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Missing money, missing policy and Resource Adequacy in Australia’s National Electricity Market

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  • Simshauser, P

Abstract

From 2012-2017 more than 5000MW of coal plant exited Australia’s National Electricity Market (NEM). The average plant exit notice period was 5.2 months. Exit at scale peaked just as imbalances in the market for natural gas emerged. Compounding matters were Variable Renewable Energy (VRE) plant entry lags due to policy discontinuity in prior periods. By 2016/17, the culmination of coal plant exit, gas market imbalances and VRE entry lags produced more than 20 Lack of Reserve events across the NEM, three blackouts including a black system event in the South Australian region. Spot and forward electricity prices rose to record levels, viz. $90-$130/MWh compared to an historic average of $42.50. In this article, the lead-up to these abnormal trading conditions are traced back to policy decisions a decade earlier in the markets for electricity, natural gas and renewable energy. Lessons for other energy markets undergoing transformation include i). transparency over lumpy plant exit decisions, ii). climate change policy stability, and iii). clear policy limits to gas export capacity vis-à-vis domestic supply.

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  • Simshauser, P, 2018. "Missing money, missing policy and Resource Adequacy in Australia’s National Electricity Market," Cambridge Working Papers in Economics 1840, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1840
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    Cited by:

    1. Paul Simshauser, 2020. "Merchant renewables and the valuation of peaking plant in energy-only markets," Working Papers EPRG2002, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Paul Simshauser & Joel Gilmore, 2020. "Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle," Working Papers EPRG2014, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    3. Simshauser, Paul & Akimov, Alexandr, 2019. "Regulated electricity networks, investment mistakes in retrospect and stranded assets under uncertainty," Energy Economics, Elsevier, vol. 81(C), pages 117-133.
    4. Billimoria, Farhad & Poudineh, Rahmatallah, 2019. "Market design for resource adequacy: A reliability insurance overlay on energy-only electricity markets," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.

    More about this item

    Keywords

    Resource Adequacy; Climate Change Policy; Electricity Prices;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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