The Australian Energy Market Commission releases a draft report recommending against the implementation of optional firm access

On 12 March 2015 the Australian Energy Market Commission (AEMC) released its draft report about a model for optional firm access to electricity transmission networks.

The report follows the development, testing and assessment of the optional firm access model by the AEMC at the request of the Council of Australian Governments’ Energy Council.

Draft assessment

The AEMC noted that the prevailing market conditions currently include low spot market prices, less significant impacts from congestion and low levels of generation and transmission investment.

The draft assessment of the AEMC is that under these current market conditions, the implementation of the optional firm access model would not contribute to the achievement of the National Electricity Objective set out in the National Electricity Law (being the promotion of “efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity…”).

The AEMC is of the view that optional firm access would be of greater benefit in a climate where new investment is more likely. Accordingly, it has recommended that the introduction of optional firm access could be considered when a shift in investment conditions starts to emerge and the investment environment becomes more uncertain. A further draft recommendation is that market conditions be monitored for signs of such changes.

Optional firm access

Optional firm access is a transmission model under which generators may elect to pay for a specified level of access to the transmission network in order to manage the financial impacts of network congestion. The election might be for all or part of their generating capacity.

At a high level, financially firm access to the regional reference price would mean that “firm generators” who elect to pay for this access would generally always be able to sell their generation output – either by being dispatched such that they sell their output into the National Electricity Market or by earning compensation in circumstances where network congestion prevents them from being dispatched. Compensation would be paid for by “non-firm generators” who contributed to the network congestion.

The optional firm access model seeks to coordinate investment in transmission networks and generation assets and would represent a change to the way in which transmission and generation investment decisions are made.

Currently, transmission investment decisions are made by regional, centralised transmission network operators (with the exception of Victoria where such decisions are made by the Australian Energy Market Operator). Under the optional firm access model, generators would bear more of the risk associated with transmission investment.

To enable an adjustment to the optional firm access model existing generators would, upon the implementation of optional firm access, receive a level of transitional access which would operate like firm access, except that it would not be procured by existing generators through the firm access regime. This transitional access would gradually be clawed back over a period of 10 years commencing 5 years after the introduction of optional firm access.

Stakeholder response

The Clean Energy Council has welcomed the AEMC’s draft assessment rejecting the implementation of the optional firm access model. This is primarily on the basis that the proposed transitional access regime would unfairly encumber new large-scale renewable energy generators with the costs and risks associated with optional firm access.

Next steps

Stakeholders are invited to make submissions about the draft report by 30 April 2015. In particular, comments are sought on:

(a) the alternatives to optional firm access; and

(b) the options for monitoring conditions in the National Electricity Market which might be favourable for the implementation of optional firm access.

The AEMC will then prepare a final report to be released in the middle of 2015, which will focus on two matters outlined above.