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What would a better energy market look like?


Recently the Energy Security Board (ESB), established by COAG in 2017 "to provide whole of system oversight for energy security and reliability to drive better outcomes for consumers", has called for submissions to re-write (from scratch) the rules for the National Electricity Market (NEM).  They have outlined that there is a good chance they want the new rules in place by 2025.  It seems the old rules (which were fiercely protected by incumbent coal and gas generators) are no longer fit for purpose in a world where solar and wind are the cheapest forms of power. 

Observers of the energy industry will know that this re-write was practically inevitable and could have been done years ago (at least seriously investigated year ago anyway) when it became clear that wind and solar were or would be the cheapest forms of energy (there were strong signs this would be the case a decade ago).

The buzz word for this potential new market is flexibility, a "flexibility market" has being called for, but what does that actually mean?  Well broadly it will mean a market design such that wind and solar are not unfairly disadvantaged and prevented from competing with established generators. While it is not possible to design a new electricity market in this article it is possible to list some of the features of a fair and flexible market that actually benefits energy customers.  Some features that would improve fairness and flexibility in the NEM are as follows:

1)  A fair market will acknowledge the historic subsidy received by coal generators in building the current transmission system; coal fired generators had thousands of kms of transmission system built for them to regions that suited them i.e. near to deposits of coal. Regions of high wind or solar resource must also be allowed entry into the energy market via the building of adequate transmission infrastructure.  

2) A fair market will include a price on carbon.  It is not fair that coal and gas generators are allowed to pump waste carbon dioxide into the air, externalising the cost of climate change to everyone else.  Those costs must be paid by the private fossil fuel generators, not by society.

3) A fair market will take into account the reducing costs of wind, solar and battery technologies in planning a future grid. What is built on the national grid largely depends on projected costs of various technologies and there has been a chronic and systemic underestimation of price reduction and capability for wind, solar and battery technologies, which effectively excluded them for consideration in the past.  Parameters used in planning for these technologies must be updated to reflect current advances.

4) A fair market will prevent rorting of the system by coal and gas fired generation in the transition to renewable energy, including substantial penalties for gaming the system and potential unfair market practices such as "strategic plant outages" to affect prices.  Effectively the design of a fair energy market needs to be truly independent of industry and done with the public good as its guiding principle; this will involve optimising price, reliability and emissions reduction instead of private profits.

5) A fair market will upgrade the distribution network so that export limits for home solar are standardised to at least 10 kW; different distributors currently have different export limits for solar households, why should some home solar be restricted to 5 kW export limits and others to 10 kW just because they happen to be in a different distribution zone?  A minimum 10 kW export limit should be available to all.

As for flexibility a flexible market will include features like:

Flexible reliability standards: Some homes or business do not require the current 99.998 % power reliability mandated by the rules and might like the option to receive a lower reliability standard for lower cost power.  Allowing home owners and businesses to accept lower reliability or capacity standards at peak periods for a financial reward could eliminate the need for expensive network and generation capacity upgrades, needed to service a handful of extremely high power use days a year, at greatly reduced cost.  

A well functioning frequency control and ancillary services markets (FCAS): FCAS can be provided by batteries a market for this service would partly offset the cost of installing storage batteries at the home, network and distribution level allowing this crucial technology to be rapidly rolled out.  Other market incentives to invest in storage could also be developed.

Two way information architecture:  The market of the future will involve good information (and potentially control) flow to the network operator from solar houses (and other distributed energy infrastructure) and from the network operator to households or businesses.  This will allow houses to make better choices about how and when they use energy, including demand response for a fee.  Householders are now participants in the energy market; they should have access to the same level and quality of information that current market participants have.   Households and businesses may even want the option to have a network operator (presumably with some sort of warning) remotely power down select loads to reduce power consumption at peak times for a fee, rather than have to do this themselves.   Better information architecture will also allow 5 minute (or less) settlement periods for the NEM, which allows more accurate power pricing than longer pricing periods.

The current national electricity market is neither flexible nor particularly fair and is certainly well out-of-date. A total redesign of the electricity market to include the reality of wind and solar being the cheapest form of power cannot come soon enough.


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