Australian electricity and gas markets – November and December 2023 update

In our November and December 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 2 November 2023, the Australian Energy Market Commission (AEMC) initiated a review of electricity compensation frameworks in the National Electricity Rules (NER), publishing a consultation paper and terms of reference.

The terms of reference identify the three areas of investigation for the review, namely: 

• potential improvements to the objectives and methodology of the compensation frameworks; 
• the adequacy of the compensation frameworks' governance; and
• potential administrative improvements and implementation changes. 

The AEMC is seeking stakeholder feedback on the consultation paper by 1 February 2024. For more information see here. 

On 9 November 2023, the AEMC published a final determination and final rule completing its enhancing community engagement in transmission building rule change. The new rule enhances the community engagement of transmission network service providers (TNSPs) by:

• clarifying that TNSPs must engage with local stakeholders who are reasonably expected to be affected by actionable or future integrated system plan (ISP) projects, or projects within a renewable energy zone (REZ) stage;  
• clarifying that these stakeholders are considered interested parties under the regulatory investment test for transmission (RIT-T) and that TNSPs must consult with them during the RIT-T; and 
• introducing community engagement expectations for TNSPs when engaging with local stakeholders.

On 30 November 2023, the AEMC released a draft determination and draft rule as part of its clarifying mandatory primary frequency response (PFR) obligations of scheduled bidirectional units rule change. Under the draft rule, batteries with a capacity of 5 megawatts (MW) registered as scheduled bidirectional units would be required to comply with the primary frequency response requirements (PFRR) when:

• they receive a dispatch instruction to generate a volume greater than zero MW; 
• they receive a dispatch instruction to charge at a volume greater than zero MW; and 
• they receive a dispatch instruction to provide a regulation service. 

The AEMC is inviting stakeholder feedback on the draft determination and rule by 25 January 2024.

Also on 30 November 2023:

• the AEMC Reliability Panel released a directions paper as part of its review of the form of the reliability standard and administered price cap (APC). The paper presents findings regarding the changing reliability as the national electricity market (NEM) transitions to net zero and seeks stakeholder feedback on its simulation modelling, the value of customer reliability and shortlisted options for the form of the APC. Stakeholder submissions on the directions paper are invited until 19 January 2024; and 
• the AEMC published a draft determination and draft rule as part of its calculation of system strength quantity rule change. The draft rule will change how the system strength quantity (SSQ) component of the system strength charge is calculated and align the two options – self remediation or paying a system strength charge – to realise the benefits and efficiencies of the system strength framework. The AEMC is inviting stakeholder feedback on the draft rule until 18 January 2024. 

On 7 December 2023, the AEMC released a final determination and final rule to amend the market price settings in the NEM for the period 1 July 2025 to 30 June 2028. The market price settings define the limits for NEM wholesale market price outcomes and include the market price cap (MPC), cumulative price threshold (CPT) and administered price cap (APC). The final rule: 

• sets the MPC and CPT at the level recommended by the Reliability Panel; and 
• sets the APC at $600/MWh, which differs from the Reliability Panel’s recommendation of $500/MWh but is consistent with its current value.

For more information on the rule change see here. 

On 8 December 2023 the AEMC received a rule change proposal amend the NER to allow State and Territory governments, for which an interconnector passes through, to agree to the allocation of the interconnector's Aggregate Annual Revenue Requirement (AARR) to be recovered from consumers. The AMEC has not yet initiated this rule change request.

On 14 December 2023 the AEMC:

• published a transitional services update paper as part of its improving security frameworks for the energy transition rule change which seeks to improve market arrangements for security services. The update paper seeks feedback on refinements to the transitional services framework proposed in the August 2023 directions paper and a new proposed report: the transition plan for system security. Stakeholder submissions on the update paper are invited until 1 February 2024;
• published a draft determination and draft rule to address challenges TNSPs may have in raising finance to proceed with actionable ISP projects. The draft rule would improve financeability challenges by preventing a TNSP’s financeability position from worsening as a result of an ISP project, and increase flexibility in the revenue setting framework in the NER by allowing the Australian Energy Regulator (AER) to vary the depreciation profile of assets that form part of an actionable ISP project. The AEMC is seeking submissions on its draft determination and draft rule by 8 February 2024. For more information see here.  
• published a draft determination and draft rule as part of its sharing concessional finance benefits with consumers rule change which aims to enable the benefits of low-cost government financing for critical transmission infrastructure to be shared with consumers. The draft rule goes beyond the rule change request and extends the application of the rule to distribution network service providers (DNSPs). Stakeholder submissions on the draft determination and draft rule are invited until 8 February 2024.

