Mirage News ** published an article titled: Fixing National Electricity Market for Renewable Energy Future.
Rooftop solar is the cheapest electricity in Australia**. Consumers can generate electricity from rooftop solar at an average cost of less than one-fifth of what they buy from retailers.
As a result, rooftop solar power generation is growing rapidly. In 2022, one in three Australian households had solar panels. The total rooftop solar capacity is more than 30 GW, while coal power capacity is only 21 GW.
Rooftop solar PV systems can meet about half of the electricity needs of residents. At certain times of the day, solar energy already provides close to 100% of the electricity demand, and in some areas it can meet all the needs for a short time. This means that renewables are replacing electricity that is traded through the wholesale market and through transmission systems**. Australia's National Electricity Market (NEM) is a wholesale market for large power plants and retailers to buy and sell electricity to the eastern and southeastern states. This market is not designed to cope with the large amount of renewable energy in the grid.
The current design of the electricity market cannot harness the full economic and technological potential of the installed power generation capacity (i.e., distributed energy resources) owned by millions of consumers. Therefore, there is an urgent need for comprehensive electricity market reform in Australia to achieve an energy transition that minimizes costs for energy users.
What are the challenges of reform?
Since the 90s of the 20th century, the Australian National Electricity Market has largely operated in its current form. It was designed for large fossil fuel power plants, but many of them are being phased out. With millions of rooftop solar systems now connected to the grid, the market needs to shift to systems that can manage and coordinate these small renewable energy generators. The reformed market must be able to adapt to and value the power and power system services that these millions of distributed energy resources can provide, providing flexibility and helping to balance supply and demand to improve grid stability.
Between 2019 and 2023, the Australian Energy Security Board (ESB) and regulators were tasked with providing new market designs for the clean energy transition with a view to better integrating renewable energy generation, including wholesale demand response mechanisms to allow demand-side (or energy consumers) to participate in the market. The ESC also proposes to establish a two-sided market that would allow energy users to actively trade electricity. However, the design of these reforms has not been implemented and now needs to be revisited.
Electricity market rules define which commodities are valued and traded, how they are traded, and by whom. These rules are embedded in thousands of pages of legislation. Each change takes about two years to make progress. These incremental market and policy patches do not deliver the systemic changes needed for a clean energy future. The entire national electricity market and its processes must be redefined.
The current focus is on large-scale installations, and what has been overlooked is the potential of small-scale and local generation to supply power where it is needed, and this oversight creates the risk of building too much transmission infrastructure at a huge cost. The opportunity for energy market reform is that millions of small, privately owned behind-the-meter generators can economically provide a significant portion of Australia's future electricity and power system services.
Transformation must be led
The clean energy transition is a priority for Australia. A change of this magnitude will require states** to work together to deliver economic productivity, affordable energy, and climate action. A clear set of principles is needed to guide these changes, and the National Energy Transition Partnership Agreement between the federal, state, and territorial** is a good place to start. It recognises that consumer needs are at the heart of the transition and that a strong economy depends on affordable, clean and safe energy.
The agreement also recognises the role that electricity networks and demand-side participation will play in the energy transition. The demand side includes all small, behind-the-meter, grid-connected rooftop solar systems and hot water systems. Electricity market reform is a complex undertaking. It requires a deep understanding of governance and regulatory frameworks, business realities, and consumer needs.
Placing energy users at the heart of these complex reforms requires a holistic systems thinking approach to policy and regulatory design, considering how the various parts of a complex system interact with each other. With consumers playing such a critical role, the attention, planning, and investment in these smaller energy sources must be treated in the same way as the attention, planning, and investment in larger generators.
The practice of renewable energy zones – the regions with the greatest potential for renewable energy projects – has shown that billions of dollars of investment can be mobilized if the policies are set right. Small-scale "community energy districts" also need to place equal emphasis on policy setting and market reforms. Each area must be able to adapt to the unique characteristics of its energy users. It must create an investment climate that supports an ecosystem of local skills,** and community benefits that ultimately lead to zero-emission communities. It must also support technological and commercial innovation and allow distribution networks to transition to smart grids with low risk and low cost. **10,000 Fans Incentive Plan