It said the electricity system of the future was likely to feature renewable plants that were much smaller than today’s coal-fired power plants, in a system much more geographically dispersed than today’s.
It also said these plants were “unlikely to be located where there is substantial existing transmission to serve them and is instead being connected in sunny or windy areas at the edges of the grid, where the network is less strong”.
And while some generators were seeking connections to transmission lines at the edge of the grid, others were connecting at locations where power stations were already located, which meant that transmission lines were becoming heavily congested.
AEMC chairman John Pierce said the growth of dispersed renewable energy generation and battery storage required comprehensive reform of the electricity market.
“At the same time we need to manage the transformation of the power system in ways that stop lower-cost generators being cut off congested networks – that can lead to unnecessary costs for consumers,” he said.
“The proposals … create better investment signals for generators to locate in more cost-effective places and make it possible for them to use the transmission network more efficiently,” he said.
The AEMC has proposed that for the first time large-scale generators would be paid a localised price for their power at the wholesale level, which it said better reflected the marginal cost of supplying power at that location.
The commission has also proposed the introduction of something it called electricity grid “transmission rights”, which generators would have to pay for. AEMC said this would give power generators more investment certainty while ensuring that power networks were used more efficiently.
“Money raised from the sale of these rights would be used to offset consumer bills,” AEMC said.
The model the commission has proposed is similar to electricity markets overseas, including in the United States and New Zealand.
“The underlying rationale for the designs elsewhere are the same as those outlined above: a desire to provide appropriate, location-specific price signals for generation and transmission network service providers, and the tools to allow them to manage risks,” AEMC said.
Australia’s energy market has at times frustrated major businesses. Harry Debney, the boss of the ASX-listed horticulture company Costa Group, blasted the state of the nation’s energy market in August, saying his company had spent $2.3 million more than two years ago on standby power generators to be used in the case of blackout.
“Now we shouldn’t have to do that. We’ve had to step in and guarantee reliability,” he said.
Darren is the mining and agribusiness reporter for The Age and The Sydney Morning Herald.
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