Gas and power markets: SCER reforms

The Standing Council on Energy and Resources (SCER) continues to develop a suite of reforms to wholesale gas and power markets in the Eastern states. Its broad themes are market integration and efficiency, both within and across gas and power markets.

Gas supply hub

The gas supply hub to be implemented at Wallumbilla has reached its public consultation stage. Proposed changes to the National Gas Law and the National Gas Rules were published for consultation earlier this year and on 1 July 2013, AEMO published a consultation version of the Exchange Agreement.

The gas supply hub will be an electronic, web based trading platform through which members of the exchange can trade short term physical gas for delivery at defined delivery locations within a hub. The first hub is to be established at Wallumbilla in Queensland, at the meeting point of the SWQP, the QGP and the RBP.

The Exchange Agreement sets out the rules for membership, trading, delivery and settlement. The consultation is open until 22 July 2013.

Gas transmission capacity

The gas supply hub will also support bilateral trading of pipeline capacity. Initially this will be through a bulletin board on which members can express interest in buying or selling spare capacity, with terms to be negotiated bilaterally.

SCER is investigating whether more can be done to encourage the trading of pipeline capacity. In May, SCER Officials issued a Regulation Impact Statement seeking feedback from stakeholders on a range of options, from retaining the status quo through to mandatory release of unused capacity. The RIS is open for comment until 15 July 2013.

Gas market rules

The Australian Energy Market Commission (AEMC) has in turn initiated a gas market scoping study. Following a period of consultation with stakeholders, the study is due in July 2013 for discussion with SCER. The terms of reference focus on whether existing gas markets arrangements can be improved to support gas trade between major supply and demand centres, as well as the potential for greater alignment between electricity and gas markets.

National Electricity Market - transmission access

At its May meeting, SCER also considered the AEMC's Final Report from its Transmission Frameworks Review. SCER supported the development of rule change proposals to implement a number of measures proposed by the AEMC, including changes relating to planning, connections and negotiated transmission services. SCER has also given cautious support to a major, complex proposal to introduce a system of "optional firm access" into the National Electricity Market by asking for the next stage of the design work to take place through 2014.

Optional firm access has two main limbs. First, it gives generators the opportunity (at a cost) to reduce their financial exposure to transmission constraints when participating in the National Electricity Market. Secondly, it places obligations on Transmission Network Service Providers (TNSPs) to offer firm access and meet minimum service standards under normal operating conditions.

If implemented, optional firm access would be a major change to the design of the National Electricity Market. The amount that a generator receives through settlement would depend both on the spot market price for its output and if it is affected by congestion, on whether it holds firm access rights. Optional firm access will also require changes to the way TNSPs are regulated since TNSPs will offer firm access at regulated prices and the associated revenue will affect the calculation of TUoS. The AEMC has also proposed that TNSPs will be subject to incentives (or penalties) for service failures.

More detailed information about optional firm access is set out in the AEMC's Technical Report. The complexity of the proposal is reflected in the timetable: a year of further design work will be followed by a four-year implementation timetable and (once it starts) a transitional period during which access rights will be granted at no charge to generators, tapering off over time.