Chapter 5Concluding comments and recommendations

Concluding comments

5.1The committee acknowledges the extensive changes in the technology, demand patterns, consumers’ expectations and the introduction of decarbonisation targets since the introduction of Australia’s energy market legislation in the 1990s. Despite these changes and the complexities linked to decarbonising our economy, very little within the energy governance framework has substantially changed or evolved since the original setup. The committee notes that some submitters suggested that a major overhaul of the National Energy Market (NEM) framework would be required to address the challenges of opportunities of the energy transition.

5.2The committee received a range of concerning evidence regarding a perceived lack of accountability and transparency on the part of market bodies tasked with governing the NEM. The need for reform is obvious. Effective governance is critical for the future of a secure, cost-effective and efficient energy market. Effective planning has never been more important to successfully deliver the National Electricity Objectives (NEO). In this context, the Integrated System Plan (ISP) framework must enable the development of a plan, which can meet the energy needs of homes and businesses and achieve decarbonisation objectives without putting enormous costs on consumers because of inefficient system expansion. However, as discussed throughout Chapter 3, submitters were critical of various aspects of the ISP planning process, methodology used, approach to deliver the NEOs and the resulting ISP projects deemed actionable.

5.3Australians cannot simply opt out of the electricity market. While the conceptualisation of consumers in regulatory frameworks has shifted in focus to those who are now able to actively participate in the market, many Australians remain passive consumers unable to shape their experience in the energy market. Further, many Australians are being left to grapple with rising energy costs, exacerbated by a range of tariffs and charges, during a cost-of-living crisis. It is clear that the energy market continues to evolve, but that planning and policy frameworks have not kept pace with the many and rapid changes.

5.4This committee was established to address the need to review the operation of the NEM including its governance, planning and performance in decarbonising the economy. However, while acknowledging the importance and urgency of this inquiry, the committee notes the short reporting date and the ways this has limited its ability to further explore many of the complex issues raised in evidence. The committee suggests that the importance of this issue warrants an ongoing inquiry in the next Parliament through a Joint Standing Committee tasked with regulatory oversight, inquiry into specific aspects of the NEM, and potential reforms.

5.5In addition to parliamentary scrutiny, the urgent need for an independent sector-wide review is evident. It has been over ten years since the Productivity Commission undertook its review into Electricity Network Regulation. As such, the committee is of the view that the Productivity Commission remains best placed to inquire into the current state of the regulation of the national energy market. The committee believes that such an inquiry should examine a range of issues including the adequacy of the planning regime and where responsibility for planning should lie; potential conflicts of interest in government ownership of energy assets; management of project costs; impacts on consumers; and transmission access reform.

5.6The Productivity Commission should also examine whether any of its recommendations from its 2013 Electricity Network Regulation inquiry remain outstanding, or require updates.

5.7The committee recommends that the Australian Government request the Productivity Commission undertake an inquiry into the Australian energy network, with particular focus on:

the adequacy of the planning regime in delivering economically efficient outcomes, including a proposed economic test as part of, or separate to, the Regulatory Investment Test for Transmission (RIT-T);

reviewing all current Actionable Projects within six months to ensure they provide sufficient economic value and are in the public interest;

the impact of opportunities in the RIT-T to increase project costs;

the apportionment of system charges including whether project overspend risk should be carried by consumers alone;

transmission access and pricing reform;

reviewing any conflicts of interest, and if required, the development of a plan of divestiture of the Australian Energy Market Operator (AEMO) subsidiaries;

whether responsibility for planning should be the responsibility of states and territories rather than AEMO;

whether conflicts of interest are arising from governments owning energy assets; and

undertaking an assessment of the competitive landscape across the National Energy Market (NEM) to determine where more competition can increase economic efficiency.

5.8The committee also recommends the inquiry also examine whether any of the Productivity Commission’s recommendations made in the 2013 Electricity Network Regulation Inquiry remain outstanding, or require updating.

