AEMC Transmission Frameworks Review: Is contestability feasible in the NEM?
Deloitte Access Economics report for the AEMC Transmission Frameworks Review
Across the Australian power sector supply chain the efficiency of network connections has been a bone of contention. Generators and large customers find the current framework for connection to transmission networks in the National Electricity Market (NEM) – which covers all States/Territories bar Western Australia – inefficient and costly. By contrast, electricity transmission network service providers (TNSPs) are largely satisfied with how the current connections framework operates in practice, although acknowledging that some sections of the National Electricity Rules (NER) are unclear.
With the growth of renewable and smaller scale distributed generation in response to changing energy policy frameworks now adding to the complexity of the economic regulation of connections there is a new urgency to ensuring connections are efficient. To this end, as part of its Transmission Frameworks Review, the Australian Energy Market Commission (AMEC) commissioned Deloitte Access Economics to analyse the feasibility of introducing contestability – or greater ease of ‘market’ entry and exit – into network connections.
Our report was endorsed by the AEMC in many key respects. The AEMC generally agreed with our position that contestability in the construction of assets already occurs in the majority of cases, but that the benefits of that competition are either not passed onto, or are not apparent to, connection applicants due to a lack of transparency. They also agreed that implementing the Irish SEM connection arrangements would not be feasible in the NEM.
Key recommendations to revise the Transmission Connections Framework which were endorsed by the AEMC include:
- Requiring TNSPs to publish a set of Design Standards and ‘design philosophies’ for equivalent assets used to connect DNSPs as a prescribed service
- Requiring TNSPs to provide connection applicants with detailed cost, assumption and calculation information, including supporting evidence
- Giving connection applicants a greater role in the process of tendering for connections, so that they have confidence they are benefiting from the contestability, by amending the NER to require TNSPs to provide all contractor tenders, detailed business cases for contractor selection and demonstrate they have considered the applicant’s preferences when selecting a contractor
- Allowing the connecting party determine whether it can competitively tender for the construction of an extension. Where the connecting party determines that there is no competition, the TNSP would be required to construct an extension under the negotiating framework.
Energy sector viewers interested in the detailed analysis can download the full report.