A (not so) brief review... of reviews... part 2

A continued potted history of Major Reviews into the NEM

This the second post on history of Major Reviews™️ which have been conducted into the NEM (or were highly influential on the later development of the NEM).

If you haven’t already read it, part 1 is here.

This will make sense later. Maybe. Source.

Recap

Part 1 covered the first three Major Reviews™️

• Zeidler Inquiry (1980-81)

• Industry Commission Inquiry (1990-91)

• Parer Review (2001-2)

In this part 2, we’ll cover the remaining Major Reviews™️

• ERIG (2006-7)

• Vertigan Review (2014-15)

• Finkel Review (2016-17)

• Nelson Review (2024-25)

ERIG

In early 2006 the Howard Liberal government and the Council of Australian Governments (COAG) formed The Energy Reform Implementation Group, largely to pick up on the Parer recommendations which had not been implemented. The resulting Energy Reform: The way forward for Australia report (and appendices) was published in January 2007.

The group was chaired by Bill Scales AO, a senior executive at Telstra¹, Swinburne University Chancellor, former senior public servant and experienced director across a range of different industries.

The rest of the group consisted of:

• David Swift – then Chief Executive of the Electricity Supply Industry Planning Council of South Australia, future ESCOSA chairperson.

• Geoff Carmody – former senior Treasury official and co-founder of Access Economics.²

• Alan Rattray – experienced energy executive who was involved in the Vicpool and NEM development during the 1990s.

The group was focussed on reforming the arrangements of the nearly decade-old NEM, and addressing the ‘National’ part of a market which only covered the eastern states and the ‘Energy’ part of a market which had disparate gas and electricity regulatory frameworks. This yielded concise terms of reference:

» achieving a fully national transmission grid including the most suitable governance and transitional arrangements having regard for COAG’s objective of achieving a truly national approach to the future development of the electricity grid, the legitimate commercial interests of asset owners, and the need to promote investment that supports the efficient provision of transmission services;

» any measures that may be necessary to address structural issues affecting the ongoing competitiveness and efficiency of the electricity sector; and

» any measures that may be necessary to ensure there are transparent and effective financial markets to support energy markets.

Unsurprisingly, the ERIG made recommendations largely in line with those of the Parer review, with many being logical but, uhhhh, ambitious:

1.1 Privatisation of all energy supply assets

ERIG recommends disaggregation and full privatisation of government- owned energy assets throughout Australia, as soon as is feasible given the practicalities of the privatisation process.

2.4 Electricity market rules and other matters

ERIG recommends that operating rules and other state-specific legislation and regulatory instruments should be harmonised across Australia’s energy markets to support a more national market framework. As part of this process, the current numerous state derogations from existing rules, and differences in retail regulation and other state regulations, should be greatly reduced.

2.6 The Western Australian IMO

In this context ERIG recommends that Western Australia investigate the merits, at least over time, of using the AER, the AEMC and NEMMCO as the regulator, rule-maker and operator, respectively, of the WEM. (See also recommendations 2.3, 2.7, 4.7 and 5.6)

4.1 Locational Signals to Generators

ERIG recommends that the AEMC congestion review should deliver a management regime which will both improve the efficiency of operations and dispatch in the short term and meet the allocative efficiency imperatives in the longer term.

5.9 Demand response

ERIG recommends that the MCE develop a strategy for automation
of DSM suitable for application to small customers; and review the institutional arrangements to ensure that participants can capture the benefits of DSM and drive the DSM development process.

Much like the previous Parer review recommendations incremental improvements in these areas have been made in the last two decades, but on the whole the recommendations have not been implemented as proposed.

However the ERIG did make a series of small but important suggestions to reforming the regulatory and governance arrangements, as well as a couple of fairly consequential recommendations which were implemented as proposed:

2.7 A national energy market operator

Subject to acceptance of recommendations concerning NEMMCO’s governance presented in this chapter and in chapters 6 and 7, ERIG recommends COAG agree to establish a single energy market operator as a longer term governance improvement for the Australian energy market, rather than having separate gas and electricity market operators.

