The Energy Security Board has released its wish list for the electricity grid it says Australia deserves to replace the 23GW of coal plant that is heading for an inevitable retirement.

It’s a task that requires a surgeon’s steady hand as the steady entrance of unpredictable wind and solar generation is balanced against reliable old coal and gas.

For clean energy account for a greater share of demand, the ESB says we need to prepare adequate transmission links to regions where large-scale clean energy supply will be located, plan for backing up power system security and do what it takes to integrate distributed energy resources – rooftop PV and storage – into the grid.

“It is difficult to overstate the scale and pace of change across Australia’s electricity sector as both, large- and small-scale renewable generation enters the system rapidly and in volume,” the Post 2025 Market Design Options paper begins.

The ESB has broken the job into four groups of tasks: resource adequacy mechanisms to provide the right signals to drive investment; essential system services and ahead scheduling, to ensure frequency, control, operating reserves, inertia and system strength are available to maintain system security; integration of distributed energy resources and flexible demand, including rooftop PV, storage and smart appliances, and; to reconfigure the transmission system to suit new renewable generation and large-scale storage.

In each of the four areas, the board has listed items for immediate reforms, “initial” near-term reforms and longer-term “next” reforms.

RESOURCE ADEQUACY MECHANISMS AND AGING THERMAL RETIREMENT

Immediate reforms: Develop mechanisms to ensure the orderly exit of thermal plants, including possible changes to notice of closure requirements, improved information to market participants and policymakers and the potential for arrangements with thermal plants. The board is also investigating a NEM-wide approach to integrating jurisdictional underwriting or investment schemes for new investment into the NEM.

Initial reforms: Explore options for modifications to the retailer reliability obligation to ensure retailers have an incentive to maintain a portfolio of contracts with new and existing resources, including storage and dispatchable resources, adequate to cover their customers’ needs. “If the current market design cannot deliver sufficient dispatchable resources this may suggest resource adequacy mechanisms should be designed as the primary driver for investment,” the board says in the options paper says.

Next reforms: Monitor the delivery of and investment in dispatchable capacity and storage.

ESSENTIAL SYSTEM SERVICES AND SCHEDULING AND AHEAD MARKETS

Immediate reforms: Refine frequency control arrangements and address the need for enhanced arrangements for primary frequency control and a new market for fast frequency response.

Initial reforms: Progress the development of adaptable operational tools to complement planning-based solutions for system strength and provide the system configuration needed to maintain security.

Next reforms: The ESB has identified a spot market approach for valuing and procuring inertia as a long-term priority.

INTEGRATION OF DISTRIBUTED ENERGY RESOURCES AND FLEXIBLE DEMAND

Immediate reforms: Expand the responsibilities of distributors to hosting distributed generation and storage and introducing technical standards for DER that will assist to ensure the security of the power system. New arrangements to provide for larger customers to participate in the wholesale energy market and gain benefits from managing their demand come into force in October.

Initial reforms: Reward customers for flexible demand and increasing value to the system from flexible resources. “Customers will continue to interface with retailers and aggregators, but retailers and aggregators will have new opportunities to engage in the market and offer different choices to customers.”

Next reforms: Develop a spectrum of opportunities for customers to benefit for the energy and services they provide the system and all customers. “This approach would then progressively deliver a detailed, integrated market design consistent with directions on future roles and responsibilities.”

TRANSMISSION AND ACCESS

Immediate reforms: Stick to AEMO’s Integrated System Plan recommendation for a least-cost pathway for the development of the power system along with the ESB’s actionable changes to deliver additional capacity where needed and a development plan for Renewable Energy Zones.

Initial reforms: Introduce reforms to lessen the likelihood of the access of REZ generators to customers being degraded by the connection of other generators outside the REZ and of other REZs. “There will be a need for real-time congestion management and reforms to ensure that new technologies are able to be remunerated for alleviating transmission congestion.”

Next reforms: Shift to locational marginal pricing and financial transmission rights. “It is a well-established model that has been successfully applied in numerous overseas markets for decades.”

The board is asking for stakeholder feedback on its proposals by Wednesday June 9, ahead of it making its recommendations to ministers in mid-2021.

The Energy Security Board is comprised of independent chair Dr Kerry Schott AO, independent deputy chair David Swift, Australian Energy Regulator chair Clare Savage, Australian Energy Market Commission chair Anna Collyer and Australian Energy Market Operator chair Drew Clarke.