Is this the end of central planning in the NEM, or just the beginning?

It says a lot about her nearly four-year stint in charge of the Australian Energy Market Operator (AEMO) that the resignation of Managing Director Audrey Zibelman will be despaired by some and cheered by others.

Zibelman has been a divisive and politically charged figure during her time at AEMO. To some she was a visionary, re-forging the physical shape of the National Electricity Market (NEM) in the face of constant political headwinds.

To others she was seen as someone who has politicised an organisation that should be focussed on utility-scale engineering, using it as a platform to try to override the electricity market in her singular vision of what the future of the system should look like.

Zibelman’s departure throws up many questions beyond just her replacement. The most important of these is her primary challenge: can markets actually deliver the decades-long decarbonisation of the electricity system, and if they can’t, then what is the best way of doing this?

Without officially declaring it, Zibelman’s approach was for AEMO to step in and fill the gaps resulting from chronic political uncertainty leading to inadequate market reform. This appears to be driven at least in part by necessity – AEMO is responsible for keeping the lights on.  To do this AEMO started to assume greater control in the absence of anyone else doing so, transitioning from market planner to central planner.

This materialised in a number of ways. In the absence of a functioning demand response market, Zibelman dusted off a demand response scheme designed for emergencies and institutionalised it. The Reliability and Emergency Reserve Trader (RERT) scheme had been used only three times in 20 years until the summer of 2017-18. AEMO now contracts its own demand response via RERT every summer, a key plank in its preparedness to manage heat wave peaks in demand.

It’s not that increased demand response isn’t a good idea, but whether RERT was the most effective way of doing this. The emergency capacity bought was expensive – in the first year AEMO paid out $52 million and RERT was used only twice.

The development of an Integrated System Plan was one of the recommendations of the Finkel Review, with the idea that transmission planning should incorporate thinking about the location and type of generation it was linking to.

Zibelman put this idea on steroids, effectively framing the ISP as the central plan for the roll out of the National Electricity Market. It was delivered as a fait accompli, the only way forwards in a market designed to discover the cheapest solution in an organic fashion, investment by investment.

It’s entirely valid to question whether the current energy-only market design can work efficiently any more, particularly given the scale of government intervention and the uncertain nature and value of new markets emerging.

What put so many off-side was the execution of this challenge: Zibelman lobbied for years for a day-ahead markets even though the idea gained little support: no one could see that it made enough difference to the current design to be worth the effort.

This typified the problem: Zibelman’s style was to adopt a singular approach rather than trying to build consensus for reform. The focus of the market operator was expanded from engineering into hardball politics, lobbying governments and cutting deals with companies to try and rally popular support behind proposed reforms.

There is no secret that Zibelman clashed repeatedly with former Australian Energy Market Commission (AEMC) chair John Pierce, but from reports she also clashed pretty hard with other agencies too. It was a polarising approach, winning the plaudits of renewables advocates and the ire of market proponents.

Running AEMO is a difficult job these days, particularly given chronic concerns about reliability in a grid that is losing coal generators and trying to replace them with intermittent renewables.

To her credit Zibelman has managed to keep the lights on during her tenure. Successfully managing these critical events is a combination of  luck and judgement, and likely to remain stressful for the foreseeable future. Her replacement will find this task no easier.