“But if we can get the market measures in place outlined in the report, governments may not need to intervene at all. But comprehensive change to the market design is needed “
The ESB’s Post 2025 Energy market design report found “the exit of generation is not in itself a problem” if forward-looking reforms are made.
It’s seeking feedback on a suite of policy proposals to manage prices and encourage private investment in not just large scale power generation but also firm dispatchable resources like hydro power, batteries and fast-start gas plants for when the sun isn’t shining or wind isn’t blowing.
Over the next 20 years 61 per cent of Australia’s ageing and increasingly expensive coal fired capacity is set to be shut down and mainly replaced by cheaper renewable energy with dispatchable back-up that can enter the grid as required at short notice.
The national energy market in the past year comprised 74 per cent coal, six per cent gas, 4 per cent solar, 10 per cent wind and 5 per cent hydro. This is changing rapidly.
The ESB noted governments have reacted to the volatility in consumer electricity prices with a wide range of uncoordinated policies that “do not align with incentives to encourage investment in the amount and type of resources that would meet consumer and power system needs”.
“What we’re trying to do with our reform options is to have a market for the essential services that firm and dispatchable power provides. We want companies bidding those services into a market that is properly valued so the Australian Energy Market Operator can stop intervening to ensure those services are available – which is currently very expensive,” Dr Schott said.
The ESB also emphasised the need for new market rules to harness the benefits of what’s known as the distributed energy resources – that is the two million households and business with rooftop solar panels that can feed power back into the grid, and store power in batteries.
The CSIRO has found a two-sided energy market, where households pay for using power supplied from the grid and are also paid for the power generated on their premises and demand savings they make, could earn up to $2.5 billion a year, or an annual electricity saving of $414 to an average household.