Governance

5.9The evidence received by the committee indicates that the governance arrangements for the market bodies are no longer fit-for-purpose given how quickly the NEM has changed this decade and how much it will continue to change. Throughout the inquiry, the committee heard that the energy governance system lacks transparency, accountability and that the roles and responsibilities of the different governing bodies are ill-defined. In particular, the roles and responsibilities in relation to system planning have evolved considerably. However, very little has changed in relation to oversight, accountability and governance arrangements. The committee is of the view that measures to address these issues must be urgently considered and actioned.

5.10Noting that the Strategic Energy Plan, which emanated from the Finkel Review was completed early in 2020, the committee is of the view that developing a renewed Strategic Energy Plan for the NEM would provide clarity of direction to market bodies and a clear signal to market participants around delivery and implementation of policies.

5.11The committee recommends the Energy and Climate Change Ministerial Council (ECMC) develop and publish an updated Strategic Energy Plan.

AEMO

5.12In particular, the committee notes inquiry participants’ concerns about the multiple roles and responsibilities that AEMO holds, suggesting that this could create potential conflicts of interest, citing issues with its dual planning functions and operational functions. The issue of AEMO’s lack of accountability was highlighted by a number of submitters, notably in relation to the ISP planning process and actionable ISP projects, which are discussed in Chapter 3.

5.13Given the complexity and the importance of the matter, as a first step, the committee believes that the proposed independent review of Australia’s energy governance arrangements will address some of these issues. Importantly, measures to ensure oversight of the AEMO must be considered. Further recommendations towards strengthening AEMO’s accountability are discussed in the Planning section below.

5.14The committee recommends terms of reference for the Australian Government’s recently commissioned National Electricity Market wholesale market settings review to review the governance structures of the market participants including an examination of the responsibilities of AEMO, the Australian Energy Market Commission (AEMC), Australian Energy Regulator (AER), and the Transmission Network Service Providers in the Integrated System Plan (ISP), RIT-T, and Feedback Loop process.

5.15The committee recommends the ECMC consider requesting the Commonwealth Finance Minister make the AEMO a corporate Commonwealth entity through a rule made under the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

5.16The committee notes that submitters expressed concerns about the lack of transparency and accountability of the Energy and Climate Change Ministerial Council (ECMC) itself. The committee agrees that very little information is publicly available in relation to their work and decision-making processes. As such, it is difficult to assess the effectiveness of the ECMC in providing oversight to the market bodies. The committee also agrees with submitters that the role of the Energy Advisory Panel (EAP) is lacking clarity. The committee sees value in the Department of Climate Change, Energy, the Environment and Water (the Department) making publicly available more information about the role and work program of both the ECMC and EAP.

5.17The committee recommends the Australian Government publish on the Department of Climate Change, Energy, the Environment and Water’s website relevant information about the role, function, decision-making processes and work program of the Energy and Climate Change Ministerial Council (ECMC) and the Energy Advisory Panel (EAP), including the terms of reference and operating charter of the EAP.

5.18In relation to the AER, in addition to the issue of its relationship with the Australian Competition and Consumer Commission (ACCC), the committee recognises that the question of a lack of independent assessment of its performance was raised by some submitters.

AEMC rule-making powers

5.19The AEMC’s rule-making powers were also a cause for concerns as there is no formal mechanism for scrutiny. As such, the committee sees value in the suggestion of Post Implementation Reviews (PIRs) across major policy changes within the National Electricity Rules (NER).

5.20The committee recommends the ECMC direct the AEMC to conduct post-implementation reviews on rule changes to determine whether rule changes are effective and operate as intended. These reviews should be published on the AEMC’s website once concluded.

Planning

5.21The committee acknowledges the recent review of the ISP framework led by the Department, and the response to the review’s 15 recommendations provided by the ECMC. As outlined in Chapter 3, the key areas of focus within the ECMC’s response focused on the following matters:

Integrating gas into the ISP

Enhancing energy demand forecasting

Better data on C&I [commercial and industrial] forecasting

Optimising for the demand side

Coal fired generation shutdown scenarios

Improving locational information

Enhanced analysis of system security

Jurisdictional policy transparency

Clarifying policy inclusions

Improving the accessibility of the ISP

Incorporating Community sentiment

Additional Planning inputs.

