The document summarizes the evolution of Australia's National Electricity Market over the past 25 years from its formation to current disruptions. Key events included the establishment of the competitive market in 1998, an economic boom that increased prices, and a "perfect storm" of factors from 2008-2010 such as carbon policies and subsidies that led to rising costs and security issues. While renewable energy is growing and costs declining, the lack of national coordination and different state policies have created inefficiencies and market distortions. Moving forward, distributed energy resources and demand response will increasingly influence the grid while ensuring security and an efficient transition to low emissions.

1. “The evolution of the electricity
market, the stakeholders, and
how the market players are
working together”
SEPA Australian Fact Finding Mission
14/11/2016
Ian McLeod

2. Evolution Of The National Electricity Market (NEM)
Formation Of The
NEM
The Perfect Storm –
Economic Boom to
GFC, Security,
Carbon & Subsidies
Market Disruption

3. Formation Of The National Electricity Market
• 25 Years since inception
• 1991 - Industry Commission Report identifies significant
GDP increases available through:
– Vertical disaggregation
– Competition in generation & retail
– Privatisation
– Enhancement & extension of interconnection
• Council of Australia Government (COAG) establishes
National Grid Management Council to coordinate the
planning, operation and development of a competitive
electricity market
Source: Australian Government, Department of the Environment: Fact Sheet

4. Formation Of The National Electricity Market
• April 1995 – National Competition Policy reforms agreed
– Resulting in National Competition Council
– Incentive payments to states for loss of monopoly rents
• 1996 – Nationality Electricity Law passed
• Dec 1998 – National Electricity Market established
• Energy and ancillary services – Frequency & Black Start
Source: Australian Government, Department of the Environment: Fact Sheet

5. The National Electricity Market (NEM)
Source: Australian Energy Market Commission

6. The National Electricity Market (NEM)
Source: Australia Energy Regulator: State Of The Energy Market 2015
Number of Retailers = 30
Number of Transmission Co’s = 5
Number of Interconnectors = 3
Number of Distribution Co’s = 13

7. The National Electricity Market (NEM)
Source: Australia Energy Regulator: State Of The Energy Market 2015
• No Nuclear
• Gas being impacted by exploration & fracking moratoriums/bans
• Hydro needs to play a different market role to secure
intermittent renewables

8. The National Electricity Market (NEM)
Source: Australia Energy Market Commission 2014/15 Annual Report

9. The Western Australian Electricity Market (WEM)
Source: Australia Energy Market Operator Annual Report 2016

10. NEM Governance
Source: AEMC Annual Report 2014/15

11. Evolution Of The National Electricity Market (NEM)
Formation Of The
NEM
The Perfect Storm –
Economic Boom to
GFC, Security,
Carbon & Subsidies
Market Disruption

12. The Perfect Storm
• The seeds of the storm started early
• Brisbane outages in 2004 led to higher government imposed
security standards in Queensland. Outages in Sydney results in
the same outcome in NSW
• Victoria Smart Meter program mandated by government with
no customer value proposition on implementation
• Queensland mining & economic boom to 2008. Inappropriate
pricing model & government predict “mining tsunami” post
2010 with high SDP forecasts
• Economic boom results in some regulatory determinations
being overspent

13. The Perfect Storm
• Rudd government elected in 2007 on strong climate platform
including an Emissions Trading Scheme proposed for 2010.
• Around 2008 various States introduce Premium Feed-In Tariffs.
Queensland’s liability is estimated at $4.4B
• Mandatory Renewable Energy Scheme introduced in 2001 for
2% of all electricity to be sourced from renewable – In 2009 this
was increased to 20% (41,000 GWh) by 2020 and in 2015 it was
reduced to 33,000 GWh
• Carbon Tax ($23) introduced in July 2012 and removed in July
2014

14. The Perfect Storm
• Carbon Credit multiples
introduced around the same
time a Premium Feed In Tariffs
• In 2010 Cost of Capital
increases for five year
regulatory determinations
• Consumption comes off
pushing prices up

15. The Perfect Storm


NEM Established
Source: AER- State Of The Energy Market 2015
Global Financial Crisis

16. Electricity Retail Prices
Source: Australia Energy Regulator: State Of The Energy Market 2015

17. Electricity: Affordability - Future
Network Prices
Energy Prices
Source: ENA – Network Transformation Roadmap (CSIRO)

18. Evolution Of The National Electricity Market (NEM)
Formation Of The
NEM
The Perfect Storm –
Economic Boom to
GFC, Security,
Carbon & Subsidies
Market Disruption

19. Federal Government Policy & Resources
Policy & Strategy
Carbon Reduction
• 5% off 2000 levels by 2020
• 25-28% off 2005 levels by 2030
Renewable Energy
• 33,000 GWH by 2020
• Small Scale Renewable Energy Scheme
• Large Scale Renewable Energy Scheme
National Energy Productivity Pan
• 40% increase by 2030
National Strategy On Energy Efficiency
Northern Australia Plan
Power Of Choice
Resources
Australian Renewable Energy Agency
(ARENA)
• $800M over next 5 years
Emissions Reduction Fund
• $1.7B committed of $2.5B funding
• Third auction average price $10.23 per
tonne
Northern Australia Infrastructure Facility
• $5B in concessional funding
Clean Energy Finance Corporation
• Clean Energy Innovation Fund 50/50
renewables/efficiency
• Federal Government Energy & Environment portfolios now merged
under one minister improving policy formation and alignment

20. State Misalignment
• Impacting efficient deployment of capital & technology
• Driving up electricity prices and reducing security
State Carbon Renewable Efficiency Other
New South Wales Nil • Energy Efficiency Scheme
• 5% pa to 2020
Victoria 25% by 2020
40% by 2025
• Victorian Energy Efficiency Target to 2029.
5.4m VEEC’s 2016
• $20m new energy jobs
fund
Queensland 50% by 2030 • 1M solar rooftops or
3000MW of solar
• Govt support for 60MW
large scale
South Australia 0 by 2050 50% by 2025 • Dwellings 15% & Govt 30% by 2020
• Retailer Energy Efficiency Scheme
• National Energy Efficient Building Project
• $10B target for Low
Carbon Generation by
2025
Western Australia 20% by 2020 • 500,000 LGC’s tendered
by Synergy to meet 20%
renewable target.
Northern Territory 50% by 2030
Promise during
election campaign
Tasmania • $10m energy efficiency loan scheme • Predominantly renewable
(hydro) now
ACT 100% by 2020 • Energy Efficiency Improvement Scheme
• 2016-20 8.6% reduction pa
• 36MW of energy storage
to 5000 homes by 2020

21. Cleaner Electricity
• Queensland worlds highest residential rooftop solar penetration
• Little utility scale & hydro resources
Source: Australian PV Institute (APVI) Solar Map, funded by the Australian Renewable Energy Agency, accessed from pv-map.apvi.org.au on
22 July 2016.

22. Rooftop Solar
Penetration: % Dwellings with PV
• Queensland highest penetration
in the world
• Initial growth fuelled by subsidies
Source: Australian PV Institute (APVI) Solar Map, funded by the Australian
Renewable Energy Agency, accessed from pv-map.apvi.org.au on 22 July 2016.
Installed PV Generation Capacity
• 5.4 GW of capacity
• Larger scale now accelerating
• RET certificate price increasing
• Crowding out other investment
>100kW
>10kW<100kW
<10kW

23. Reducing Solar Feed In Tariffs
State Closed subsidy scheme(s) Current FiT policy / regulation
QLD 44c/kWh net scheme until 2028
Available to customers consuming less than 100 MWh per annum
No regulation in south east Queensland. Market offers.
Mandatory FiT in regional Queensland based on retailers’ avoided cost. FiT of
6.348c/kWh in 2015–16 for small customers.
NSW 20c/kWh or 60c/kWh until 31 Dec 2016
Gross scheme grandfathered, but option available to convert to net scheme
Available to customers consuming less than 160 MWh per annum
Voluntary benchmark solar FiT set at 4.7 to 6.1c/kWh
Mandatory retailer contribution towards the closed SBS of 5.2c/kWh
Victoria Three closed net schemes 60c/kWh to 31 Dec 2024
25c/kWh until 31 Dec 2016
1-for-1 until 31 Dec 2016
Mandatory FiT paid by retailers Minimum FiT for 2016 is 5.0c/kWh
WA Net scheme available for 10 years Pre 1 July 2011 – 40c/kWh
Post 1 July 2011 – 20c/kWh
Retailers, Synergy and Horizon Power must offer customers a buyback scheme at
rates subject to regulatory approval
Synergy customers receive 7.135c/kWh
Horizon Power (regional) rates are 7.14– 51.41c/kWh depending on
location
SA 44c/kWh to 30 June 2028 and 16c/kWh to 30
September 2016
Maximum export of 45 kWh per day applies in some circumstances
R-Fit of 6.8c/kWh to apply from 1 January 2016 to 31 December 2016.
Available to customers consuming less than
160 MWh pa system up to 10 kVA (single phase) or 30 kVA (three phase)
Tas Net 1-for-1 FiT until 1 January 2019 Mandatory FiT of 5.5c/kWh for 2015–16
ACT Five premium FiT rates (30.16c/kWh– 50.05c/kWh) gross scheme for 20 years
ActewAGL’s 1-for-1 gross FiT until 2020
No regulation. Market offers are 6.0–7.5c/kWh based on net metering
NT For new connections, the feed-in tariff is 1-for-1 (based on the customer’s consumption tariff). Customers under the Alice Springs Solar City initiative receive
51.28c/kWh, capped at $5/day.
Source: Queensland Productivity Commission Draft Report: Solar Feed In Pricing in Queensland.

