Delivering a competitive Australian power system Part 3: A Better Way to Competitive Power in 2035

This paper, the final in a three part series examining the competitiveness of Australia’s power system, seeks to identify a pragmatic strategy to transition Australia to a resilient power economy at reasonable cost and in an age of uncertainty. The resilience of a country’s power economy refers to its ability to meet power requirements while withstanding supply shocks and environmental constraints. For a country’spower economy to be competitive, it must be both affordable and resilient.This series examines the competitiveness of Australia’s power economy and evaluates possible strategies for securing the nation’s power economy into the future. In Part 1, (published December 2011), we demonstrated that Australia’s power system was not resilient, with higher electricity prices than most competing countries. Various scenarios for Australia’s power future were the focus in Part 2 (published February 2013). Our analysis found that shifting to gas from coal power generation did not address this vulnerability but could instead lead to large price increases. Rather, a portfolio approach to investing in electricity generation will ensure Australia starts to build a power system that is more robust, and thus more competitive, in the years to come. While market structures are well-suited to factoring risk into investment decisions, electricity generation in Australia faces multiple layers of uncertainty and external costs which can deflect the market from efficient outcomes. For this reason, it is important for Australia to pursue a strategy of diversity in power generation technologies and energy sources to keep options open for the future and initiate climate change mitigation measures. The best way to achieve both resilience and cost competitiveness in Australia’s power system is to develop a strategy that pursues the middle ground. In this paper, Part 3 of the series, we use the Power System Resilience Index developed in Part 1 to compare German, Chinese and Californian energy policies with Australia. We ask how effective they are in achieving greater diversity and, in this way, resilience in electricity.