The Commonwealth Government commissioned a panel, chaired by Dr Tim Nelson (The Panel), to review the framework that underpins the operation of the National Electricity Market and what improvements can be made to support the transition toNet Zero.
The Panel’s draft report made 9 key recommendations under 4 key themes and, in turn, sought responses on almost 50 questions related to the recommendations.
The terms of reference limited the review to the NEM only, with fuel markets, especially the natural gas market, out of scope.
The Panel did highlight concerns with the lack of liquidity in the SA contract electricity market linked to increases in market concentration and the erosion of competition. The concept of increased concentration driving decreased competition was consistent across the draft report; a conclusion which EMX strongly supports.
Our submission highlighted that the integration of gas and electricity in markets is a key contributor to the electricity market concentration in SA, and addressing the anti-competitive impacts of the gas market is a necessary condition to improving competition in the electricity market.
We also highlighted two key recommendations, namely allowing consumers to benefit from being more price responsive by bidding into the market and restricting the ability to contract with the proposed ESEM to small retailers or direct customer participants only. Both of these recommendations would decrease market concentration, improve competition and, in conjunction with reform of the gas market deliver improved competitive outcomes; particularly for industrial customers.
Given SA is a leading indicator of the impacts of the exit of coal and increased renewable penetration on the competitiveness of markets, EMX focused on the key issues related to decreased concentration and improved competitiveness and the importance of coordinated gas market reform to electricity market outcomes.
We will continue to monitor the process and provide an update on key issues that arise in the submission process.
Report Themes and Recommendations:
The 4 key themes identified by the Panel were:
• Theme 1: Ensuring effective operation of the spot market
• Theme 2: Maintaining liquidity in the derivatives market
• Theme 3: Unlocking long-term investment in new energy services
• Theme 4: Ensuring consumers benefit The 9 recommendations were:
• Recommendation 1: Maintain the real-time regional energy-only spot market as the core market for efficient dispatch and rewarding the provision of physical energy services
• Recommendation 2: Energy ministers should require a broader range of price-responsive resources to be visible or dispatchable to participate in price formation
• Recommendation 3: Governments should focus reforms and support for CER on facilitating market participation to enable consumers to benefit from being price-responsive
• Recommendation 4: Market bodies should use the rule change process to ensure the efficient and competitive functioning of the real-time energy-only spot market
• Recommendation 5: The Reliability Panel should consider adjusting the form of the market price settings over time
• Recommendation 6: Energy ministers should establish an always-on market making obligation (MMO) in the National Electricity Law/National Electricity Rules (NEL/NER) for a small number of key derivative contracts in each NEM region, with contract types determined through a co-design process with the AER and industry
• Recommendation 7: Ensure sufficient market information is available to support longer-term derivatives market liquidity and price discovery
• Recommendation 8: Energy ministers should establish an ESEM within the National Electricity Law (NEL) to facilitate investment in the NEM
• Recommendation 9: Governments and market bodies in the NEM should pursue a coordinated suite of reforms to ensure regulatory settings, the innovation ecosystem, and existing policies and programs are aligned with the ESEM.