Gas generation is set to be the winner from South Australia's energy plan, but market rule reforms are causing concern.
Gas generation is set to be the winner from South Australia's energy plan, but market rule reforms are causing concern. Image Credit: Steffen Zahn

This week’s announcement of the largest state-based intervention into national energy markets by the South Australian Government could have wider flow on effects into other jurisdictions, in what may be an unprecedented power grab for control over the national electricity market.

During a press conference announcing the plan, South Australian Premier Jay Weatherill said that he had been moved to act due to a failure to act at a Federal level.

The South Australian plan commits $550 million towards the construction of Australia’s largest battery storage facility and the construction of a new state-owned gas fired generator with an aim to sure-up electricity supplies to South Australian homes and businesses.

Controversially, the plan also includes the granting of new powers to the South Australian energy minister to issue instructions to the national electricity market operator to turn on power stations in times of high demand.

The powers would also allow the State Minister to dictate the flow of electricity through interconnectors linking the South Australian grid with that of Victoria.

The move is certain to raise questions about the ability for a State Government to legislate control over parts of the National Electricity Market and may set a precedent that could prompt other states to do the same in demonstrations of commitment to ensuring the security of supply.

South Australia’s control over market rules

South Australia is in an influential position when it comes to reforming the rules governing the National Electricity Market. The National Electricity Law, which outline the establishment of the market operator and the rules by which it runs the market, are established by a piece of South Australian legislation.

In effect, the fundamental laws governing the National Electricity Market are outlined in the National Electricity (South Australia) Act 1996. The legislation is then referenced by the other States and Territories participating the electricity market and outlines the National Electricity Rules as a schedule attached to the Act.

By controlling the central piece of legislation underpinning the electricity market, it provides South Australia a unique ability to amend and reshape the laws.

Concern for the ramifications of South Australia’s plans has clearly resonated through the offices of Federal Ministers. Federal Energy Minister Josh Frydenberg, told Fran Kelly on ABC’s Radio National that he has requested legal advice on the new powers.

“I’m very concerned about the knock-on effect from that decision by the South Australian Government. Twenty years ago, the States, the Territories, and the Commonwealth came together to create a National Electricity Market.” Minister Frydenberg told ABC’s Radio National.

“I’m getting advice as to whether that is in breach of the market rules that South Australia helped design, boasted that they were a part of, and just at the end of last year, said were working well for the people of South Australia.”

More details needed

While the South Australian Premier Jay Weatherill was joined by his Energy Minister, Tom Koutsantonis in launching the State’s new energy plan, detailed information about the plan is not yet known.

In the policy document released at the time of the announcement, the South Australian energy plan includes intentions for the state parliament to pass legislation granting new powers to the state energy minister over the operation of South Australian generators, and dictate the level of flows through interconnectors.

“The Minister for Energy will be given strong new powers to direct the national market in the case of an electricity supply shortfall,“ the South Australian energy plan states.

“Ministerial direction includes the ability to direct generators to operate and direct the Australian Energy Market Operator to control flow on the interconnector.”

“This will ensure every available option is activated to maintain the state’s electricity supply in an emergency situation or when market forces fail.”

These controls, wielded by a State Minister, is certain to cause some concern amongst equivalent ministers in other states, no least the Victorian Energy Minister whose state provides all the electricity imported into South Australia.

This certainly rattled the Federal Energy Minister, who is awaiting the outcomes of an independent review of the National Energy Market by Australia’s Chief Scientist Alan Finkel.

“What we don’t want to see is the national market fragment by states taking it upon themselves to make decisions in their own jurisdiction which could be to the detriment of other jurisdictions.“ Minister Frydenberg told the ABC.

Industry Concerns

Industry recognised that the potential threat of South Australia moving towards greater isolation from the national energy market was real, as stressed by Energy Networks Australia that suggested it should only be considered as a last resort.

“Energy security is vital to homes and businesses and we understand the South Australian Government needed to put this beyond doubt,” Energy Networks Australia CEO John Bradley said.

“But breakout measures by State Governments should be a last resort in a national energy market and serve as a warning that the COAG Energy Council processes are not working effectively.”

Undeterred by concerns, South Australian Premier Jay Weatherill announced the opening of a two-week expression of interest period, seeking proposals for the battery storage plant.

“We said our plan to take charge of South Australia’s energy future starts now, and we mean it.” Mr Weatherill said.

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