage of long-term National Electricity Market reform

The Energy Security Board today launched the next stage of the post-2025 market design project, a pathway to a long-term, fit for purpose market design for the National Electricity Market (NEM).

In March 2019, the former Council of Australian Governments (COAG) Energy Council requested the Energy Security Board (ESB) to advise on a long-term, fit for purpose market design for the National Electricity Market (NEM).

Reform is needed to address the rapid shift to new technologies and renewables, including rooftop solar and distributed energy resources (DER), and the associated reshaping of the NEM as aging thermal generators are retired and replaced by a more varied mix of renewables, DER and other resources.

The released ESB Post 2025 Market Design Consultation Paper seeks feedback from stakeholders and interested parties on a number of potential solutions to identified problems and solutions, and represents the next step in the reform program.  

Following this consultation, options for future market design will be developed, with further consultation on design options planned for late December 2020 or early 2021, and final recommendations to Ministers by mid-2021.

Challenges that must be addressed

There are a range of challenges that market reform must address.

Market design needs to address the changing needs of consumers and their interactions with the NEM. The rapid uptake of DER, digitalisation and smart appliances and meters provides consumers with an opportunity to offer services into the electricity market. It is important that market reform avoids unnecessary complexity and allows these services to be integrated effectively.

Market and regulatory arrangements need to be updated to manage the increasing variability, uncertainty and complexity associated with the continued shift towards variable renewable energy such as wind and solar.    

Market reform must provide certainty and appropriate price signals to support investment in the timely replacement of the power generation and essential system services provided by retiring thermal generators.  

With more than 2.2 million households in the NEM having rooftop solar, and Australia’s power system on track to become the most decentralised in the world (Bloomberg New Energy Finance New Energy Outlook 2019), a greater focus is needed to recognise demand response and load shaping and to effectively integrate DER into the market.

Potential solutions

The potential solutions are set out in the consultation paper in the following groups:

  • Resource adequacy mechanisms;

  • Aging thermal generation strategy;

  • Essential system services;

  • Ahead mechanisms;

  • Two-sided markets;

  • DER integration; and

  • Transmission access and the coordination of generation and transmission.

These groups reflect the seven work programs (market design initiatives) which the ESB set up to evaluate and develop the market design options.  

Next steps

Stakeholders have until 19 October 2020 to provide feedback on the consultation.  


Edward Kelly

Special Counsel


Construction, Major Projects and Infrastructure Energy and Natural Resources

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