Frontier (Australia) today published a report prepared for a broad coalition of National Electricity Market (NEM) participants on the Optional Firm Access (OFA) proposal from the Australian Energy Market Commission (AEMC).
OFA was devised both to improve the economic efficiency of generation dispatch and to promote more locationally-efficient generation and transmission investment decisions. However, Frontier’s analysis of the AEMC’s proposal finds that not only are the costs of congestion in the NEM immaterial, but that OFA would greatly centralise the planning and control of new investment – the very opposite of what it seeks to achieve.
Frontier’s study also finds that customers would be paying for the development and operation of the new scheme one way or another. Additional costs and complexity imposed on the generators would send an additional 5,500 megawatts of capacity broke. This loss of capacity would raise wholesale prices, which are likely to get passed on to consumers.
In addition, Frontier’s analysis of the prototype access rights pricing model developed by the AEMC reveals that the model produces anomalous and inconsistent results.
Overall, the Frontier report points out that the introduction of OFA represents the most significant change to the wholesale energy market since the inception of the NEM and is a step towards greater complexity and centralisation. The proposal would reduce the transparency of the NEM as a whole.
Danny Price, managing director of Frontier (Australia) and leader of the firm's energy practice said, “It’s hard to understand why the Commission would promote a scheme that seeks to solve a problem that doesn’t exist, that will result in more complexity and costs for the industry and that will ultimately drive consumer prices higher”.
Frontier (Australia) regularly advises participants and regulators on the operation of the NEM.
For more information, please contact Rajat Sood at rajat.sood@frontier-economics.com.au or phone +61 3 9613 1505.
