Energy-only markets and renewable energy targets: Complementary policy or policy collision?
Australia’s 20% Renewable Energy Target (RET) was designed and implemented against a backdrop of several decades of continuous growth in electricity demand. Since the introduction of the policy in 2009 electricity demand has declined continuously. In this article, we analyse how Australia’s National Electricity Market (NEM) has responded to falling demand and significant additional installed capacity as a result of climate change-related policies. We conclude that an energy-only market design, barriers to exit for incumbent plants, and time inconsistency of policy has resulted in investment in new renewable energy projects becoming largely intractable. In our opinion, changing the RET fixed GWh target will not alter this fact. To overcome barriers to exit, we examine three options for complementary public policy in the short-term: direct government intervention; a market-based solution; or regulation. In the long-term, a redesign of the energy-only NEM market seems inevitable.
Volume (Year): 46 (2015)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/economic-analysis-and-policy|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bushnell, James, 2010.
"Building Blocks: Investment in Renewable and Non-Renewable Technologies,"
Staff General Research Papers Archive
31546, Iowa State University, Department of Economics.
- James Bushnell, 2011. "Building Blocks: Investment in Renewable and Nonrenewable Technologies," RSCAS Working Papers 2011/53, European University Institute.
- D. Finon & V. Pignon, 2008. "Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market," Post-Print hal-00716312, HAL.
- Dominique Finon, 2008. "Investment risk allocation in decentralised electricity markets. The need of long-term contracts and vertical integration," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 32(2), pages 150-183, June.
- Neuhoff, Karsten & De Vries, Laurens, 2004. "Insufficient incentives for investment in electricity generations," Utilities Policy, Elsevier, vol. 12(4), pages 253-267, December.
- Neuhoff, K. & de Vries, L., 2004. "'Insufficient Incentives for Investment in Electricity Generation’," Cambridge Working Papers in Economics 0428, Faculty of Economics, University of Cambridge.
- Paul Simshauser, 2008. "The Dynamic Efficiency Gains from Introducing Capacity Payments in the National Electricity Market," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(4), pages 349-370, December.
- Paul Simshauser, 2012. "The second-round effects of carbon taxes on power project finance," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(2), pages 104-127, May.
- Finon, Dominique & Pignon, Virginie, 2008. "Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market," Utilities Policy, Elsevier, vol. 16(3), pages 143-158, September.
- Roques Fabien A. & Newbery David M. & Nuttall William J., 2005. "Investment Incentives and Electricity Market Design: the British Experience," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-36, June.
- de Vries, Laurens & Heijnen, Petra, 2008. "The impact of electricity market design upon investment under uncertainty: The effectiveness of capacity mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 215-227, September.
- Felder, Frank A., 2011. "Examining Electricity Price Suppression Due to Renewable Resources and Other Grid Investments," The Electricity Journal, Elsevier, vol. 24(4), pages 34-46, May.
- Simshauser, Paul, 2010. "Vertical integration, credit ratings and retail price settings in energy-only markets: Navigating the Resource Adequacy problem," Energy Policy, Elsevier, vol. 38(11), pages 7427-7441, November.
- Paul Simshauser, 2006. "The Emergence of Structural Faults on the Supply Side in Deregulated 'Energy Only' Electricity Markets," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 130-146, June.
- Edenhofer, Ottmar & Hirth, Lion & Knopf, Brigitte & Pahle, Michael & Schlömer, Steffen & Schmid, Eva & Ueckerdt, Falko, 2013. "On the economics of renewable energy sources," Energy Economics, Elsevier, vol. 40(S1), pages 12-23.
- Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
- Simshauser, Paul & Nelson, Tim & Doan, Thao, 2011. "The Boomerang Paradox, Part II: Policy Prescriptions for Reducing Fuel Poverty in Australia," The Electricity Journal, Elsevier, vol. 24(2), pages 63-75, March.
- Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
- Besser, Janet Gail & Farr, John G. & Tierney, Susan F., 2002. "The Political Economy of Long-Term Generation Adequacy: Why an ICAP Mechanism is Needed as Part of Standard Market Design," The Electricity Journal, Elsevier, vol. 15(7), pages 53-62.
- Nelson, Tim & Nelson, James & Ariyaratnam, Jude & Camroux, Simon, 2013. "An analysis of Australia's large scale renewable energy target: Restoring market confidence," Energy Policy, Elsevier, vol. 62(C), pages 386-400. Full references (including those not matched with items on IDEAS)