IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v41y2020i1p259-288.html
   My bibliography  Save this article

On Entry Cost Dynamics in Australia’s National Electricity Market

Author

Listed:
  • Paul Simshauser
  • Joel Gilmore

Abstract

In theory, well designed electricity markets should deliver an efficient mix of technologies at least-cost. But energy market theories and energy market modelling are based upon equilibrium analysis and in practice electricity markets can be off-equilibrium for extended periods. Near-term spot and forward contract prices can and do fall well below, or substantially exceed, relevant entry cost benchmarks and associated long run equilibrium prices. However, given sufficient time higher prices, on average or during certain periods, create incentives for new entrant plant which in turn has the effect of capping longer-dated average spot price expectations at the estimated cost of the relevant new entrant technologies. In this article, we trace generalised new entrant benchmarks and their relationship to spot price outcomes in Australia’s National Electricity Market over the 20-year period to 2018; from coal, to gas and more recently to variable renewables plus firming, notionally provided by—or shadow priced at—the carrying cost of an Open Cycle Gas Turbine. This latest entry benchmark relies implicitly, but critically, on the gains from exchange in organised spot markets, using existing spare capacity. As aging coal plant exit, gains from exchange may gradually diminish with ‘notional firming’ increasingly and necessarily being met by physical firming. At this point, the benchmark must once again move to a new technology set...

Suggested Citation

  • Paul Simshauser & Joel Gilmore, 2020. "On Entry Cost Dynamics in Australia’s National Electricity Market," The Energy Journal, , vol. 41(1), pages 259-288, January.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:1:p:259-288
    DOI: 10.5547/01956574.41.1.psim
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.41.1.psim
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.41.1.psim?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michael G. Pollitt and Karim L. Anaya, 2016. "Can current electricity markets cope with high shares of renewables? A comparison of approaches in Germany, the UK and the State of New York," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    2. Karsten Neuhoff, Sophia Wolter and Sebastian Schwenen, 2016. "Power markets with Renewables: New perspectives for the European Target Model," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    3. MacGill, Iain, 2010. "Electricity market design for facilitating the integration of wind energy: Experience and prospects with the Australian National Electricity Market," Energy Policy, Elsevier, vol. 38(7), pages 3180-3191, July.
    4. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-241, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    2. Simshauser, Paul, 2018. "On intermittent renewable generation & the stability of Australia's National Electricity Market," Energy Economics, Elsevier, vol. 72(C), pages 1-19.
    3. Simshauser, Paul, 2018. "Garbage can theory and Australia's National Electricity Market: Decarbonisation in a hostile policy environment," Energy Policy, Elsevier, vol. 120(C), pages 697-713.
    4. Simshauser, P., 2019. "On the impact of government-initiated CfD’s in Australia’s National Electricity Market," Cambridge Working Papers in Economics 1901, Faculty of Economics, University of Cambridge.
    5. Gilmore, J. & Nolan, T. & Simshauser, P., 2022. "The Levelised Cost of Frequency Control Ancillary Services in Australia's National Electricity Market," Cambridge Working Papers in Economics 2203, Faculty of Economics, University of Cambridge.
    6. Paul Simshauser, 2019. "On the Stability of Energy-Only Markets with Government-Initiated Contracts-for-Differences," Energies, MDPI, vol. 12(13), pages 1-24, July.
    7. Karsten Neuhoff & Nils May & Jörn C. Richstein, 2018. "Renewable Energy Policy in the Age of Falling Technology Costs," Discussion Papers of DIW Berlin 1746, DIW Berlin, German Institute for Economic Research.
    8. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    9. Finn Roar Aune and Rolf Golombek, 2021. "Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 225-264.
    10. Paul Simshauser & Joel Gilmore, 2018. "On entry cost dynamics in Australia's National Electricity Market," Working Papers EPRG 1841, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    11. Nolan, Tahlia, 2024. "Is pivoting offshore the right policy for achieving decarbonisation in the state of Victoria, Australia's electricity sector?," Energy Policy, Elsevier, vol. 190(C).
    12. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    13. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    14. Parlane, Sarah & Ryan, Lisa, 2020. "Optimal contracts for renewable electricity," Energy Economics, Elsevier, vol. 91(C).
    15. Oliva H., Sebastian, 2017. "Residential energy efficiency and distributed generation - Natural partners or competition?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 932-940.
    16. Michael Metzger & Mathias Duckheim & Marco Franken & Hans Joerg Heger & Matthias Huber & Markus Knittel & Till Kolster & Martin Kueppers & Carola Meier & Dieter Most & Simon Paulus & Lothar Wyrwoll & , 2021. "Pathways toward a Decarbonized Future—Impact on Security of Supply and System Stability in a Sustainable German Energy System," Energies, MDPI, vol. 14(3), pages 1-28, January.
    17. Schreiner, Lena & Madlener, Reinhard, 2022. "Investing in power grid infrastructure as a flexibility option: A DSGE assessment for Germany," Energy Economics, Elsevier, vol. 107(C).
    18. Neupane, Deependra & Kafle, Sagar & Karki, Kaji Ram & Kim, Dae Hyun & Pradhan, Prajal, 2022. "Solar and wind energy potential assessment at provincial level in Nepal: Geospatial and economic analysis," Renewable Energy, Elsevier, vol. 181(C), pages 278-291.
    19. Vithayasrichareon, Peerapat & MacGill, Iain F., 2013. "Assessing the value of wind generation in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 53(C), pages 400-412.
    20. Durmaz, Tunç, 2016. "Precautionary Storage in Electricity Markets," Discussion Papers 2016/5, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:41:y:2020:i:1:p:259-288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.