Legal development

Australian electricity and gas markets – July 2024 Update 

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    In our July update, we take a look at the latest rule changes and market updates affecting participants in the Australian electricity and gas markets.

    What you need to do

    Stakeholders should note the market updates below, and note any impacts on their compliance obligations.

    National Electricity Rules

    On 25 July 2024, the Australian Energy Market Commission (AEMC) released its draft determination and more preferable draft rule on its Integrating price-responsive resources into the NEM rule change.

    This draft rule proposes to allow Virtual Power Plants (VPPs) and other unscheduled price-responsive resources to compete with large-scale generators on the National Electricity Market (NEM) by:

    • establishing a framework (dispatch mode) through which market participants can nominate an unscheduled price-responsive resource (e.g. VPPs, community batteries, etc) to be included in the Australian Energy Market Operator's (AEMO) central dispatch process;
    • creating a short-term incentive scheme to encourage participation in dispatch mode; and
    • mandating new monitoring and reporting obligations for the Australian Energy Regulator (AER) and AEMO in relation to unscheduled price-responsive resources.

    Stakeholders are invited to submit feedback on this draft rule by 12 September 2024.

    Dispatch mode

    Electricity is purchased and sold on the NEM through AEMO. AEMO determines the spot price of electricity on the basis of dispatch bids submitted by Generators and Integrated Resource Providers (IRPs).

    Unscheduled price-responsive resources have traditionally been excluded from AEMO's dispatch process. They are not appropriately considered when determining how much energy demand needs to be met, how to meet this demand or the price at which it is purchased. However, the proposed dispatch mode provides a mechanism through which market participants can submit bids on the basis of unscheduled price-responsive resources.

    Dispatch mode applies exclusively to voluntarily scheduled resources (VSRs). A market participant can nominate a qualifying resource as a VSR with AEMO if the resource falls within the following classifications:

    Classification

    Registration Category

    Non-scheduled generating unit
    (e.g. < 30 MW generator)

    Generator, IRP

    Non-scheduled bidirectional unit
    (e.g. < 5 MW hybrid generation-storage system)

    IRP

    Non-scheduled connection point
    (e.g. VPPs)

    IRP, Market Customer

    Small generating unit
    (e.g. < 30 MW generator)

    IRP (Small Resource Aggregator)

    Small bidirectional unit
    (e.g. < 5 MW hybrid generation-storage system)

    IRP (Small Resource Aggregator)

    The IRP registration category was introduced in the Integrating energy storage systems into the NEM rule change in December 2021. The present draft rule builds on this rule change by further integrating IRPs within AEMO's dispatch process.

    Participants that nominate a VSR retain their registration category (i.e. Generator, IRP, or Market Customer) but are also referred to as a voluntary scheduled resource provider (VSRP).

    Multiple resources can be nominated under a single VSR if the resources are aggregated. There is no requirement for an individual resource within a VSR to fulfil a dispatch instruction provided that the VSR can fulfil the instruction in aggregate.

    The AEMC is expecting the rule change in relation to dispatch mode to commence in November 2026.

    Incentive Scheme

    The draft rule proposes the following two incentives for VSRPs in addition to those currently available to participants in the dispatch process:

    • exclusion from the reliability and emergency reserve trader cost recovery scheme in respect of VSRs; and
    • time-limited incentive payments.

    The AEMC's preferred position is for incentive payments to be provided through the Australian Renewable Energy Agency or a government scheme. If these options are not available, the AEMC is proposing a tender process with the following features:

    • VSRPs submit bids to AEMO detailing their costs to participate in the central dispatch process; and
    • AEMO awards incentive payments to the lowest cost tenderers subject to an overall incentive payment cap and a confidential price cap.

    The AEMC is proposing an AU$50 million payment cap over a five-year incentive period.

    The AEMC expects the first incentive tender will occur in early 2027.

    Monitoring and Reporting

    The draft rule proposes additional reporting and monitoring requirements for the AER and AEMO. These requirements are centred on monitoring and reporting the impacts of unscheduled price-responsive resources. The AEMC has scheduled these reporting guidelines to be published by December 2025.

    Minor Changes

    On 4 July 2024, the AEMC released its draft rule and consultation paper for its Minor changes 2 2024 rule change proposal. The proposal seeks to correct minor errors and make non-material changes to the National Electricity Rules (NER). Stakeholder submissions closed on 1 August 2024.

    National Energy Retail Rules

    On 4 July 2024, the AEMC released its draft rule and consultation paper for its Minor changes 2 2024 (Retail) rule change proposal. The proposal seeks to correct minor errors and make non-material changes to the National Energy Retail Rules (NERR). Stakeholder submissions closed on 1 August 2024.

    National Gas Rules

    On 4 July, the AEMC released its draft rule and consultation paper  for its Minor changes 2 2024 (Gas) rule change proposal. The proposal seeks to correct minor errors and make non-material changes to the National Gas Rules. Stakeholder submissions closed on 1 August 2024.

    Other Updates

    The AER is seeking feedback on its:

    On 25 July 2024, the AEMC announced its Electricity pricing for a consumer-driven future review and released its draft terms of reference.

    This review will look at ways to effectively integrate consumer energy resources such as household solar panels and batteries into the wider energy grid.

    Stakeholders are invited to submit feedback on the draft terms of reference by 22 August 2024.

    On 26 July 2024, the AER released:

    • its final decision on its Compliance procedures and guidelines for retailers and distributors in jurisdictions that have adopted the National Energy Retail Law; and
    • its annual compliance and enforcement report for 2023-2024, detailing some of the significant compliance and enforcement actions undertaken during the period which resulted in:
      • a total of $9.989 million in penalties from three court outcomes and five infringement notices;
      • four civil proceedings in progress in the Federal Court;
      • four enforceable undertakings accepted; and
      • eleven compliance bulletins (including consultations) and guidance notes published.

    AEMO released its Quarterly Energy Dynamics Q2 2024 Report summarising developments in the Australian electricity and gas markets:

    • East Coast:
      • increase in wholesale electricity prices following a period of low wind and rainfall;
      • increase in thermal coal generation following a period of low wind and hydro-electric generation; and
      • increased demand for Queensland gas supply in southern states following decreased gas production in Victoria.
    • Western Australia:
      • increases in underlying electricity demand offset by increases in distributed photovoltaic generation;
      • energy prices remained relatively flat when compared to Q1 2024;
      • increase in total real-time market costs driven by increase in frequency co-optimised essential system services uplift costs; and
      • increases in local gas consumption offset by increases in local gas production.

    On 19 July 2024, the Energy and Climate Change Ministerial Council released their:

    On 1 August 2024, the Australian Financial Markets Association (AFMA) published a new AFMA gas addendum for use by market participants.

    Authors: Dan Brown, Partner; Dale Gill, Partner; Paul Newman, Consultant; Carl Franzmann, Graduate and Ethan Low, 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.

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