Energy Market Policy & Challenges

Transcription

1 Energy Market Policy & Challenges API Summer School - 22 February 2016 Dr Brian Spalding, Commissioner AUSTRALIAN ENERGY MARKET COMMISSION AEMC PAGE 1

2 Energy Market Policy & Challenges Governance and AEMC s role Energy Markets Overview Strategic Priorities and Key Challenges AEMC Key Projects AEMC PAGE 2

3 Governance and the AEMC s role NEM Regulation and Governance COAG Energy Council Policy Making National Electricity, Retail and Gas Laws AEMC Rule Maker & Reviews National Electricity, Retail and Gas Market Rules AEMO Power System and Market Operator AER Economic reg. and Rule compliance Participants Generators and gas suppliers Retailers End Use Customers Network Businesses 3

4 Governance and the AEMC s role National Electricity Rules and Gas Rules The National Electricity Rules govern: Operation of the national electricity market (NEM) Regulation of network operation and network investment Security and reliability The National Gas Rules govern: Gas spot markets in Victoria, Adelaide, Sydney, Brisbane and Wallumbilla Access to and pricing of natural gas pipeline services

5 Governance and the AEMC s role National Energy Customer Framework The National Energy Customer Framework (NECF) commenced in July 2012 Includes the National Energy Retail Law and Rules (NERR) Aims to deliver a single national framework for governing noneconomic aspects of electricity and gas retail regulation State governments decide what aspects of the NERR they wish to adopt, and when they will do so TAS, ACT, SA, QLD and NSW have implemented the NECF AEMC PAGE 5

6 Governance and the AEMC s role Role and Functions of the AEMC Determines changes to the national electricity, gas and energy retail market rules Reviews and provides advice to the COAG Energy Council on energy market issues and how best to develop energy markets Guided by national objectives for electricity, gas and energy retail (NEO, NGO and NERO): to promote efficient investment in, and efficient operation and use of, electricity, natural gas and energy services for the long term interests of consumers with respect to price, quality, safety, reliability and security of supply AEMC PAGE 6

7 Governance and the AEMC s role Reliability Panel Reliability Panel is oversighted by the AEMC The Reliability Panel monitors, reviews and reports on the safety, security and reliability of the national electricity system.

8 Governance and the AEMC s role The role of the State Governments State governments and State regulators continue to play an important role that particularly affect consumers State governments remain responsible for decisions about whether to impose retail price regulation and how regulators should determine prices Consumer protection measures, including Retailer of Last Resort arrangements where they remain state specific, or adopt the National Energy Consumer Framework which has a common approach

9 Governance and the AEMC s role Industry Components - Electricity Natural Monopoly Sectors Independently regulated, low risk Generation Transmission kVolts Distribution 415V-66kV Competitive Market Based High risk Retailing Approximate contribution to retail bill in the NEM (Price Trends ): Wholesale and Retail 50% Networks (mostly distribution) 43% Green 7%

10 Governance and the AEMC s role Role of the Retailer The NEM spot market and gas markets are wholesale Retailers enter into contracts with customers to supply energy (set own Ts & Cs) or supply under jurisdictional regulatory arrangements (regulator sets Ts & Cs) To supply their customers needs, retailers need to bundle together the costs of: Generation or gas supply; Transmission and distribution; and Retail costs including metering and billing Retailers source and manage the cost of generation or gas supply around the volatile spot market Retailers have to manage demand forecasting and price risk

11 Governance and the AEMC s role Retail Price Regulation Retail price regulation is a state government prerogative Victoria, NSW and South Australia have deregulated Queensland deregulation expected 1 July 2016 The AEMC conducts reviews of retail competition: Recently completed NEM-wide review which recommended price deregulation in Queensland Raise awareness of comparator tools, tailored communications, review concession schemes, harmonise regulatory arrangements 2016 competition review underway with report required by 30 June The AEMC will also continue to provide advice on retail prices annually to COAG Energy Council AEMC PAGE 11

