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Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle

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  • Simshauser, Paul
  • Gilmore, Joel

Abstract

The recent history of Australia's National Electricity Market (NEM) from 2012 to 2016 was characterised by coal plant closures, tightening domestic gas market and sharply rising electricity prices. The supply-side response that followed from 2016 to 2021 could only be described as an investment supercycle – 16,000 MW of plant commitments comprising $26.5 billion across 135 (mostly) Variable Renewable Energy (VRE) projects. We examine causes and the effects of the supercycle. Underlying causes included disorderly plant exit and climate change policy discontinuity in prior periods. Adverse effects in the post-entry environment included connection lags, system strength-related VRE production constraints, ex-post remediation costs, system frequency careering outside normal operating bands, and rising system operator interventions. Market institutions were caught out and subsequently focused on market re-design and resource adequacy reforms. Yet analysis contained in this article reveals the NEM's most pressing problems relate to real-time power system security, not fundamental market design or resource adequacy issues. Resolution requires the establishment of ‘missing markets’ (i.e. fast frequency, additional operating reserves, ramping, system strength and inertia), and urgently, to restore power system resilience. Key insights for other jurisdictions are climate change policy continuity and policies which serve to defuse the risk of disorderly coal plant exit.

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  • Simshauser, Paul & Gilmore, Joel, 2022. "Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle," Energy Policy, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:enepol:v:160:y:2022:i:c:s0301421521005139
    DOI: 10.1016/j.enpol.2021.112648
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    Cited by:

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    3. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    4. Simshauser, P., 2022. "On dividends and market valuations of Australia’s listed electricity utilities: regulated vs. merchant," Cambridge Working Papers in Economics 2229, Faculty of Economics, University of Cambridge.
    5. Gohdes, Nicholas & Simshauser, Paul & Wilson, Clevo, 2022. "Renewable entry costs, project finance and the role of revenue quality in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 114(C).
    6. Simshauser, Paul, 2023. "On dividend policy and market valuations of Australia’s listed electricity utilities: Regulated vs. merchant," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 696-715.
    7. Csereklyei, Zsuzsanna & Kallies, Anne, 2022. "A legal-economic framework of electricity markets: Assessing Australia’s transition," MPRA Paper 114191, University Library of Munich, Germany.

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    More about this item

    Keywords

    Coal plant exit; Investment cycles; Renewable investment;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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