Legal development

Australian electricity and gas markets December update 2022

Insight Hero Image

    What you need to do

    Stakeholders should note the new rules and reports published below, and note the deadlines for making submissions.

    What you need to do

    There have been a number significant developments this month. Stakeholders should note the new rules and reports published below, and note the deadlines for making submissions.

    National Electricity Rules and National Energy Retail Rules

    On 8 December 2022, the Australian Energy Market Commission (AEMC) published a consultation paper on the Australian Energy Market Operator's (AEMO) Unlocking consumer energy resources benefits through flexible trading rule change request. Under the rule change request, AEMO proposes to introduce flexible trading by enabling consumers to have their Consumer Energy Resources (CER) separately metered and therefore treated independently in market settlements. This could allow consumers to then take up offers from multiple service providers or retailers, or access different price offerings for different resources from the same retailer. 

    The AEMC is seeking submissions on the consultation paper until 16 February 2023. For more information see here

    On 15 December 2022, the AEMC published a draft rule and draft determination in relation to the Efficient reactive current access standards for inverter-based resources and Performance standards for reactive current response to disturbance rule change requests. The draft rule and determination propose to revise the minimum access standards that specify the nature of the reactive current response that inverter-connected generators must provide in response to a fault. 

    The AEMC is inviting submissions on the draft determination until 3 February 2023. For more information see here

    National Gas Rules

    On 15 December 2022, the AEMC published its final rule and final determination in relation to the National Gas Amendment (DWGM Interim LNG Storage Measures) rule change. The final rule is intended to reduce risks to the safety, security and reliability of gas supply in Victoria and support the efficient operation of the declared wholesale gas market (DWGM) during the tight demand and supply conditions that are expected between 2023 to 2025. The final rule amends to the National Gas Rules (NGR):

    • to require AEMO to act as both buyer and supplier of last resort in relation to the Dandenong liquefied natural gas storage facility from 2023-2025; and
    • sets out the contractual, cost recovery, proceeds distribution, accountability and transparency arrangements that will apply the buyer and supplier of last resort roles over this period.

    The final rule will be in operation from 2023 to 2025, whilst the Energy Ministers undertake the Priority reforms for a more secure, resilient and flexible east coast gas market reform program.

    Market Reviews 

    On 8 December 2022, the AEMC Reliability Panel released a draft determination and draft standard in relation to its Review of the Frequency operating standard 2022. The draft standard consists of additions and amendments to the frequency operating standard (FOS) to support power system security and reduce costs for consumers. 

    The Reliability Panel is seeking written submissions from stakeholders on the draft determination and draft FOS until 2 February 2023. For more information see here.  

    Energy Price Relief Plan

    On 9 December 2022, the Federal Government announced the Energy Price Relief Plan

    Measures to limit gas price rises

    In accordance with the Energy Price Relief Plan, the Treasury opened its consultation on the Options to ensure the domestic wholesale gas market delivers for Australians on 9 December 2022 with the release of a consultation paper and explanatory materials. The consultation and explanatory materials relate to the Treasury Laws Amendment (Energy Price Relief Plan) Act 2022 (Cth)  which commenced on 17 December 2022 and sets out the enabling legislative framework behind the introduction of:

    • a temporary cap on wholesale gas prices set at $12 per gigajoule, which is to be mandated through a gas market emergency price order; and
    • a gas market code, which will be a mandatory code of conduct prescribed through regulations in 2023 that will operate to guide participants' behaviour and correct systemic issues within the market. 

    The price cap on wholesale gas prices will temporarily apply for 12 months from the commencement date of the gas market emergency price order and has been introduced by the Federal Government to limit the impacts on consumers of the forecast energy price rises. 

    The gas market code will be an ongoing addition to the regulation of Australia's east coast gas market and will be subject to review on the basis of changes to the market's structure and conduct. The code will specifically include a reasonable pricing provision that will mandate that producers and buyers negotiate domestic wholesale gas contracts at ‘reasonable prices’, which reflect the cost of domestic gas production and allow for a reasonable return on capital. This provision is expected to remain within the code until the Australian Competition and Consumer Authority advises the Federal Government that domestic gas prices reflect the underlying costs of production and that there is sufficient supply at those prices.  

    The Treasury is seeking submissions on the consultation paper, in relation to the gas market code, until 7 February 2023. For more information see here.  

    Temporary cap on the price of coal

    In accordance with the second limb of the Energy Price Relief Plan, the New South Wales and Queensland governments will also be introducing a temporary price cap on coal set at $125 per tonne. The state governments are each taking actions to set the ceiling on the price of coal used for electricity generation:

    • the New South Wales parliament passed legislation on 22 December 2022 that provides for the Premier to declare a coal price emergency and to give appropriate directions (which may include imposition of a price cap); and
    • the Queensland government is expected to introduce the price cap through its directionary powers under the Government Owned Corporations Act 1993 (Qld). 

    The coal price caps will also be a temporary measure and apply for 12 months from the date of their commencement, although they are expected to apply to both contracted and uncontracted coal supply. 