National Energy Retail Rules

No retail rule change requests were initiated in November and December. No AEMC determinations relevant to the National Energy Retail Rules were published.

National Gas Rules

No gas rule change requests were initiated in November and December. No AEMC determinations relevant to the National Gas Rules were published.

Other Updates

On 17 November, the AER released a draft interim guidance note which provides guidance to DNSPs on export limits. The guidance note: 

• clarifies policy objectives and design principles for DNSPs when implementing flexible export limits; 
• provides clarity to DNSPs on AER expectations; and 
• establishes 'guard rails' for the development of flexible export limits. 

The AER is inviting stakeholder submissions on the guidance note by 19 January 2024.

On 1 December 2023, the Australian Energy Market Operator (AEMO) published various system security planning reports, including:

• its 2023 System Strength Report. This report provides AEMO’s 2023 assessment of system strength requirements for each region over a 10-year horizon, and evaluates potential system strength shortfalls over the period to 1 December 2025;
• its 2023 Inertia Report which presents AEMO's 2023 assessment of inertia requirements and shortfalls; and 
• its 2023 Network Support and Control Ancillary Services (NCAS) Report. This report presents AEMO’s 2023 assessment of NSCAS needs for each region over the next five years and evaluates potential NSCAS gaps.

For more information see here.

Also on 1 December 2023:

• AEMO released its October 2023 Connections Scorecard which reports key NEM generation connection statistics including volumes of projects progressing through the connection stages and timeframes. For more information on AEMO's monthly NEM connection scorecards, see here; and 
• the AER published an issues paper as part of its review of the AER exemptions framework for embedded networks. The paper seeks feedback on the harms facing residential embedded network customers, the benefits of residential embedded networks and whether further regulatory action is needed. The AER is inviting submissions on the issues paper until 5 February 2024. 

On 8 December 2023, the AER commenced its review of electricity transmission service target performance incentive schemes (STPIS) by releasing an issues paper. The STPIS provides financial rewards when TNSPs improve service standards, and financial penalties when service standards deteriorate. The issues paper considers the effectiveness of STPIS and outlines possible options to address identified shortcomings. The AER is seeking stakeholder submissions by 5 April 2024. 

On 14 December 2023, AEMO published the 2023 Western Australian (WA) Gas Statement of Opportunities (GSOO) which provides a 10-year forecast of demand and supply within WA’s domestic gas market. The report forecasts WA’s domestic gas demand and potential gas supply and provides an overview of gas infrastructure and emerging issues that affect gas market participants and other stakeholders.

On 15 December 2023, AEMO released the Draft 2024 ISP which provides a comprehensive roadmap for the NEM's energy transition and a plan for essential infrastructure to meet future energy needs. The ISP identifies actionable and future ISP projects and serves the broader purposes of informing market participants, investors, policy decision makers and consumers. AEMO is seeking submissions on the Draft 2024 ISP by 16 February 2024. For more information see here.

On 19 December 2023, AEMO released results for the Round 3 Long-Term Energy Service Agreements (LTESA) tender.

The 5 projects represent 750 MW of renewable energy generation and 524 MW (4,192 MWh) of long-duration storage. Each storage project will also have a continuous discharge capacity of at least 8 hours.

The successful projects in Tender Round 3 are:

• Uungula Wind Farm (400 MW)
• Culcairn Solar Farm (350 MW)
• Silver City Energy Storage (200 MW/ 1,600 MWh/ 8-hour storage)
• Goulburn River BESS (49 MW/ 392 MWh/ 8-hour storage)
• Richmond Valley BESS (275 MW/ 2,200 MWh/ 8-hour storage)

The projects are expected to be operational before 2028.

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

Authors: Andre Dauwalder, Counsel; Samirah Delor, Graduate and Murray Rissik, Paralegal.