12 Governance of the Energy Market Effective reform has been dependent on: gaining commitment by jurisdictional governments to the overall benefits to consumers of a national approach having the structure and governance necessary to deliver it Where this has been achieved reforms have been effective and long-lasting AEMC PAGE 12

13 Energy Markets Overview The National Electricity Market (NEM) NEM Statistics SA Summer peak: 3,300 MW Victoria Summer peak: 10,300 MW Queensland Summer peak: 8,500 MW NSW Summer peak: 12,000 MW Tasmania Winter peak: 1,800 MW Longest alternating current system in the world Interconnected system spanning 5,000 km and including 40,000 km of transmission lines Supports 19 million residents 200 terawatt hours pa Market Design Gross pool, energy only, mandatory 5 regional half hourly spot prices Financial contracts manage risk AEMC PAGE 13

14 Energy Markets Overview Main Electricity Generation Centres Black Coal 8GW Hydro 1GW Lignite Coal 1GW Wind 2GW Gas 2GW Gas 2GW 3GW Black Coal 12GW Gas 1GW Hydro 4GW Brown Coal 6GW Gas 2GW 3GW Hydro 2GW PAGE 14

15 Energy Markets Overview Dispatch and spot price setting in the NEM Central Dispatch Process: 4:15 demand = 350MW Generator 1,2 and 3 fully dispatched Generator 4 partly dispatched Dispatch price = $37 4:20 demand = 450MW Generators 1, 2, 3 and 4 fully dispatched Generator 5 must be partly dispatched Dispatch price = $38 Spot price is the average of the 5 minute dispatch prices for the half hour period All generators dispatched in that half hour period receive the wholesale price AEMC PAGE 15

16 Energy Markets Overview Spot Market Pricing Daily Generator Merit Order Demand (Marginal plant sets common clearing price) Gas Fuel cost $40-$85/MWh, ( (Emissions Intensity t CO 2 /MWh) Black Coal Fuel Cost $25/MWh, (Emissions Intensity t CO 2 /MWh) Brown Coal Fuel cost $10/MWh, (Emissions Intensity t CO 2 /MWh) Wind Usage cost $3/MWh (Emissions Intensity 0t CO 2 /MWh)

17 Energy Markets Overview Financial Interdependencies The spot market price is volatile reflecting supply and demand variations. The turnover in the market can range from around $80M to $1B per week. Retailers have to manage cost of supply and generators need to be able to manage their revenue requirements to operate their businesses Both have an incentive to contract around the spot market Generators and retailers can be expected to hold a portfolio of contracts with a range of other participants in the market alternately generators and retailers can vertically integrate to manage risk The resulting contracts incentivise parties to ensure their plant is available when needed and act to underpin investment in new generation

18 Energy Markets Overview Financial and Physical Functions in the NEM Physical Electricity Flows Physical settlement Physical settlement Generators AEMO Purchasers Broker Futures Exchange Broker Financial OTC Contract Payments PAGE 18

19 Reliability and Security in the NEM Reliability A Reliable Power System is one that has a high likelihood of supplying all consumer needs A consumer focus Security A Secure Power System is one that is being operated or managed such that all vital technical parameters such as voltage, equipment loading, and power system frequency are all within design limits and are stable and all persons are safe even following a credible event (an event AEMO considers reasonably possible given the circumstances) A power system integrity focus AEMC PAGE 19

20 What does a Reliable Power System Require? A Reliable Power System requires all of the following Adequate supply of dispatchable generation (inc DM) + A secure power system + Reliable + transmission Reliable distribution = High likelihood of consumer demand being met AEMC PAGE 20

21 How to Deliver Reliability Adequate Supply of Dispatchable Generation Mainly driven by the market entrepreneurial investment Market informed by AEMO forecasts SOO, PASA, EAAP Market parameters recommended by the Reliability Panel so that the maximum level of unserved energy from main generation and interconnection is not likely to be exceeded MPC, MPF, CPT Short term interventions by AEMO: RERT short-term reserve contracts where market fails to deliver sufficient generation directions Prices set by supply and demand Price level and volatility drives need to contract or self invest Contracts lead to generation or DM investment Investment leads to adequate supply AEMC PAGE 21