Review of the Integrated System Plan

5.22The review was noted in passing by the Department but no other evidence was given, nor was it provided to the committee for its consideration. Given the significance of such a review, in particular as it was conducted instead of the planned AEMC review, the committee is at a loss to understand why it was not raised in evidence. For completeness, the Chair tabled it on becoming in possession of the review.

5.23The review identified many similar, if not the same, deficiencies as noted by the committee, including but not limited to:

The ISP now has a significant influence on several segments of the electricity supply chain, in addition to its own role as an electricity transmission plan.

The need for the integration of gas in the ISP given it will be required for analysing how Distribution Network Service Provider (DNSP) investments, programs and annual plans, may impact Community Energy Resources (CER) and distributed resources development; and thereby the Optimal Development Pathway (ODP) for transmission; and include these findings in the ISP in order to send clearer signals to inform DNSP planning.

Enhancing consideration of energy storage and renewable generation.

AEMO giving greater consideration of system security trade-offs for assessing the optimal mix of generation, storage, transmission and other infrastructure that AEMO provide more clarity on if and how uncertain or unfunded policies are considered in the 2026 ISP to enhance stakeholder understanding and engagement.

Improving the accessibility of the ISP.

Incorporating community acceptance considerations into transmission expansion options

5.24The committee noted that although the Review was completed in early 2024 none of the recommendations were incorporated in the 2024 ISP (or its Draft) and that this was a missed opportunity.

5.25The committee is of the view that some of the actions endorsed by the ECMC would assist in addressing some of the concerns raised by submitters. The committee notes that the Department and AEMO are discussing these actions and how they will be applied within the 2026 ISP. The committee notes that changes to the legislative framework that governs the development of the ISP, and the establishment of enhanced data and modelling approaches, will be required to implement the key recommendations. The committee believes that work must continue to improve the development of future ISPs and accelerating project delivery across the board. Many of the recommendations made in this report are aligned with the actions endorsed by the ECMC and currently reviewed for potential implementation.

AEMO planning function and accountability

5.26The committee notes that adding planning to the AEMO’s role is at odds with the 2015 Vertigan’s recommendation that AEMO’s main focus should be on market operations and should not be tasked with policy or market development. Whilst the AER ensures compliance with NERs and as such holds AEMO accountable for the proper running of energy markets and networks it has no oversight of these planning decisions other than deciding where a dispute arises. The committee is concerned that there seems to be very little oversight of the final ISP. It would be reassuring for stakeholders to have the assurance that the ISP meets the NEOs. This could be achieved through the ECMC and AEMO’s Board of Directors publicly attesting that the ISP Plan meets the NEOs.

5.27The committee recommends the ECMC member ministers table a statement that each Final Integrated System Plan (ISP) meets the National Energy Objectives (NEOs) in their parliament within 30 days of AEMO publishing the Final ISP, starting with the 2026 ISP.

5.28The committee recommends the ECMC consider a rule change so AEMO’s directors must sign off on both Draft and Final ISP attesting the plans meet the NEOs.

Actionable projects

5.29The committee received a range of evidence about how AEMO identifies actionable projects. Concerns relating to the process included perception of bias, unilateral decisions from AEMO and being too prescriptive. In effect, AEMO has not only planning power through the ISP it has also acquired ‘actionable’ powers that allow it to predetermine investment decisions without a clear business case nor appropriate accountability. The committee believes it would be prudent to pause AEMO’s actionable projects powers until more accountability is built in the market bodies’ governance arrangements.

5.30The committee recommends the ECMC consider a rule change to remove AEMO’s power to make projects actionable for the 2026 and 2028 ISP subject to the findings of the Productivity Commission review (i.e., Recommendation 1).

