Energy

Energy markets involve the production, wholesaling (including importing), transmission, distribution and retailing of energy products and services.

Robust, well-functioning energy markets are fundamental to delivering Australia’s national energy objectives, and contributing to broader policy goals such as Australia’s response to climate change, at the lowest possible cost. Our energy markets depend increasingly on a complex set of relationships with other sectors and markets to function effectively.

Australia has three main energy markets, for liquid fuels, electricity and gas. The electricity and gas markets are geographically and economically separated in the eastern, western and northern regions of Australia. The liquid fuels market is more national in its scope.

Australian energy markets are regulated by a number of laws and regulations (shown at the highest level in Figure 7.1). There is a close relationship between electricity and gas markets through a common legislative and policy framework under the Australian Energy Market Agreement (see Box 7.1). Australia’s liquid fuels market is regulated separately.

Figure 7.1: National energy markets framework

Note: The National Energy Retail Law forms the substantive part of the National Energy Customer Framework. The National Energy Customer Framework legislative package, on application by jurisdictions, amends the National Electricity Law and the National Gas Law and applies the National Energy Retail Law (see Box 7.1).

Our energy markets have generally performed well in delivering safe, reliable and competitively priced energy. Past reforms, though incomplete, have been critical to that result. However, the markets will face new pressures and challenges in coming decades from continued expansion (albeit at potentially slower rates than previously forecast) and in the transformation to clean and sustainable energy. Further reforms are needed to improve the operation and productivity of our energy markets and to ensure that regulatory frameworks are supporting efficient outcomes in order to minimise future cost pressures for consumers.

To meet these challenges, the markets will need to become more efficient and flexible. This will require policy and regulatory frameworks that can:

• efficiently interface with other mechanisms and markets, such as the carbon pricing mechanism and financial markets, to ensure that the necessary investment and operational results are achieved at least cost
• smoothly integrate rapidly evolving technologies and robustly adapt to changing dynamics
• more efficiently balance supply and demand
• provide consumers with better information and a wider range of options to manage their energy needs.

In this section:

• 7.1: Market reform: underway but incomplete
• 7.2: Energy market policy framework
• 7.3: Policy challenges and priortities