IEEFA's response to Energy Security Board post 2025 market design options

According to the Energy Security Board (ESB), over 60% of existing thermal generating resources (mainly coal) in the National Electricity Market (NEM) are likely to exit over the next 2 decades as Australia transitions towards renewable generation (mainly wind and solar) and storage.

This transition away from large, synchronous ‘always on’ generators towards asynchronous, variable renewable generators requires a revisit of existing markets and mechanisms to ensure they are ‘fit for purpose’.

While the ESB post 2025 market design reform is comprehensive and some initiatives are well-supported by stakeholders, others have been questioned. In the final stages of reform, it is key for the ESB to incorporate stakeholder feedback and to be forward thinking, to drive the NEM towards a low-emissions future consistent with the Australian government’s commitment to the Paris Agreement and state government commitments to net zero by 2050.

The NEM of the future must deliver reliable, secure and affordable power, with zero emissions.

Developing post 2025 market design reforms for the NEM is a formidable task given the context of fast technological change, the huge variation in stakeholder opinions, and ongoing inconsistent climate and energy policy in Australia.

One thing is clear: the NEM of the future must deliver reliable, secure and affordable power, with zero emissions. This can be achieved but there will be challenges along the way. If investment is focussed on preserving legacy practices and systems, it will only delay the transition and will cost consumers more.

It is therefore key for the ESB reforms to chart a clear path to a low-emissions, zeroinertia future with both large and small-scale renewable generation and storage. If well planned, such a system should be more affordable, reliable, secure and resilient, especially given the solar, wind and hydro resources available in Australia.

In addition, a decarbonised electricity system will facilitate the decarbonisation of the transport sector and will support the electrification of gas and many industrial processes.

The recent IEA Net Zero by 2050 Roadmap for the Global Energy Sector has stated that for the world to meet net zero emissions by 2050, advanced economies need to decarbonise their electricity sector by 2035. The world needs to meet the following requirements:

• Phase out all subcritical coal-fired power plants by 2030
• Phase out all unabated coal-fired power plants by 2040
• Unabated natural gas‐fired generation peaks by 2030 and is 90% lower by 2040.

The post 2025 market design therefore needs to redesign the NEM to decarbonise the electricity sector by 2035, and to meet the other aforementioned IEA goals.

It is also important that post 2025 market design changes are accompanied by government policies and programs that both support the energy transition and ensure no one is left behind. While a large task, market design is only one dimension of the work needed to ensure Australia develops a more affordable, reliable, secure, resilient, zero-emissions, zero-inertia electricity system.

Technical regulations need to be updated quickly and nimbly to keep up with changes in technology and to support innovation and competition.

In particular, technical regulations need to be updated quickly and nimbly to keep up with changes in technology and to support innovation and competition. Policies and programs are also needed, especially to facilitate ‘energy efficiency first’ which is both vital and will lower the costs of the transition. Housing, building and appliance standards policy and programs are outside the NEM but significantly shape how much energy is used in Australia. In addition, energy efficiency policies and programs have large job creation potential and have been central to many countries’ COVID-recovery economic plans.

Australia’s national grid could be one of the first to fully transition to zero-emissions and zero-inertia and the country stands to benefit financially by exporting the technologies and know-how developed through the process.