ESB Post 2025 Market Design Options Paper

The eagerly anticipated Post 2025 Market Design Options Paper from the Energy Security Board (ESB) has finally emerged after a long gestation period.

The 200-plus page report has so far been met mostly with plaudits and some cautions – including from the energy sector – about ensuring any transition is undertaken with customer interests and cost considerations front and centre.

The devil, of course, will be in the highly technical detail and how the options are developed as part of the proposed maturity plan approach.

Under the stewardship of Dr Kerry Schott AO, the ESB has sought to guide a new architecture for the energy system to bring it into a renewables-ready future. The new design offers options in the short, medium and long term – an incremental approach which is welcome.

The ESB is now, quite late in the overall process, proposing to undertake quantitative analysis to consider the cost and benefits of the reforms, including implementation costs. The ESB plans to make its final recommendations to the federal government in mid-2021.

Why a system re-design?

The mix of energy generation across the National Energy Market (NEM) is rapidly changing. Currently 63 per cent of the NEMs coal and gas assets are scheduled to retire by 2040. In contrast about 65 GW of dispatchable renewable energy will come online within the same period. Already there are more than 2.66 million rooftop solar systems in the NEM. With these forecasts it’s easy to see that the national transition to renewable energy is already well on it’s way and Australians are onboard.

While the changes towards renewable energy are positive, the ESB acknowledges the reliance on weather dependant resources such as solar and wind within the market are creating system challenges. Already the pace of this penetration has exceeded the step change transition scenario outlined in the. most recent Australian Energy Market Operator’s Integrated System Plan.

There’s no transition without transmission

The ESB has recognised the critical roles transmission and distribution networks play in the transition to a grid that supports more large scale renewable generation and customers’ increasing adoption of rooftop solar, batteries and smart appliances,

The current arrangements for transmission are clearly not delivering and significant transmission investment will be required to facilitate the additional 26-50 GW of renewable generation that will enter the grid by 2040.

This also requires jurisdictional governments to recognise that need and work with the sector to develop policy frameworks that incentivise practical location decisions for the development of transmission and also the increase in large scale battery storage development.

New technologies such as hydrogen and biomethane will also need to be a consideration when deciding the location of power generations or “hubs.”

The ESB has also recognised the ‘go it alone’ policies of individual jurisdictions pose a challenge for what is the world’s longest interconnected energy system. A cohesive, national approach to change is important and hopefully, still an achievable ambition.

DER integration and demand side participation

Distribution networks are coping with increasing two-way flows on their system and will continue to play a more dynamic role to optimise local grids.

The ESB acknowledges the changing two way flow and offers immediate reforms including implementing a customer protections framework based on existing market body practice and the UK Energy systems Catapult.

The immediate reforms proposed also include technical standards, SA’s solar shut off as a backstop mechanism to be rolled out nationally, and tariff and pricing reforms that are supportive of future market frameworks.

The ESB wants to accommodate active participation and thinks there are barriers for customers to participate in energy or ancillary service markets.

The ESB also sees merit in supporting existing and emerging traders (like aggregators that orchestrate customer DER and bid into the wholesale market) and believes frameworks should ensure there are low barriers for customers when switching between traders.

The paper supports multiple trader relationships offering different services to the same customer. It sounds attractive, but the ESB acknowledges there is inherent complexity in managing connection costs and tariffs.

Customers and taxpayers – making sure we don’t pay twice

While the transition is posing immediate challenges that must be addressed, it is important not to act recklessly.

The energy network sector has been consistent in advocating for an approach that is mindful the challenges posed by a renewables-enabling system design risk imposing additional costs to customers. It is important we don’t over-engineer a one-size fits all system design, but instead adopt a balanced approach that unlocks the opportunities from the energy transition and supports investment as it is needed.

The ESB has opened the options paper for consultation and will be receiving feedback until 9 June. Feedback can be sent to