Decoding the Energy Council outcomes
The Council of Australian Governments (COAG) Energy Council (the Council) met last week and considered a packed agenda.
The resulting communique[i] did not offer much detail.
There were, however, several important revelations buried in the statement.
We unpack some of the outcomes.
They’ll be back – in just four months
First, after not meeting for almost 12 months, the COAG Energy Council will be back in March next year.
Their return is made clear in the Communique with several key outcomes due to be delivered at an in-session meeting in March 2020.
The long-awaited National Hydrogen Strategy is here.[ii]
The Strategy is positive about the benefits of blending gas into the distribution network, noting the need for further testing.
Projects like Jemena’s Western Sydney Green Gas Project, AGIG’s hydrogen plant in SA and ATCO’s Clean Energy Innovation Hub in WA are highlighted. These projects are part of the $180 million that has already been invested in hydrogen infrastructure projects as outlined in Energy Networks Australia’s recent update to Gas Vision 2050.
In the joint statement released with the Strategy, the focus is on the opportunities hydrogen offers for a more sustainable economy[iii]:
“The Strategy opens up opportunities for increased domestic use of hydrogen in the industrial, transport, mining and energy sectors. While these opportunities may be small at present, beyond 2030 they could play an important role in reducing energy prices and Australia’s emissions, as well as the emissions of other countries.”
Energy Networks Australia has previously released research confirming that the injection of hydrogen into the gas distribution network can be done under current gas legislation.
The Energy Security Board (ESB) will provide a report to the Council in March on “immediate measures” to ensure reliability and security of the electricity system.
The ESB will review the NEM reliability standard to “ensure that it is fit for purpose”.
We wrote about this previously, saying any proposed increase in reliability standards must identify and properly consider the explicit impact on customer bills. It was encouraging to see the Communique ask the ESB “to also assess benefits and costs to consumers.”
AEMC needs to engage with stakeholders?
The Council also considered the progress of the Australian Energy Market Commission’s (AEMC) Coordination of Generation and Transmission Investment (COGATI) review.
The AEMC will present its work for consideration in March.
Interestingly, the Council prodded the AEMC a little to listen a bit more to stakeholders:
“Ministers also noted the need to engage closely with stakeholders as this work [COGATI] progresses.”
Given the delicate work of balancing the interests of renewable generators, networks and customers, this may have been a subtle hint from our nation’s energy ministers that communication could improve. Or they may have just wanted to generally highlight the importance of stakeholder engagement.
Interconnectors: cost allocation
The AEMC COGATI 2018 final report outlined several pricing matters which were slated to be progressed by the AEMC in 2020, with work expected to start in the first quarter.
It appears the Council has handballed this work to the ESB, which has been tasked with considering fair cost allocation of interconnectors.
Interestingly, the allocation methodology has to be fair both in theory and practice. This may be a call for balance between detailed economic purity and simpler workability and stakeholder acceptance. Overseas examples are likely to be a key part of this work.
Integrated System Plan
The actionable Integrated System Plan (ISP) rule framework is expected to be in place before June 2020, with the ISP set to identify the least cost or optimal pathway for transmission development.
The ESB is consulting on the draft rules and the Australian Energy Regulator (AER) on the consequential guidelines.
The ESB has been tasked with bringing the final recommended rules back to the Council in March.
Renewable Energy Zones
COAG requested the ESB to expedite short-term actions to progress renewable energy zone (REZ) connections.
Some market bodies seem relatively keen on generators partly funding for shared network upgrades to facilitate REZs.
A key question concerning this is what rights would generators be granted for paying for transmission works? If this leads to a need for higher commercial returns and extra risk premiums for generators, as noted by some consumer groups, this could result in increased increased wholesale costs, which are borne by retailers and ultimately by customers.
The costs paid for by consumers for transmission do not disappear by going via generators. They may, in fact, be higher than via the regulated networks route.
The ESB is expected to report back to the March 2020 COAG with draft rules which can, like the actionable ISP, be finalised in a timely manner and implemented by the South Australian Minister.
NSW going it alone on REZ
The Commonwealth has given NSW its blessing to go it alone on REZs[iv].
This new REZ investigation raises questions about whose work will take precedence.
There are currently six separate entities looking at REZs.
So, how will we know which should take priority? What if a Commonwealth regulator disagrees with a decision by NSW?
|Jurisdiction||Renewable Energy Zone project|
|New South Wales||Identify priority REZs through the NSW Electricity Strategy.[v]|
|AMEC||COGATI – creating a framework to better coordinate generation and transmission in REZs and enable efficient scale transmission investment.|
|ESB||Now tasked to expedite work on short term actions to progress REZ connections.
Also tasked by the Council in December 2018 to investigate an adjustment fund to facilitate scale efficient REZs.
|AEMO||Identify candidates for REZs and conferring with governments on locations as part of the ISP.|
|ARENA||Looking at cost recovery for REZs.|
|CEFC||Eligible investments for the Grid Reliability Fund include transmission infrastructure, presumably related to REZs.|
Table 1: Who is looking at renewable energy zones
While the Council noted it would review the ESB next year as a matter of course, its continued existence seems reasonably assured:
“The Council looks forward to the scheduled review of the ESB whilst recognising the value and importance of coordination across market bodies and the role ESB plays in facilitating this.”
The review may be an opportunity to tweak the ESB and its future role. Whether this leads to an expansion of its formal scope or continued business as usual, we shall see.