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Independent Review into the Future Security of the National Electricity Market

EXECUTIVE SUMMARY

The South Australian Chamber of Mines and Energy (“SACOME”) is the peak industry association for companies with business interests in the resources industry in South Australia, including those with business, vocational or professional interests in minerals exploration, mining and processing, oil and gas exploration, extraction and processing, power generation, transmission and distribution, logistics, transport, infrastructure, and those with clients in these sectors.

The South Australian market in the National Electricity Market (“NEM”) has the highest penetration of non-synchronous generation (42.2%; 2016) and is presently experiencing greater volatility and higher prices. The retirement of baseload generation in South Australia, due to changing market conditions, is resulting in a reduction of synchronous generation that has traditionally provided the frequency control and inertial services critical to the stability and reliability of the network.

The continuation of this trend may result in deindustrialisation of the State. SACOME members have identified that it is becoming increasingly difficult to justify further capital expenditure to upgrade or build new plant.

The Australian Energy Market Operator (“AEMO”) in partnership with network participants (i.e. TNSPs) conduct regular studies on the integration of non-synchronous technologies to identify issues; the Australian Electricity Market Commission (“AEMC”) along with the Australian Energy Regulator (“AER”) provide the necessary regulation and rules for the market to operate effectively. In this context, the powers to coordinate responses to critical issues of system security and strength are absent.

Events over the past 12 months in South Australia, such as the network characteristics at the time of the 28 September 2016 system black, have been well documented in prior assessments. Responses to these events to alter the market rules or policies have only occurred after actual event occurs. This is no longer acceptable by business or the public. There needs to be a mechanism that can direct governing bodies or AEMC to adjust polices or rules to mitigate a detrimental reduction in system strength where critical issues have been identified prior to failures occurring.

Any response to system security and strength must have the appropriate powers and assess future developments on a technology neutral basis to provide tangible solutions. As this review identifies low carbon as a key metric to consider, any low carbon polices should strive to unify under a single policy framework as to not create a fragmented national system where market failures occur and system strength is put at risk.

SACOME has responded to questions in the review that pertain to discussion on system strength and volatility in the South Australian market. 

To ensure that businesses can remain globally competitive in South Australia, SACOME’s recommendations are:

RECOMMENDATIONS

1.1 This review acknowledges there exists the ability to analyse and report on the conditions that impact on system security within AEMO and network stakeholders. SACOME further recommends rule changes to give AEMO, or another competent authority, greater powers of direction to ensure system security. These rule changes need to be expedited given the usual period required for them to come into force.

2.3 Continual assessment of system security is required and linked to powers that can direct market regulators and rule makers to alter the system to improve security if needed.

3.1 Targets to reduce emissions and plans to replace higher emitting generation should be technology neutral and incorporate a technical assessment that compares the proposed policy or project against a set of technical standards to ensure no net loss to system strength. Nuclear power should be considered alongside other generation choices to ensure comprehensive assessments are undertaken with respect to system strength, affordability and low carbon criteria.

3.2 There needs to be an appropriate plan in place where proposals for new generation or low carbon market policies be assessed against the three metrics identified in this review, affordability, system strength (reliability & security), and low carbon. The gas markets review will also need to take into account the increasing difficulty to contract gas for variable generation to limit the impacts on affordability and system security.

3.4 There is a specific review of low carbon policies to ensure they are operating effectively to ensure a drive to lower carbon emissions while not at the expense of system strength or affordability. Any analysis and recommendations of the review must be technology neutral while ensuring there is an orderly transition to lower emissions generation sources. If required, delaying withdrawals of synchronous generation if it is shown to have a large detriment to system security.

4.1 The early adoption of rule changes to provide market mechanisms and signals to generators to provide the necessary frequency control and system strength services.

5.4 An investigation be undertaken to identify where low cost renewable generation can contribute to the forward contracts market and determine if a futures market can be established to enhance competition and liquidity.

6.1 There are legislative measures in place for strategic resources, such as natural gas, to ensure such resources are available for extraction and use unless precluded by proven scientific and/or environmental reasons.

7.6 There is continual monitoring of the assessments by AEMO with the assistance of private network operators. Additionally, any new powers are enabled to determine the level of criticality for system security issues identified and the issuing of rule and policy directives to ensure standards of system security are met.