Renewable Energy Zones

Arrangements for the development of priority Renewable Energy Zones in the National Energy Market

Latest updates

On 7 May 2020, the ESB held a webinar  to inform stakeholders about interim Renewable Energy Zone framework and proposed consultation process.

COAG Energy Council decision

At its meeting on 20 March 2020, the Council considered the need for interim arrangements to support the development of a number of priority Renewable Energy Zones (REZ) in the National Energy Market (NEM) ahead of longer term access reforms.

Ministers agreed to the two step process recommended and that the Energy Security Board (ESB):

  1. devise Rule changes to require the jurisdictional planner to develop a detailed and staged development plan for each priority REZ identified in the Integrated System Plan (ISP). These changes would build on the ‘actionable ISP’ changes; and

coordinate the development of a framework for the development of stages (or connection hubs) within REZ development plans under which trial rules could be developed. Those trial rules would ideally be developed under the regulatory sandbox provisions.

The ESB will use Section 90F of the NEL to recommend Rule changes to implement the first step and those changes should be complete by the end of September 2020.  A framework for trial rules to deliver the second step will be delivered in parallel and should be completed by the end of October 2020.

Background

The ISP outlines the additional renewable generation required each year for the optimal development of the power system.

In the first decade of the 2020 Draft ISP, modest ongoing growth in renewable generation is forecast to be driven by its relative cost advantage and by government policies.  In the next decade, very strong investment in renewable energy is forecast based on the need to replace energy from retiring coal-fired generation.

In developing its 2020 Draft ISP, AEMO has identified areas across the NEM which are candidates for REZs.  In identifying these REZs, AEMO sought to identify an optimal development path which prioritises REZs across the NEM and coordinates their development with transmission augmentation to achieve the lowest overall cost.

Council agreed at its November 2019 meeting that the ESB would provide interim advice by March 2020 on options to implement REZs.

Key Issues

  1. Just under 1,000 MW of new renewable generation capacity per annum is projected to connect over the next decade on the optimal development path under the current ISP.This is greater than the currently available hosting capacity in the relevant areas of the grid.Some of those areas of the grid already present difficulties for parties connected to or committed to connect.
  2. The AEMC is undertaking the coordination of generation and transmission Investment (COGATI) review examining improved access arrangements.The ESB is also addressing some related issues through the post2025 market design project.While these reviews will provide the longer-term framework, the ESB considers there is a need to establish short term arrangements to support the immediate development of several REZs to meet pressing requirements.
  3. The ESB has proposed short-term arrangements to meet these requirements, through the establishment of a two stage process for the urgent implementation of priority REZs.
  4. Under the first stage, it is proposed that the jurisdictional planning body should be the party responsible for undertaking detailed planning for the priority REZs identified in the ISP which are relevant to its network.The jurisdictional planning body would consider what transmission infrastructure is required for a REZ and consider the best place to locate connection hubs within a REZ.
  5. The detailed assessment of a REZ and its breakdown into a sequence of connection hubs will increase understanding of the relevant zone and may modify the understanding of its costs.
  6. The second stage proposes developing a framework for the regulatory arrangements for the planning and development of connection hubs within the REZ (where these hubs have been identified in Stage 1. The proposal is designed to be interim and to provide flexibility in how particular renewable energy hubs might be implemented.
  7. Cost recovery for Stage 2 would depend on the nature of connection hub and would require dividing the costs into three classes. Cost recovery would involve a mix of regulated and deregulated costs and new regulatory provisions would be required for potential hybrid recovery mechanisms.AER approval would be required for the proposed level and proportion of costs to be recovered and protect customers from paying for any costs for which they do not receive benefits.
  8. Given the first stage also outlines the nature of development required and the balance of regulated and unregulated expenditure, the party selected as the development authority for stage 2 would be based on the nature of the development: if the connection hub was primarily regulated expenditure, the jurisdictional planner may be the preferred body; alternatively, if the viability of the connection hub relies on attracting new connection parties and has higher investment risk, then potentially the role could be assigned to a special purpose vehicle.
  9. The portion of the costs related to augmentation of the shared network and which supply net market benefits may be recovered from customers. A further portion would be recoverable from generators as they connect. The development of a connection hub could offer efficiencies which allow additional revenue to be recovered from generators but in some cases, there is likely to be a gap. Any gap would need to be funded from external sources.
  10. A successful REZ framework cannot be provided in the National Electricity Rules alone and jurisdiction should consider how they might support the regime through other measures.A REZ regime could link into the planning and development approval regime in each jurisdiction and ensure obligations on parties are clear and that the social licence for the development is maintained.
  11. Access issues are being considered more broadly as part of AEMC’s COGATI work but is still ongoing.As an interim step to apply to the first few priority hubs, a form of physical access protection is proposed.It would not affect dispatch or operation of the market but rather operate at the planning and new connection stage to ensure a defined level of transfer capacity is available from the generator to a defined connection point on the backbone of the national grid and close to the REZ.That defined level of capacity for a connection hub would be provided in the design of the connection hub.
  12. These recommendations are based on consideration of greenfield development of connection hubs within REZs. Brownfield developments raise other issues and require additional consideration.
Next Steps
  1. The ESB will coordinate implementation of the approach proposed:
  2. Rule changes would be progressed to implement Step1: REZ development planning with all market bodies and in consultation with stakeholders.The resulting Rules would be recommended by the ESB to Ministers for their approval and implementation under Section 90F of the National Electricity Law.
  3. The ESB would coordinate implementation of Step 2: REZ connection hub development and a framework would be developed by the AEMC in consultation with stakeholders setting out the requirements of any trial rules proposed to support.

Further work will be undertaken on detailing the proposed arrangements and on the application of the proposed approach to brownfield REZs and REZs on privately owned lines.

In June 2020, the ESB will publish a consultation paper that includes draft Rules for Step 1 of the project.

Council Priority Issue: