Need for energy market independence to avoid fracture

The Business Council of board member Catherine Tanna at Parliament House in Canberra on Wednesday 29 March 2017. Photo: Andrew Meares Photo: Andrew MearesThe head of one of the country’s largest energy utilities has warned the nation’s energy markets risk fracture amid the mounting “uncertainty and inconsistency” of state-based energy targets.
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“We’re already grappling with uncertainty and inconsistency created by state-based renewable energy targets,” said Catherine Tanna, the chief executive of Energy.

???Her comments, posted on the company’s website, came as the federal government moves to give the competition watchdog more power over the industry.

It also came in the wake of the closure of Victoria’s large Hazelwood power station on Thursday, which had the nation’s energy market operator AEMO prepared to force industry to shut down to keep the lights on, in a bid to avoid any market disruption.

Closures were avoided as Victoria continued to export electricity for much of Thursday into NSW while importing from Tasmania and South .

Those trades shifted later in the day, with NSW selling into Victoria later in the afternoon as Victoria was also supplying Tasmania.

Prices in the wholesale electricity market remained elevated, at more than $100 a megawatt hour for most of the day.

“With the closure of Hazelwood, obviously the operators of Loy Yang and Yallourn are making money hand over fist,” one industry expert said.

“Competition in the market is too low, so the generators have every incentive to bid their output into the market at as high a price as they can.

“Recently South put forward a proposal that amounts to ‘going-it-alone’ and the federal government has floated the idea of expanding the Snowy Hydro scheme.

“How long before the system fractures?”

Despite the recent criticism of the national electricity market, 15,000 MW of capacity – with a third of that renewable generation capacity – has been added over the past two decades as the emissions intensity of the NEM has fallen by one fifth.

“Clearly the system is challenged,” she said. “But it needs enhancement, not replacement. Absent [political] bipartisanship, we need independence; but we do not need another institution to oversee the energy industry.”

Rather than create new regulators to address the energy challenge such as the n Competition and Consumer Commission – “we have more than enough already’ Ms Tanna said – “the answer lies in how you use the agencies we already have”.

In particular, the n Energy Markets Commission should move from overseeing the sector to take on a role similar to the Reserve Bank in the banking and finance industries where it sets monetary policy, she noted. For its part, the AEMC could guide a carbon market.

“Just as the RBA is responsible for monetary policy, our independent energy institutions might take charge of delivering carbon policy,” Ms Tanna argued. “For example, the AEMC might do this with advice from AEMO and AER. Its lever would be a mechanism for managing carbon.

“A clear long-term carbon signal … would be the premier mechanism to drive a national reduction in carbon emissions, just as it’s the long-term interest rate that drives national investment.

“Or we can watch as federal and state governments continue to work at cross-purposes.”

Her comments came as plans were unveiled for a $1 billion solar-battery farm to be built in South by Lyon Solar, which includes a 330 megawatt solar farm to cost $700 million and a 100MW battery system which will have four hours of full output storage.

The new farm is to be operational by the end of the year and is aimed at heading off shortages which the energy market operator has warned both Victoria and South are facing next summer.