Energy Ministers agree on active steps to deliver the energy transition

What you need to know

• Energy Ministers met on 12 August 2022 to discuss the status of the energy market following recent volatility and agreed on a set of reforms to address current issues in the market.
• As part of the National Energy Transformation Partnership, it was agreed that an emissions objective will be included in the National Energy Objectives to ensure the energy transition is delivered in the long term interests of consumers.
• The Energy Security Board's (ESB) proposed capacity mechanism was rejected, with the Energy Ministers agreeing to take control of ensuring firming capacity is available and the orderly exit of coal in the energy transition. 
• A congestion management mechanism was highlighted as critically important for providing certainty for investment, with the ESB's work on the proposed design to be expedited. 
• A package of gas market reforms was agreed, including an extension of AEMO's powers and functions to facilitate forecasting and management of the east coast gas supply shortfall risks.

What you need to do

• Industry and community stakeholders can provide feedback to the Energy Ministers on the National Energy Transformation Partnership and the work streams for the initial priorities for action. 
• Energy stakeholders should keep an eye out for consultation on: 
  • the potential new capacity framework commissioned by the Energy Ministers; and
  • the ESB's draft recommendations for the detailed design of its proposed hybrid access model (due to be published in September 2022).
• Gas market participants on the east coast should consider providing feedback on the proposed fit for purpose security and reliability framework, which is intended to be based on existing mechanisms in the National Electricity Market (NEM). 

Energy Ministers Meeting Communique

The Energy Ministers' Meeting comprises Commonwealth, State, Territory and New Zealand Ministers responsible for energy (Energy Ministers). 

Discussions at the Energy Ministers' Meeting held on 12 August 2022 focussed on the current state of the market and included updates from the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC) on the recent east coast market suspension, current operating conditions in the electricity and gas markets and the domestic fuel availability and price outlook for 2022-23 summer. 

A copy of the ministerial meeting communique can be found here.

National Energy Transformation Partnership

The Energy Ministers agreed to establish the National Energy Transformation Partnership, a framework for cooperative action by Commonwealth, State and Territory governments to agree on priority actions and support the energy transition in Australia. The Energy Ministers agreed on seven principles for collaboration, as well as a number of initial priority themes. 

It is under this partnership that the Energy Ministers agreed to fast track an emissions objective into the National Energy Objectives (NEOs). The NEOs govern and guide the Australian Energy Market Commission (AEMC) under national energy legislation. 

The current NEO, as stated in the National Electricity Law, is "to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to:

• price, quality, safety and reliability and security of supply of electricity
• the reliability, safety and security of the national electricity system."  

The NEO under the National Energy Retail Law and the National Gas Law are drafted on similar terms. At present, the NEOs are silent on environmental considerations and emissions reduction. 

The balance of the National Energy Transformation Partnership's initial priorities for action are to:

• accelerate the delivery of critical transmission by identifying projects of national significance;
• co-design a First Nations Clean Energy Strategy with First Nations people;
• develop integrated energy infrastructure and regional planning scenarios to identify jobs and investment pathways for manufacturing and new industries, such as hydrogen;
• assess the workforce, supply chain and community needs associated with the energy transition pipeline to support a national action plan, including domestic onshoring opportunities, investment needs, supply chain risks and community engagement; and
• collaborate on enhancements to cyber security, emergency management arrangements and fuel availability. 

Work streams to support action under each priority theme will be developed in consultation with industry and community stakeholders. 

Implementation of Post-2025 Reforms

In June 2022, the Energy Security Board (ESB) released a high-level design paper outlining a proposed capacity mechanism for the NEM (see our client alert on the design paper here).  

At the Energy Ministers' Meeting on 12 August 2022, the Energy Ministers acknowledged the work of the ESB, however commissioned a new framework to deliver capacity, ensure an orderly transition and incentivise new investment in firm renewable energy. The rejection of the ESB's design comes after substantial concern from the industry during the consultation period for the proposed capacity mechanism. Senior officials were specifically instructed by the Energy Ministers to take into account economic and emissions reduction considerations in the design of the new framework. 

Additionally, the Energy Ministers asked the ESB to expedite work on the congestion management mechanism (see our energy alert on the ESB's transmission access reform consultation paper here). 

The ESB was due to release its draft recommendations for the detailed design of its proposed hybrid access model in September 2022, with consultation occurring until October 2022 and a proposed rule change request to the Energy Ministers expected in December 2022.

Gas Market Reforms

AEMO and the ACCC briefed the Energy Ministers on the risk of gas supply shortages in 2023 on the east coast. The Energy Ministers agreed on a number of measures intended to ensure that AEMO has the powers and functions required to manage security and reliability risks across the east coast leading up to the forecasted gas shortfalls. 

The reforms are intended to improve efficiencies and support further gas supplies for the domestic market and include:

• development of an annual Winter Readiness Management plan for east coast markets and inclusion of gas supply and system adequacy risks in the annual Summer Readiness Plan by AEMO;
• designing and consulting on reforms to provide AEMO and gas market participants with improved visibility of short, medium and long term supply, demand and system adequacy;
• developing a rule change to enable automated and anonymised trading between Wallumbilla Gas Supply Hub (GSH) participants;
• developing a rule change to harmonise prudential arrangements across the gas short term markets in Adelaide, Sydney and Brisbane, the Victorian Declared Wholesale Gas Market and the GSH to improve the flexibility and liquidity when responding to demand and supply shocks; and 
• investigating options for a third party access framework for upstream gas and storage infrastructure to help bring more gas supply to market from smaller producers and improve utilisation of existing storages.

The Energy Ministers noted the reforms will respect existing foundational contracts for export supply and of international partners.

Authors: Paul Curnow, Partner; Andre Dauwalder, Senior Associate; Lucinda Merrett, Lawyer.