22 How to Deliver Reliability A Secure Power System Mainly the responsibility of AEMO - Acquires ancillary services, can direct or instruct Transmission, Distribution and AEMO to agree to connection standards Generators to comply with performance standards, can supply FCAS Reliability Panel determines frequency standards, guidelines for AEMO, generator performance templates for compliance Jurisdictions set curtailment priorities (load shedding for emergency frequency control and maintaining power system security) Large Market Customers must provide interruptibility (60%) AER responsible to monitor compliance AEMC PAGE 22

23 How to Deliver Reliability Reliable Transmission and Distribution Jurisdictions set Transmission and Distribution reliability standards Networks plan, invest and operate to achieve reliability standards AER determines revenue sufficient to allow efficient business to meet reliability requirements AER operates reliability incentive schemes to encourage improved reliability AEMC PAGE 23

24 Reliable Power System A Reliable Power System requires all of the following Adequate supply of dispatchable generation (inc DM) + A secure power system + Reliable + transmission Reliable distribution = High likelihood of consumer demand being met AEMC PAGE 24

25 Energy Markets Overview Changes in electricity prices 2009 to 2014 Scale of increases varies between States 1600 Government policies such as the RET, and State FITs 1400 Dollars per Annum Increasing network charges have been responsible for around 50% of the increases 2009 to / /15 Environmental Regulated Networks Wholesale and Retail Replacement of ageing assets Meeting forecast peak demand Increases in reliability standards Higher cost of capital post GFC Rules in favour of NSPs AEMC PAGE 25

26 Energy Markets Overview Changes in electricity prices 2014 to 2018 Scale of increases varies between States Dollars per Annum Environmental Regulated Networks Wholesale and Retail / / / /18 AEMC PAGE 26

27 Energy Markets Overview Australian Gas Network

28 Energy Markets Overview Victorian Gas Market Wholesale spot market across principal gas transmission network. Provides for short-term trade, with the price varying between $0 - $800/GJ. Trades the imbalance that exists between the overall gas injected (delivered) and the gas withdrawn Market participants attempt to align injections and withdrawals AEMO responsible for physical security of pipelines

29 Energy Markets Overview Gas Short Term Trading Markets in Adelaide, Sydney, Brisbane and Supply Hub at Wallumbilla STTM trades gas at Demand Hubs Supply Hub at Wallumbilla Daily pricing, settlements and other services. AEMO is market operator: schedules gas sets daily prices settle markets Does not operate pipelines, manage system security/or emergencies.

30 National Markets Are Evolving All around us we see the evidence of accelerating change in energy market dynamics AEMC PAGE 30

31 AEMC s Strategic Priorities Addressing key challenges Consumer Priority Enabling consumers to make informed decisions in competitive retail markets Gas Priority Protection - Engagement - Participation Promoting the development of efficient gas markets Markets and Network Priority Market and Network arrangements that encourage efficient investment and flexibility Technology and new business models Network evolution Policy integration

32 Consumer Priority Power of Choice AEMC PAGE 32

33 AEMC PAGE 33

34 Consumer priority Cost reflective network pricing Example 1: Solar PV Consumer saves $200 p.a. using north facing solar PV Reduces Consumer network costs by $80 Other consumers pay remaining $120 Example 2: Air conditioner Consumer using 5kW air conditioner causes $1,000 p.a. network costs Consumer A pays $300 Other consumers pay remaining $700 AEMC PAGE 34

35 Energy Market Policy & Challenges Governance and AEMC s role Energy Markets Overview Strategic Priorities and key challenges AEMC key projects A national commitment and effective governance is critical to deliver benefits to consumers AEMC PAGE 35

36 AEMC PAGE 36