[NEMMCO’s responsibilities were expanded and in the process, AEMO was formed in 2009]

2.8 AER and ACCC

ERIG recommends that the AER should have responsibility for energy market regulation across Australia.

4.3 Improved national planning arrangements

» implement rules requiring the National Planner to develop a National Transmission Network Development Plan (NTNDP) on an annual basis in accordance with network development objectives;

[The AEMO NTDNP was the predecessor to the Integrated System Plan]

4.4 National consistency of reliability standards

ERIG recommends that the Reliability Panel, which is formed under the AEMC, coordinate a national review to rewrite schedule 5.1 in the NER to provide a consistent national framework for Reliability Standards by end 2008. As part of this process, each state should review its requirements for individual connection points and publish them in that format.

I would argue that the Parer review is possibly better known in the history of NEM Major Reviews™️, but the ERIG was more successful in achieving consequential reform of the energy market. It’s possible the ERIG is less well known because it was so soon after and closely aligned with the reform goals of the Parer review?³

Vertigan

In August 2014 the Review of Governance Arrangements for Australian Energy Markets was formed, fulfilling a commitment by the Council of Australian Governments (COAG) to review the NEM governance arrangements 5 years after the formation of AEMO. The final report Review of Governance Arrangements for Australian Energy Markets was published in October 2015.

The panel was chaired by Dr Michael Vertigan AC, an economist and senior public servant in the Tasmanian and Victorian governments, and former University of Tasmania Chancellor.

The rest of the panel was:

• Professor George Yarrow – a regulatory economics specialist and then Director of the Regulatory Policy Institute at Oxford.

• Euan Morton – an economist and former senior Queensland public servant.

The Vertigan review was highly focussed on reviewing the regulatory and governance arrangements for the NEM. The terms of reference:

The review is to consider the performance of current governance arrangements for energy markets and provide advice to the Energy Council on potential areas of improvement to the institutions and their oversight by the Energy Council.

The review should seek to identify governance arrangements that support market outcomes that are in the long term interests of consumers, as stated in the National Electricity Objective (NEO), the National Gas Objective (NGO) and the National Energy Retail Objective.

It should consider, in the light of experience and expected changes in the policy, regulatory and operational environment for the national energy market, whether:

• the institutional structures of the three market bodies (AEMO, AER and AEMC), and their roles as broadly defined remain appropriate

• the broad scope and division of mandates of each institution remains appropriate

• the role, operation and responsibilities of the Energy Council, its Senior Officials, and the three market bodies including the current roles and responsibilities of these parties are clear and providing the best outcomes

• there are opportunities to enhance the way these institutions interact with each other, the Energy Council, Senior Officials, and stakeholders and if so how these opportunities could be best pursued

• the extent of conferral of responsibilities and roles by individual jurisdictions under these energy market governance arrangements is appropriate

• there are opportunities to expedite the Energy Council and AEMC’s energy market reform processes (see below), and if so how this should be done.

…

The review will not consider energy market institutions in Western Australia, except to the extent to which the Western Australian energy market might reasonably affect the outlook for the existing national institutions.

The last point there feels rather pointed, given the ambitious terms of reference of both the Parer review and ERIG, which approached the thorny topic of rationalising Australian energy governance and regulation. Somewhat ironically AEMO took over market and system operations in the WEM from the IMO in 2015 (but the AEMC and AER are not responsible for anything in WA).

Overall the findings of the Vertigan review were modest, and mostly focussed on streamlining and improving the existing structures and processes. There were some relatively minor but notable recommendations implemented like introducing the expedited rule change process (3.6), and expanding the AEMC commissioners and AER board to 5 seats each (6.1, 6.5).

As the executive summary, errrr, summarised:

The Panel concludes that the division of functions established by the current governance arrangements for Australian energy markets is fundamentally sound and that Australian energy market governance is amongst best practice internationally. Australia’s energy market governance relies on clearly specified and stable policy and appropriate regulatory objectives, delegation of some roles to specialist institutions and importantly, institutional separation.

