‘Kneejerk’ government investment to push electricity prices higher

//‘Kneejerk’ government investment to push electricity prices higher

‘Kneejerk’ government investment to push electricity prices higher

22 May, 2017

Meredith Booth

Courtesy of the Australian

Urgent changes to electricity market rules are needed to reduce the risk of power blackouts and restrictions across southeastern Australia next summer, a Grattan Institute report says.

Market reform, rather than “knee-jerk” government investment that would push electricity prices higher, was the best path to restoring confidence in the national electricity market, the report said.

Grattan Institute energy program director Tony Wood said there would be enough capacity across the national electricity market next summer but supply would be tight, particularly for South Australia and Victoria, if those regions were cut off from the network.

“Now there are warnings there may be insufficient generation available to meet peak demand in South Australia and Victoria next summer. (SA and Vic) may need to import additional energy from other regions of the NEM at times of peak demand if wind and solar are unavailable,’’ the report said.

Although it was a “political necessity” for the Weatherill government to ensure no blackouts ahead of a March state poll, its plan to invest $360 million in a gas-fired generation plant had spooked the market, Mr Wood said. He said a specific example was AGL’s decision to shred its own plans for a gas-fired plant in ­Adelaide within 48 hours of the announcement of plans for a government-owned 250 megawatt gas-fired plant,

Mr Wood said there were other examples of policy on the run that risked destroying the NEM’s capacity to drive investment for low-cost, reliable and low-emissions electricity. These included South Australian Senator Nick Xenophon’s deal to secure a $110m commonwealth concessional loan for a solar thermal plant in Port Augusta, and feasibility studies for major expansions of the Tasmanian and Snowy River hydro schemes.

“If (they) happen, the NEM will be judged to have failed, when in fact it will have surely been systematically, if unintentionally, destroyed,” Mr Wood said. “The survival of the NEM cannot be assumed. But we should not give up on the market, because if governments take matters fully into their own hands, the results are likely to be painful: customers will pay more for their electricity, supply could become even less reliable, and Australia still may not achieve the emissions reductions required.” The report said despite power stations closing and wholesale prices increasing, the market had been described as ‘‘uninvestable’’ — and without new private-sector investment in generation, load-shedding during peak periods may become more frequent.

The Australian Electricity Market Operator’s demand management trial announced on Friday was a good start, Mr Woods said. The pilot program will offer financial incentives to power users in Victoria and South Australia who relieve stress on the system by limiting peak-time power use.

The report said South Australia’s $550m energy plan and Malcolm Turnbull’s Snowy Hydro 2.0 study had pre-empted the Finkel Review’s findings due mid-year and required more cost-benefit analysis.

Longer term, the best way to rebuild investor confidence in the NEM was for nation to agree on a serious, sustainable emissions reduction policy, Mr Wood said. “A decade of toxic political debates, mixed messages and policy backflips has prevented the emergence of credible climate change policy.”

2017-05-22T10:41:23+00:00 May 22nd, 2017|