A faster transition to renewable electricity

Australian Projections researches issues of national importance, such as aged care, COVID19, education and energy. We are trying to help Australians and their politicians understand the National Electricity Market.

In 2017 the Finkel Review did not consider a competitive capacity market was appropriate. In September 2021 energy ministers agreed on 14 principles, which have been guiding ESB’s work on a capacity mechanism.

We estimate that about $400 billion of capital is needed between 23-24 and 50-51 under AEMO’s Step Change scenario. ARENA responses and renewable energy takeovers suggest there is strong interest in investing in Australian renewables. With policy clarity, the necessary funds may be readily available.

The NEM has operated with very high reliability since December 1998. Growing price instability may reflect increasing proportions of cheap renewable power, extreme weather, failures of coal-fuelled generators, and high prices of coal and gas.

Renewable generators and storage can be built within a year. Bringing forward key capital expenditure as much as possible would help reduce the severe price fluctuations that are affecting providers and consumers. AEMO should be asked to design a scenario which brings forward generator, storage and network investments as quickly as possible.

Under the Step Change scenario, there may be about $37 billion of fuel costs, and about $100 billion of carbon emissions at European prices. A faster transition to renewables could save much of these costs and emissions. Wholesale prices in an NEM based wholly on renewables may be about $70 per MWh, compared with the average of about $130 in 21-22.

We suggest that state governments be responsible for the orderly closure of coal generators. State and Commonwealth governments should work together to plan a rapid transition to a fully renewable NEM, and to offer financial incentives to key new projects. Energy ministers should ask the ESB to cease work on the design of any general capacity mechanism.