A Solution Looking for a Problem
Australia’s National Electricity Market (NEM) is undergoing significant transformation due to the rapid integration of renewable energy sources, the retirement of aging coal-fired power plants, and evolving consumer preferences and demand patterns. These changes have raised concerns about maintaining reliability and ensuring sufficient investment in dispatchable generation capacity to deliver the transition.
It is clear that ongoing market reviews of the NEM have not addressed the basics of the energy transition. Enduring market signals and certainty around the retirement of coal-fired power stations are needed to support long-term investment in the future energy system – and can be delivered without broad reforms to market design.
Our discussion paper, A Solution Looking for a Problem – a capacity mechanism and related post-2030 market reforms, highlights the dual components of the transition which must be addressed to provide clarity and certainty to support new private investment, while also providing flexibility for government and industry to deliver new capacity and reliability. These are:
- the timely development of new renewable generation, storage and transmission; and
- the orderly closure of ageing coal-fired power stations
Given coal closure uncertainty remains a critical risk to achieving an orderly transition, declaring the closure dates for coal-fired powered power stations – with a limited degree of flexibility – is needed to deliver new renewable generation and storage. To achieve this while ensuring reliability outcomes, a strategic operating reserve mechanism could be developed – which would hold contracted capacity in reserve (off market). This would guarantee a smooth transition for any future coal closures and reduce price volatility, without distorting investment signals for other necessary firmed renewable energy investments.
The discussion paper highlights that the ongoing calls for a wholesale market redesign are a solution looking for a problem – and that there are several existing, near-term, and complementary solutions and mechanisms which remain untapped and should be further bolstered to support the above objectives and deliver affordable and reliable electricity to consumers. This could include:
- ‘super-sizing’ existing tender schemes such as the Capacity Investment Scheme;
- unlocking opportunities across Consumer Energy Resources and Demand-side Participation; or
- supporting the ongoing development of market services markets.
Read the full discussion paper here: Nexa Advisory – Post-2030 NEM Market Reforms discussion paper
