Should the ESB continue post 2021?

Before the establishment of the ESB, best-practice NEM governance was in place whereby AEMO, AEMC and the AER each had separate functions providing confidence for investors and consumers in the roles and responsibilities of each body.

However, concerns were raised in The Finkel Review about reform delays due to the institutional discord between the Australian Energy Market Operator (AEMO) and the Australian Energy Market Commission (AEMC).

To address this discord, the Energy Security Board (ESB) was established comprising the heads of each of the three market bodies and an independent chair and deputy chair to deliver on four key outcomes of the Finkel Review: increased security, future reliability, rewarding consumers and lower emissions.

The industry has agreed that the ESB have accomplished what it set out to do in terms of addressing the discord between AEMO and the AEMC and have delivered a significant body of work overseeing the implementation of the Finkel recommendations and coordination of policy relating to energy security and reliability in the NEM.

With the lack of a national emissions policy, the states have filled the policy vacuum setting net zero targets and policies to support the development of critical transmission infrastructure and the uptake of renewable energy as the fleet of coal-fired generators retire. And the Federal Government have extended the life of ARENA by providing additional funding as the market eagerly waits for more details on the Technology Investment Roadmap.

In parallel with the ESB’s body of work, AEMO has been progressing major reform on the Integrated System Plan and update to its renewables integration study whilst the AEMC continued in its role to consider rule changes put forward by market proponents.

Both the AEMC and AEMO now have new leadership and have signalled the importance of collaboration between the two organisations. This provides stakeholders with greater confidence in returning to the original governance structure where the AEMC and AEMO have defined roles no longer requiring the oversights and coordination of the ESB.

The ESB’s sole workstream, the Post 2025 Market Design project, has been presented to Ministers with final decisions at a Ministers’ meeting currently scheduled for September. This is approximately the same time that the Chair of the ESB, Kerry Schott, is contracted until and has announced her plans to exit before the ESB Secretariat funding runs out at the end of 2021.

We are calling on the state energy ministers to consider an alternative recommendation to the ESB in their next National Energy Cabinet meeting scheduled in September where the ongoing role of the ESB will be discussed:

• An orderly wind up of the ESB upon completion of the P2025 report. This would see it close in approximately December 2021.
• A revised Statement of Role for AEMO and the AEMC addressing the roles in the provision of policy and market development advice.
• Institute a Market Bodies Forum (MBF) that gives energy ministers a singular forum to engage with the heads of the market bodies on policy and reforms needed with AEMC as secretariat.

Download the full discussion paper here: ESB Role post 2021 discussion paper Final