24. Renewable Costs Reducing
• Over the last 3 years ARENA grant funding for large scale solar has dropped from
$1.60 to 19 cents per watt & project costs are down 40%.
• In regards to leverage—the amount of 3rd party investment for each government $
—is up dramatically, from 80c to about $10 for each $ the public invests.

25. Achieving A Cleaner Future But At High Cost
• Australia expected to surpass its 2020 abatement target by 78Mt CO2e
• Well placed to achieve 64 to 65% decrease in emissions per $ of GDP; &
• 50 to 52% per capita between 2005 & 2030
Source: Australian Government, Department of the Environment: Fact Sheet

26. …And Impacting Electricity Security



27. Stakeholders - Working Together?
International Political Regulators Industry Disruptors Customers
Stakeholders
• United Nations
Framework Convention
on Climate Change
(UNFCCC)
• Conference of Parties 21
Federal & State Parties
• LNP
• Labour
• Greens
Federal & State Govts
• COAG Energy Committee
Federal
• AEMC
• AER
• AEMO
• CEC
State (QLD)
• QCA
• QPC
• ESO
• Generators
• Gentailers
• Retailers
• Transmission
• Distribution
• Associations
• Aggregators
• Non Traditional Retailers
• DER vendors
• Microgrids
• International Gas
• Associations
• Residential
• Commercial
• Industrial
• Social
• Prosumers
• User Associations
• Advocacy Groups (solar
citizens)
Implementing
COP21 ratified • Agreement on 33,000
GWh’s of large scale
renewable by 2020
• Emissions Reduction
Fund
• Energy Productivity Plan
• National Energy Market
& economic regulation
• Power Of Choice
• Reforming Tariff
Structures
• Tariff rebalancing of
fixed and variable
charges
• Networks now all
revenue capped – not
volume driven
• Flat network prices
• Electricity Network
Transformation
Roadmap
• Power Of Choice
NeedsToBeResolved/negative
• Emissions Trading • Traditionally a one
dimensional focus –
choosing winners
• No bipartisan agreement
• Different Federal & State
renewable targets –
Market Distortion &
capital inefficiency
• Different carbon targets
• States setting feed-in
tariffs
• Cross subsidies hidden in
network tariffs
• Lack of agility
• Lagging technology
driven change
• State based security
standards
• Rising energy costs
• Competition & ring
fencing beyond the
meter
• Ability to role out Smart
Meter (DNSP & Retail)
• Split of ESAA
• Lack of standards
• High domestic gas prices
influenced by
international exports
• Avoiding network costs
& opponents to increase
fixed cost
• Equity – Industry left
holding the bag
• Support premium feed-
in tariff

28. The Disrupted NEM

29. The Disrupted NEM
• Point of use renewables will be a strong influence on the
market
• Demand following supply will be critical
• Regional security is being compromised by NEM and State
based renewable policies
• Re-purposing of Hydro Resources needs to be considered
• International gas market parity will effect the transition
• Customer centricity and data will be critical
• Energy transaction and market operations will spread to the
edge of the grid enabled by DER & IOT.
• The market must enable other low costs resources to be
deployed

30. The Disrupted NEM
• Tariff structures will help improve network and market
efficiency
• Capacity payments will emerge
• Storage will play a number of roles
• Network becomes a market enabler to ensure the most efficient
resources are deployed.
• Information access and visibility is required to improve to
reduce duplication and improve innovation

31. www.qldfutures.com.au
connect@qldfutures.com.au
+61 7 3229 0644
Lvl 11, 111 Eagle Street Brisbane Q 4000