    Targeted energy bill assistance

    The third aspect of the Energy Price Relief Plan involves the Federal Government partnering with the states and territories to deliver targeted and temporary relief on power bills to eligible Australian households and small businesses that are customers of electricity retailers. 

    The Commonwealth announced that it will establish an Energy Bill Relief Fund with up to $1.5 billion to deliver such relief and shield eligible customers from the worst impacts of rising global energy prices. The relief will be jointly funded on a dollar-for-dollar basis between the Commonwealth and relevant State or Territory. 

    It is expected that the final details and funding arrangements of the bill relief will be settled by National Cabinet by March 2023.

    Capacity investment scheme

    On 8 December 2022, the Federal Government received endorsement from the state and territory Energy Ministers to establish a Capacity Investment Scheme (CIS). The CIS functions as the fourth aspect of the Energy Price Relief Plan and will provide a revenue underwriting mechanism of around $10 billion of private and public sector investment in clean, dispatchable storage and generation to support reliability and security in Australia's energy market.

    Successful projects will be determined through an open tender process. An agreed revenue 'floor' will help cover project operating costs and debt repayments, with the Government paying the difference when revenues fall short, and a share of profits returned whenever revenues exceed an agreed 'ceiling'.

    The CIS will complement rather than overlap with existing state and territory schemes, such as the NSW Electricity Infrastructure Roadmap. The new scheme will therefore will not alter competitive tenders that are currently underway.

    The Federal Government has stated that it will release further details on the scheme in the coming months, with a view to the first auction occurring in 2023.

    Other updates

    On 1 December 2022, AEMO published its Engineering Roadmap to 100% Renewables report. The Roadmap outlines the engineering challenges and associated actions necessary to operate the NEM for the first period of 100% penetration of renewables, and the actions required to satisfy more regular operation at 100% penetration. 

    On 9 December 2022:

    • the AER published three draft decisions in relation to proposed gas access arrangements for 2023 - 2028 for Victorian gas distribution networks AusNet Gas Services (AusNet), Australian Gas Networks (AGN), and Multinet Gas Networks (MGN). The draft decisions relate to updated access arrangement proposals submitted by the networks to the AER following the release of the Victorian Government's Gas Substitution Roadmap. Movement in market variables such as interest rates, bond rates and expected inflation resulted in higher draft decision outcomes for AGN and MGN. The AusNet draft decision adopts a 'revenue smoothing' approach, lowering proposed revenue. AusNet, AGN and MGN have the opportunity to submit revised proposals until 24 January 2023, and the AER is seeking submissions on the draft decisions and revised proposals (once submitted) by 23 February 2023. For more information on making a submission see here
    • the AER also released its final decision in relation to the gas access arrangement that will apply to APA's Victorian Transmission System (VTS) from 2023 to 2027.  The decision allows APA to recover around 2% of a typical bill for residential customers and around 3% for small business customers. The final decision reflects an increase in regulated revenue from APA's initial proposal resulting from movements in market variables. The AER estimates that by 2027, the decision will increase the average annual retail gas bill by $14 (1%) for residential customers and $119 (1.3%) for small business customers. 

    On 15 December 2022, the AER released its June 2022 market events report which reports on the market events that led to the suspension of the national electricity spot price market in June 2022. The report outlines the AER's findings from its investigation into the behaviours of generators at the time and provides some rule reforms options for consideration. 

    On 16 December 2022, the AER published a draft decision in relation to its Review of incentive schemes for regulated networks (https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/review-of-incentive-schemes-for-regulated-networks). The draft decision:

    • retains the Efficiency Benefit Sharing Scheme;
    • varies the Capital Expenditure Sharing Scheme by implementing a tiered arrangement;
    • improves transparency by requiring networks to explain differences between our expenditure forecasts and actual expenditures; and
    • proposes a review of the Market Impact Component of the transmission Service Target Performance Incentive Scheme to commence in the second half of 2023.

    The draft decision requires changes to be made to the 2013 Capex Incentive Guidelines so the AER has also provided an amended Draft Capital Expenditure Incentive Guideline for Electricity Network Service Providers. The AER is seeking submissions on the draft decision, the proposed amendments to the draft Capex Incentive Guideline and whether the changes should apply to the upcoming resets in NSW, ACT and Tasmania in early 2023 by 3 March 2023. For more information on making a submission see here.

    Finally, on 17 December 2022, the Australian Renewable Energy Agency (ARENA) announced $176 million in conditional funding to eight grid scale battery projects across Australia under ARENA's Large Scale Battery Storage Funding Round.

    The batteries will each be equipped with grid-forming inverter technology, which will allow them to provide essential system stability services.

    The batteries range from 200-300 MW each, with a total project value of $2.7 billion and capacity of 2.0 GW/ 4.2 GWh. These projects represent a tenfold increase in grid-forming electricity storage capacity in the NEM. 

    All batteries are expected to reach financial close in 2023 and be operational by 2025. A full list of the projects selected for funding and further information can be found here

    Please click here to see our latest Energy Alerts, as part of our Energy Alert Series. 

    Authors: Paul Newman, Partner; Andre Dauwalder, Counsel ; Alexia Cuss, Graduate and Alexandria Brown, Paralegal.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.
    image

    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest

    Sign-up