5.31The 2017 Finkel Review recommended that the RIT-T ‘should be subject to further review within three years’. The committee heard no evidence that any review has been conducted since. This lack of oversight reinforces the concern that the RIT-T process is conducted without external review. The committee considers it to be a ‘closed loop’ which reinforces existing biases within AEMO. As such, the committee recommends broader considerations and stricter testing within AEMO’s planning processes.

5.32The committee recommends the ECMC consider a rule change to ensure the modelling carried out that determines actionable projects include an economic test, labour market impacts, pricing impacts, and productivity impacts, not just a cost-benefit analysis process.

Contestability mechanisms

5.33The committee heard a range of evidence around how incumbency favours the existing market bodies and deters new entrants into the market. This likely stifles or at least discourages innovation and improvement, and impedes or defers proposed reforms. A lack of contestability in the procurement, building, ownership and operation functions of new infrastructure projects is artificially restricting consideration of solutions that could reduce cost blowouts, delays and passing excessive costs onto consumers.

5.34The committee notes the 2022 Options Paper carried out by AEMC looking at ‘Transmission Planning and Investing – Contestability’, and advocates for the assessment of the models proposed with the goal of increasing a healthy amount of contestability into the system.

5.35The committee recommends the National Electricity Rules (NER) be reviewed to accommodate a rule change that encourages greater contestability and a diversity of providers in the NEM by adopting competitive bidding and recommendations from work carried out by the AEMC in 2022.

Transparency and consultation process

5.36Issues raised by submitters about the lack of transparency around modelling assumptions, and the difficulty for stakeholders to reproduce ISP modelling is concerning. It is paramount that AEMO ensure that market participants and other stakeholders can easily access all the information necessary to understand AEMO‘s approach and methodology to modelling. The committee is aware that open-source electricity planning tools are increasingly used worldwide. These could be used alongside PLEXOS to ensure transparency and access, and that alternative approaches and potential methodological improvements are explored.

5.37The committee recommends the AEMO align its modelling approach with open-source software and open data principles.

5.38The committee acknowledges AEMO’s statements on its consultation process and its efforts to consult with consumers. It welcomes the recent establishment of the Consumer and Community Reference Group.

Modelling

5.39The committee received varied evidence around the adequacy of modelling. The committee acknowledges the governments’ policies and legislative framework that need to be taken into account when developing the ISP and its modelling approach. There is however value in ensuring transparency and accountability through the provision of alternative modelling scenarios.

5.40The committee notes that AEMO’s primary function is to be the National Transmission Planner as set out in legislation. However, submitters and stakeholders are of the view that the ISP should not primarily focus on transmission projects. The committee heard numerous criticisms of AEMO’s unwarranted slant towards transmission projects, as well as the negative consequences exemplified in cases such as VNI-West and HumeLink. The committee notes the use of counterfactuals in assessing proposals, and the restrictions on this modelling outlined in the ISP methodology. It is of the view that there is some value in expanding the counterfactuals utilised to include consideration of non-network solutions and virtual power plants, and consumer energy resources.

5.41The committee recommends the ECMC consider a rule change to ensure the ISP include the creation of further Candidate Development Paths that incorporate greater use of non-network solutions and non-interconnection versions.

5.42The committee recommends the ECMC consider a rule change to amend the ISP methodology to include consideration of additional counterfactuals when undertaking cost benefit analyses to include consideration of non-network solutions including but not limited to all forms of storage, Virtual Transmission Lines (VTL), virtual power plants (VPP) and other consumer energy resources.

5.43The committee recommends the ECMC consider a rule change to the Cost Benefit Analysis Guidelines so that costs deemed as ‘sunk costs’ are included in a separate analysis so evidence is clear.

Consumers

CER Roadmap

5.44The committee welcomes the release of the CER Roadmap in July 2024 and notes its importance in ensuring a consistent, nationally coordinated approach to CER integration.