In this overall structure, scope for improvement exists to adapt to the challenges foreshadowed by two themes that consistently emerged during consultations:

• the pace of change in the energy sector is arguably unprecedented; and

• a ‘strategic policy deficit’ exists which has led to diminished clarity and focus in roles, fragmentation and a diminished sense of common purpose.

In a case of retrospectively hilarious foreshadowing, this is one of the final recommendations:

Future Energy Market Reviews

In respect of future reviews, the Panel recommends that the COAG Energy Council should assess whether there is a need for another energy governance review in 2023, once any changes implemented from this Review have had a chance to be bedded down.

What happened here? Wrong answers only. Source.

Finkel

In September 2016 significant storm damage led to a black out of the entire state of South Australia. The resulting political and media shitstorm led to the Turnbull Liberal government in October asking Australia’s Chief Scientist to chair a review into the NEM.

The Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future report was published in June 2017.

The review was chaired by Dr Alan Finkel AO, a neuroscientist, entrepreneur and former Chancellor of Monash University (and yes, also Australia’s Chief Scientist at the time of the review).

The remainder of the panel consisted of:

• Karen Moses – experienced senior executive across a range of blue chip energy companies.

• Chloe Munro – senior public servant, energy expert and inaugural chair of the Clean Energy Regulator.⁴

• Terry Effeney – former Energex CEO and director of Energy Networks Australia.

• Professor Mary O’Kane AC – former Vice-Chancellor of University of Adelaide and inaugural NSW Chief Scientist.

Compared to the other Major Reviews™️, the circumstances of the review were somewhat more urgent – at least politically – and highly focussed on system security and reliability (and affordability).⁵ Other concurrent investigations were examining the technical causes of the system black event and the Vertigan review had only recently completed, so the terms of reference are surprisingly nebulous:

The Australian electricity market is undergoing a significant transition, including due to rapid technological change, the increasing penetration of renewable energy, a more decentralised generation system, withdrawal of traditional baseload generation and changing consumer demand.

Energy security is the paramount responsibility of governments. Recent events have once again highlighted the importance of ensuring the security and reliability of the National Electricity Market (NEM).

…

Review purpose and scope

The purpose of the review is to develop a national reform blueprint to maintain energy security and reliability in the NEM, for consideration by the Council of Australian Governments through its Energy Council.

The review will draw together and build on the analysis and findings of the recent and ongoing work streams, as identified above. It will also consider any other matters and processes that may be relevant to system security and reliability.

The blueprint will outline national policy, legislative and rule changes required to maintain the security, reliability and affordability of the NEM in light of the transition taking place.

Consistent with the National Electricity Objective, the review will examine the costs and benefits, including to consumers and industry, of the options to address any current or future vulnerabilities identified in the NEM.

…

Despite the hazy objectives, the panel was composed of accomplished industry veterans who managed to produce 50 individual recommendations ranging from the immediate, e.g.:

1.1 By end-September 2017, the Australian Energy Market Operator should publish an independent third party review of its:

• Short-term demand forecast methodology.

• FY2018 summer forecast.

• Preparedness for the FY2018 summer.

… to recommendations eerily reminiscent of Parer:

5.3 The COAG Energy Council, in consultation with the Energy Security Board, should review ways in which the Australian Energy Market Operator’s role in national transmission planning can be enhanced.

7.11 The COAG Energy Council should ensure that the Australian Energy Regulator and the Energy Security Board are adequately funded to undertake their responsibilities, including implementing the blueprint.

… to several small but meaningful reforms including the 3 year generator closure notice period and retirement schedule publication (3.2), the enhancement of the RERT (3.4) and a renewed focus on the role of demand response in the NEM (6.7).⁶

The Finkel review will likely be remembered for its three most consequential recommendations — the evolution of the NTNDP into the ISP, the development of Renewable Energy Zones and the birth of the ESB:

5.1 By mid-2018, the Australian Energy Market Operator, supported by transmission network service providers and relevant stakeholders, should develop an integrated grid plan to facilitate the efficient development and connection of renewable energy zones across the National Electricity Market.

5.2 By mid-2019, the Australian Energy Market Operator, in consultation with transmission network service providers and consistent with the integrated grid plan, should develop a list of potential priority projects in each region that governments could support if the market is unable to deliver the investment required to enable the development of renewable energy zones.

