A spike in household bills is being touted as a risk of the energy market reforms proposed to reduce the risk of blackouts, as lower cost renewables pour into the grid and threaten to force the early closure of coal-fired power plants.
The Commonwealth’s advisory body the Energy Security Board has issued its final recommendations from a long-running report on the future of the National Electricity Market (NEM) and called for a capacity market that would make retailers pay generators to have sufficient dispatchable capacity on standby to fill gaps in supply.
A report by Johanna Bowyer of the Institute of Energy Economics and Financial Analysis found that power bills in Sydney and Melbourne could rise by $182 to $430 a year, a claim disputed by federal Energy Minister Angus Taylor.
Ms Bowyer and co-author Tristan Edis analysed the Western Australian energy market that currently has a capacity market in place and said, based on its price for dispatchable capacity, the cost to the NEM would be between $2.9 billion to $6.9 billion each year.
They said these potential power bill costs were less than the Australian Competition and Consumer Commission’s 2015 finding on additional power bill costs under an economy-wide carbon price, which were $129 for NSW households and $112 for Victorian.
Dispatchable power is ready energy, from pumped hydro, batteries, and some types of gas and coal plants, that fill gaps in supply to the grid that can occur when the wind isn’t blowing or sun isn’t shining.
Energy Security Board chair Kerry Schott has said the economics of coal power means that not only will no new plants be built, but there is an imminent risk that due to competition from renewables, unexpected and early closures will create gaps in energy supply.
Mr Taylor has endorsed a capacity market and the major market change as a necessary measure to ensure there is a sufficient financial incentive for private companies to invest in new dispatchable power generation.