5.45It is clear that integration or orchestration of CER is critical for the effective operation of the ISP, yet the responsibility for many critical aspects of such integration sits outside the ISP. As it stands, customers are significantly impacted by a lack of integration, and while a range of reviews are being undertaken by market bodies, the committee considers that further work is required.

5.46The committee notes with concern evidence received from the 2026 ISP Consumer Panel that the CER Roadmap is under-resourced, and that it will take up to six years to deliver necessary reforms. Noting the rapidly changing energy market marked by widespread uptake of CER, and scheduled closures of existing coal-fired power plants, the need for urgency is evident.

5.47The committee recommends the Australian Government adequately resource the implementation of the Community Energy Resources (CER) Roadmap to accelerate CER integration into future ISPs.

Consumers’ interests

5.48It is vitally important that the interests of ordinary Australians are centred in energy policy and in the work of the market bodies. Appropriate consultation to identify the interests of consumers requires adequate funding and resources, and sufficient technical expertise.

5.49Though the long-term interests of consumers are purportedly at the heart of Australia’s energy market planning, it is evident that market regulators and industry service providers are falling short on delivering this promise.

5.50Consumers must also be adequately informed and supported in becoming active, engaged market participants. The committee notes initiatives such as the Better Bills Guideline, and the Energy Made Easy website, however it is of the view that more can be done to inform consumers.

5.51The committee notes the suggestion that a positive duty of care model which would require service providers to act in the best interests of consumers when offering or providing services under contract, and is of the view that further examination of the proposal is warranted.

5.52The committee also notes the evidence it received in relation to the professional and technical expertise of the boards of the AEMO, AER and AEMC. It is of the view that it would be prudent for market bodies to ensure that the unique views and interests of consumers are appropriately represented in executive positions, and governing boards.

5.53It is clear from evidence received by the committee that existing consumer advocacy organisations such as Energy Consumers Australia (ECA) are under-resourced to provide advocacy for all sectors of the consumer cohort. In particular, CER consumers are under-represented and as the transition of the energy market continues apace, their views and interests require additional representation.

5.54The committee recommends the ECMC establish a CER consumer advocacy body to assist and enhance the work of Energy Consumers Australia (ECA).

5.55The committee recommends the ECMC commission an independent review of the ECA board to ensure that the interests of consumers are best represented by members with appropriate skills and knowledge to do so.

5.56The committee recommends the AER examine whether a positive duty of care should be imposed on energy market service providers to ensure appropriate protections are offered to consumers.

5.57The committee recommends the ECMC review the National Energy Objectives so that greater weight is given to the long-term interests of consumers.

Technical standards and consumer protections

5.58The committee accepts the evidence it received in relation to the rapid advancements of CER technology not being appropriately reflected in consumer protection frameworks. Differing technical standards and consumer protection frameworks between state and territory jurisdictions creates confusion and uncertainty for consumers.

5.59The committee welcomes the CER Roadmap recommendation that a CER Technical Regulator be established. The committee also welcomes the establishment of a CER taskforce to deliver key priorities including nationally consistent standards and consumer protection frameworks. It is of the view that these measures should be expedited to provide important certainty and protection for consumers.

5.60The committee recommends the Australian Government accelerate the establishment of a CER Technical Regulator, and the development of nationally consistent standards and consumer frameworks.

Tariffs and charges

5.61The committee received a range of evidence in relation to tariffs and charges being paid by consumers, and the impost this is having particularly on vulnerable consumers unable to participate in CER integration. The committee notes that consumers, even those with some access to CER, are not always able to avoid tariffs and charges through behaviour change.

5.62The committee is of the view that a comprehensive review of electricity pricing is required to ensure that incentivising consumer behaviour through the application of charges and tariffs does not result in the unfair penalisation of those unable to fully participate in the market.

Recommendation 22

5.63The committee recommends the Australian Government undertake a comprehensive review of network charges to ensure that consumers are not being unfairly penalised.

Senator David Van

Chair

Independent Senator for Victoria