A key recommendation from the National Electricity Market Wholesale Market Settings Review (NEM Review) was the establishment of the Electricity Services Entry Mechanism (ESEM), a new framework for long-term investment in renewable energy and storage to replace the Capacity Investment Scheme (CIS).
The Industry Working Group released a September consultation paper on the contract structures to be procured under the Electricity Services Entry Mechanism (ESEM). In our submission, we welcome the fast, yet transparent and consultative process and the broad proposed package which delivers what the NEM Review Panel requested: fungible bulk energy, shaping and firming products (8-hour duration) that buyers can combine with existing derivatives to hedge a load shape.
We highlight that several key design questions remain open including negative price treatment and the Reference Fleet and index (bulk energy); Residual Demand and coordination (shaping); linkage between the $600 strike, the APC and the bulk energy exposure cap (firming); and force majeure allocation. We also point out that work outside the Working Group’s remit will also determine the success of the ESEM including spot price settings, entry trajectories and strategic reserve design.
Lastly, with no further dispatchable CIS tenders anticipated, we urge that the CIS program should be formally extended into 2027 to keep investment conditions stable ahead of the first ESEM tender.
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