Public Policy Papers

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Parent Category: Publications

Author: Stephen Wilson, Cape Otway Associates

Key Points: 

• Australia faces the replacement of more than two thirds of its power generation capacity over the next three decades.
• It is believed by many renewable energy advocates that variable renewable energy (VRE) options could replace coal- and gas-fired capacity without compromising the reliability of the power system. However, there is little understanding of the likely costs of doing so.
• Most models of future full system costs are based on unrealistic assumptions. This paper outlines an approach to future costs that is based on a more realistic understanding of the technologies involved.
• To be deployed at system-wide scale in the future generation mix, wind and solar need backup or storage. This paper provides an indication of the cost level of technology pairs that is more realistically comparable with traditional dispatchable generation.
• The results imply that at current costs VRE options are unaffordable at scale. The costs of the VRE options considered by this paper vary from an estimated $125/MWh in the case of the wind/gas option to $1,200/MWh in the case of the rooftop solar/battery option at household level.
• The Levelised Cost of Energy (LCoE) approach does not provide an adequate foundation either for formulation of sound energy policy or for system planning.

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Parent Category: Publications

Author: Robert Pritchard, Energy Policy Institute of Australia

Key Points

• Australia has an energy crisis on its hands – with the continued forcing of renewable energy into the National Electricity Market (NEM), closures of power stations and concerns over the security and affordability of both electricity and gas.
• In October 2016, following a blackout and load shedding in South Australia, the nine-member Coalition of Australian Governments (COAG) agreed to appoint an independent panel to develop by mid-2017 a national reform blueprint to maintain energy security in the NEM.
• In March 2017, the government of South Australia announced that, whilst it would remain in the NEM, it would, for the security of the SA system, build a state-owned gas-fired generator and legislate to give itself powers to direct the NEM in the event of a shortfall or a failure of ‘market forces.’
• Disharmony amongst the Commonwealth and the States over the causes of the energy crisis or its solutions has raised a question of central importance: Is it time for Australia to throw off the chains of ‘cooperative’ energy governance?
• The door is open for a National Energy Commission to be established under Commonwealth law. 

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Parent Category: Publications

Author: Stephen Wilson, Cape Otway Associates

Key Points

• The Australian National Electricity Market (NEM), burdened by the effect of the Renewable Energy Target (RET) schemes, is no longer capable of delivering a reliable, affordable and sustainable electricity supply. The NEM, or the RET schemes, or both, will need to be changed to avoid serious failure of the power system in the future.
• This paper sets out in plain English a statement of the problem, a diagnosis of the underlying causes at the root of the problem, remedies that have been proposed to solve it, and a vision for reform that would require minimal design changes to create the next generation electricity market.
• Six symptoms of the problem evident in the NEM have been identified, which adversely affect power companies, as well as business and household consumers. The root causes are found in conflicts between the design principles on which the NEM is based and those of the RET schemes.
• Seven possible responses have been identified, which are considered remedies rather than options, as some of them are potentially complementary. Some remedies would involve retreating from the competitive electricity market reforms of the 1990s, while others would take the reforms to a more mature stage.
• The paper makes recommendations that could redress the root causes of the problem, with a minimum of disruption to consumers, the electricity system and the market, and reduce rather than escalate government intervention.

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Parent Category: Publications

Author: Robert Pritchard, Energy Policy Institute of Australia

Key Points

• The increasing penetration of variable renewable energy (VRE) in the National Energy Market (NEM) is causing the closure of coal- and gas-fired power stations, threatening power system security and creating unmanageable risks for investors. This is giving rise to social effects for which the community is not prepared and is occurring during a period of heightened community dissatisfaction with traditional political processes.
• The contemporary investment risk profile of each of the three main components of the power system: generation, networks and downstream supply, could not be more different.
• There is plenty of money available for investment but electricity generation has become a ‘no-go zone’ unless it is supported by government subsidies or by power purchase agreements (PPAs).
• Investment in electricity networks is almost the opposite - institutional investors are queuing to invest because independent economic regulation provides them with predictable long-term revenues.
• The NEM is in need of fundamental redesign.
• Sound economic and scientific information on energy, as well as new processes of end-user and community consultation, will be required to gain community support for the necessary reforms but the focus of reforms should be the formulation of a truly national energy vision.

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Parent Category: Publications

Author: Professor Simon Bartlett AM, University of Queensland

Key Points

• Power systems have fundamental needs: load following, flexibility and dynamic response.
• Increasing intermittent renewable generation in a power system has a “pressure cooker” effect and can involve an unaffordably high level of integration costs.
• Every power system is different but, in most systems, the practical upper limit for renewables is around 40% of total electricity generated. This may be exceeded but it is likely to require a greater level of interconnection with adjoining power systems, more energy storage, increased recourse to demand-side management and regulatory changes.
• The scale-up of intermittent renewables not only diminishes the robustness of a particular power system but can also magnify the short and long-term risk of investing in non-renewable generation assets and the power grid itself. 

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Parent Category: Publications

Author: Dr George Raitt, Piper Alderman

Key Points:

• After a year-long inquiry, the Australian Competition and Consumer Commission concluded that east coast gas markets are competitive, but that pipeline operators are exercising market power. 
• During the period of the inquiry, east coast gas prices have been affected (and continue to be affected) by growth in demand for export LNG, volatility in oil prices (against which export LNG prices are pegged), and static domestic demand for gas, leading to shortages and higher prices for domestic users.
• The ACCC conclusion is based on anecdotal evidence, and the inquiry did not conduct a forensic investigation into prices, costs and profits, leading some industry participants to contest the findings that pipeline charges (rather than other market forces) have adversely affected household gas prices. 
• The ACCC considers that current competition law does not address the inefficiencies they perceive, since they have concluded that east coast gas markets are competitive.  The ACCC has proposed changes to the gas pipeline access regime because the ACCC considers that the regime does not adequately control what it considers to be excessive pipeline charges. 
• In questioning the ACCC’s conclusions and recommendations, this paper advocates three points.

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