End-to-end electricity market design - some lessons from the Australian National Electricity Market

Australia provides an interesting case study for the challenges of end-to-end electricity market design given its National Electricity Market (NEM) arrangements, growing utility wind and solar penetrations, and world leading uptake of distributed energy resources. In this paper, we consider lessons from the NEM for end-to-end market design that delivers a secure, affordable and clean energy future. We identify seven key challenges: 1) End-to-end electricity market design is a ‘markets’ integration challenge so interface design is a key task, 2) it isn't clear where the ends lie in end-to-end market design given that efficient industry outcomes depend critically on fuel supply and consumer markets that lie outside formal electricity industry arrangements, 3) End-to-end market design requires broader policy and regulatory ‘side-to-side’ design, 4) Markets with major externalities are inefficient by design, 5) Technology change and market design can both reveal currently ‘unpriced’ industry costs and benefits, particularly in security services, 6) The key design challenge in end-to-end market design is the market and regulatory interface with energy consumers, and 7) widespread market failure is not an option in the electricity sector – end-to-end market design also requires design of ‘alternative’ frameworks. While we draw on NEM experiences, our framework would seem to have wider relevance to other jurisdictions now seeking to integrate higher renewable penetrations and distributed energy resources. © 2020