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Lessons from Australia's National Electricity Market 1998-2018: the strengths and weaknesses of the reform experience

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  • Paul Simshauser

    (Griffith University, Australia)

Abstract

Australia’s National Electricity Market (NEM) commenced in 1998 and after two decades it is timely to reflect on the strengths and weaknesses of the reform experience. The centrepiece of NEM reforms was the energy-only wholesale market and accompanying forward markets, and for most of the past 20 years it has displayed consistent economic and technical performance. But missing policies relating to climate change, natural gas and plant exit has recently produced results that have tested political tolerances. The piecemeal and random interventions that are now following are likely to inflame rather than resolve matters, at least over the near term. Network policy failures in the mid-2000s led to sharp regulated tariff increases from 2007 onwards. These policy problems were largely cauterized by 2012 but regulatory timeframes and business inertia meant network tariffs didn’t stabilise until 2015. The retail market has been forced to deliver sharply rising prices, and in consequence the problem of rising prices has been conflated with price discrimination; a largely unhelpful development in an otherwise workably competitive market.
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  • Paul Simshauser, 2019. "Lessons from Australia's National Electricity Market 1998-2018: the strengths and weaknesses of the reform experience," Working Papers EPRG1927, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg1927
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    Cited by:

    1. 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.
    2. Ricardo Gonçalves & Flávio Menezes, 2021. "Market-wide impact of renewables on electricity prices in Australia," Discussion Papers Series 640, School of Economics, University of Queensland, Australia.
    3. Apergis, Nicholas & Gozgor, Giray & Lau, Chi Keung Marco & Wang, Shixuan, 2020. "Dependence structure in the Australian electricity markets: New evidence from regular vine copulae," Energy Economics, Elsevier, vol. 90(C).
    4. Yasir Alsaedi & Gurudeo Anand Tularam & Victor Wong, 2021. "Impact of the Nature of Energy Management and Responses to Policies Regarding Solar and Wind Pricing: A Qualitative Study of the Australian Electricity Markets," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 191-205.
    5. Paul Simshauser, 2020. "Merchant utilities and boundaries of the firm: vertical integration in energy-only markets," Working Papers EPRG2008, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

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    More about this item

    Keywords

    Microeconomic reform; energy-only markets; network regulation;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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