7.2 The COAG Energy Council should immediately agree to establish an Energy Security Board to have responsibility for the implementation of the blueprint and for providing whole-of-system oversight for energy security and reliability.

However the public legacy of the Finkel review is most likely not for what it achieved (which was a lot), but for its biggest recommendation not adopted – the Clean Energy Target.⁷ Turnbull – appeasing conservative factions of the coalition – instead proposed the National Energy Guarantee as an alternative.

Thankfully the NEG was implemented with bipartisan support and the Major Review™️ was successful in finally driving a harmonised approach towards emissions policy in this country.

Oh wait, no sorry what I meant is that this contributed to him getting knifed and replaced by Scott Morrison⁸, continuing the great Australian tradition of Prime Ministers losing office over energy policy. But after that little hiccup the coalition became aligned on energy policy and definitely aren’t still debating these things. 🤨

Nelson

And now we’re back to the future (you can groan now). In November 2024 the Albanese Labor government announced the most recent Major Review™️, the National Electricity Market wholesale market settings review. The review is currently underway, with a draft report published in August 2025 and the final report anticipated by the end of the year.

The review is chaired by Associate Professor Tim Nelson, former chief economist at AGL, EGM of Energy Markets at Iberdrola and Associate Professor at Griffith.

The rest of the panel consists of:

• Paula Conboy – Former chair of the AER, ESB member and board member across a number of international power markets.

• Ava Hancock – former chief policy advisor to the NSW Energy Minister (Matt Kean).

• Phil Hirschhorn – former MD of Boston Consulting Group’s energy practice.

A decade ago the Vertigan review made no significant recommendations, but it did make what feels like rather something of an understatement when it noted:

the pace of change in the energy sector is arguably unprecedented;

This unprecedented pace of change hasn’t slowed down, and since the Vertigan review concluded we’ve built about 22 GW of large scale wind and solar, another 24 GW of rooftop solar and numerous coal-fired power stations have retired (with many more to come within the next decade).

Despite this investment, there are open questions as to whether the market settings are appropriate to manage the future investment required, particularly in relation to system reliability and security⁹, particularly with the *ahem* lack of formal capacity market and the conclusion of the Capacity Investment Scheme in 2027.

The terms of reference:

10. The expert panel will recommend future market settings to promote investment in firmed, renewable generation and storage capacity in the NEM following the conclusion of CIS tenders in 2027. The expert panel will make actionable recommendations to support the development and staged implementation of reforms to the NEM wholesale market that support the achievement of the National Electricity Objectives including affordability, reliability and emission reduction in the long-term interests of consumers and prosperity of Australia’s economy.

11. The expert panel should consider:

• Interactions with the NEM reliability framework, to ensure clear and transparent settings that align with the proposed reforms and best serve the long-term interest of consumers.

• Interactions with governments’ renewable energy targets and policies in promoting investment, including the role of enduring jurisdictional schemes such as the NSW Roadmap.

• The importance of decarbonising Australia’s electricity system for achieving the Australian Government’s legislated commitments to achieving a 43 per cent reduction in emissions on 2005 levels by 2030 and net zero emissions by 2050.

• The pathway for implementation of the reforms, including the requirement for agreement at ECMC before amendments to the National Electricity Law (NEL) and National Electricity Rules (NER) can be progressed.

12. The expert panel will not consider options that involve implementation of carbon trading schemes, carbon markets or that entail governments supporting new fossil fuel generation.

13. In forming its recommendations, the expert panel will consider the work of the former Energy Security Board on incentivizing firmed dispatchable generation and storage capacity in the NEM, as well as AEMO’s Integrated System Plan as the most comprehensively outlined pathway for the NEM through the energy transformation.

14. The expert panel will prepare a roadmap detailing the timelines and responsible parties for implementation of the review’s recommendations.

