EIR Insights: Redesign of the NEM Beginning to Take Shape 

This bulletin is part of our EIR Insights series from our Energy, Infrastructure and Resources team. Stay tuned for regular updates and commentary on topical issues across the sector.

On 30 April 2021, the Energy Security Board (ESB) released a shortlist of options for the redesign of the National Electricity Market (NEM).

Following consultation with industry and government, the options under consideration have been narrowed since the release of the ESB’s “post 2025 market redesign directions paper” published in January 2021. The ESB has stated that the options provided are to address four critical areas:

  1. preparing for old coal retirement by facilitating the timely entry of new generation, storage and firming capacity and an orderly retirement of ageing thermal generation;
  2. backing up power system security by ensuring measures are in place to manage more variable renewable energy without AEMO intervention;
  3. unlocking benefits for all energy consumers of recent changes including solar PV, batteries and smart appliances; and
  4. opening the grid to cheaper large-scale renewables by putting generation and transmission together to minimize the costs of transformation.

One of the notable options put forward is to require electricity retailers – both big and small – to pay the owners of dispatchable generators to guarantee future capacity to support the grid in times of peak demand. This would include buying electricity from old coal generators, essentially providing them with a steady revenue stream into the future which would incentivise them to remain open. If this option is to be adopted and implemented, one would question how this is going to assist with Australia’s climate change commitments. Indeed, it is hard to see how this option would be anything other than regressive.

A final round of consultation with stakeholders is taking place – with submissions closing on 9 June 2021 – prior to the ESB providing advice to the Energy National Cabinet Reform Committee by mid-2021. The full picture of the new NEM will likely then become a lot clearer.

For further information on the matters discussed above, please contact Matt Baumgurtel, our Energy, Infrastructure and Resources lead Partner.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.