This paper explores how the energy transition, emerging energy technologies, products, and services, and changing societal expectations are challenging the market structures and competitive market model of regulation for the NSW electricity sector operating within the National Electricity Market. The rise of modern energy regulatory principles most likely to affect NSW is examined to understand the role they may play in resolving the looming challenges facing the sector.

Key points

• For over 200 years NSW has relied on coal to supply the state with power. Over time, this has materially affected the design of regulatory frameworks and key decisions about investments and infrastructure within the electricity sector.
• Both NSW and Australia have now legislated emissions reduction targets to rapidly decarbonise the economy. To meet these targets, the electricity sector will need to transition away from fossil fuels to renewable generation sources. 
• The current regulatory approach used in the National Electricity Market (NEM) is the competitive market model that was designed for the supply of large fossil-fuel generation within the NEM. 
• Today, more than one third of electricity supplied via the NEM is generated from renewable energy sources. This has led to specific regulatory challenges such as the rise of prosumers (consumers who both consume and produce energy), digitisation and the introduction of smart technologies, energy storage, and new forms of distributed energy resources. 
• Despite the significant changes associated with the energy transition, the cooperative energy laws that underpin the NEM have only been subject to piecemeal changes. This has resulted in a complex legal, institutional and governance structure that is increasingly unworkable and not fit for purpose. 
• State and territory governments are now frequently derogating from the cooperative energy laws or enacting their own policy solutions. This increases fragmentation and undermines efforts to harmonise the NEM jurisdictions. 
• While many of the competitive market regulatory principles have been retained to address current challenges, new regulatory principles are emerging that reflect evolving energy needs, technological advancements, energy security concerns, and social priorities. 
• Five modern energy principles may have particular significance for the NSW electricity sector. A reformed legal framework that integrates these principles would enable the electricity sector to remain efficient and reliable while meeting consumer and industry needs in the face of rapid transformation.