The draft report has made (depending on how you count them) 28 recommendations, the high level themes of which are:

1. Maintain the real‐time regional energy‐only spot market as the core market for efficient dispatch and rewarding the provision of physical energy services

2. Energy ministers should require a broader range of price‐responsive resources to be visible or dispatchable to participate in price formation

3. Governments should focus reforms and support for CER on facilitating market participation to enable consumers to benefit from being price- responsive

4. Market bodies should use the rule change process to ensure the efficient and competitive functioning of the real-time energy-only spot market

5. The Reliability Panel should consider adjusting the form of the market price settings

6. Energy ministers should establish an always‐on market making obligation (MMO) in the National Electricity Law/National Electricity Rules (NEL/NER) for a small number of key derivative contracts in each NEM region, with contract types determined through a co-design process with the AER and industry

7. Ensure sufficient market information is available to support longer‐term derivatives market liquidity and price discovery

8. Energy ministers should establish an Electricity Services Entry Mechanism (ESEM) within the National Electricity Law (NEL) to facilitate investment in the NEM

9. Governments and market bodies in the NEM should pursue a coordinated suite of reforms to ensure regulatory settings, the innovation ecosystem and existing policies and programs are aligned with the ESEM

There’s plenty of others providing good commentary and analysis on the Nelson review currently (and submissions are currently open if you feel so inclined), so I’m not going to go into much detail here. But a couple of things are striking to me:

1. An unequivocal commitment to the current energy-only design — no capacity markets, day ahead markets and no nodal pricing.¹⁰

2. Continuing the work of just about every NEM review on getting the demand side more effectively involved in the spot market (although the rise of distributed small batteries, the deep penetration of rooftop PV and the reliance of the ISP on these assets makes both the challenge more significant than previously and extends efforts previously only focussed actual [load] demand side participation).

3. “Closing the tenor gap”¹¹ by addressing the problem of encouraging [efficient] investment in new generation and storage assets. The replacement the CIS (and prior to that state government investment) with the proposed ESEM is an attempt to navigate point 1 and do just about anything to avoid introducing a capacity market.

All Major Reviews™️ reflect their political and regulatory context. Perhaps to its advantage, the Nelson review is being conducted in a moment of rare political stability. The context for the review and its recommendations isn’t an “urgent crisis” to be capitalised on politically. Rather, the panel have the opportunity to make recommendations to buttress the Capacity Investment Scheme with the implicit support of a Labor government that looks odds on to win another term.

The draft recommendations have been roundly quite well received across industry and regulatory observers. While there’s plenty of detail still to be worked out, the panel has stayed well within the guardrails of the terms of reference — proposing actionable, incremental and non-controversial changes which nudge the NEM along in the desired direction of the current governing bodies and the Ministerial Council.

1. The second senior Telstra executive tapped by John Howard to lead a nationally significant review in 2006, the other being Dr Ziggy Switkowski who lead the Uranium Mining, Processing and Nuclear Energy Review.

2. Now Deloitte Access Economics

3. Other answers here might also be “actually you’re wrong, ERIG was less consequential”, or “your premise is misguided”, or even “once the ERIG recommendations were published more distracting things happened in the public consciousness like WorkChoices and Kevin ‘07.”

4. Since 2021 the Clean Energy Council has organised a scholarship named in her honour.

5. The South Australian system black event had nothing to do with reliability or affordability, but when handed lemons politicians know what to do better than most.

6. Another recommendation dating back to Parer!

7. The other major legacy of Finkel was introducing the media content hounds to the phrase ‘energy trilemma’, which haunted us in nightly news briefings for a while. For the curious, the energy trilemma phrase was coined by the World Energy Council in 2011, but took a while to catch on.

8. Not before Dutton had a crack at the throne, but couldn’t quite count. Bless him.

9. Sounds familiar!

10. I’ve seen barely a peep let alone any drama from Australian Energy LinkedIn over this. Certainly nothing like the recent Great Britain REMA, which rejected zonal pricing and caused a series of 3 cheese melts across British Energy LinkedIn.

11. The “tenor gap” is a term the review have adopted to signify the mismatch in incentives operating over the commercial life of a project. The spot and contract markets, and offtake agreements don’t necessarily have the duration (or ‘tenor’) required to provide strong investment signals.