CEC says NEM reform needed for orderly transition

Headshot of Clean Energy Council CEO Kane Thornton wearing glasses and a suit
Clean Energy Council CEO Kane Thornton

The Clean Energy Council says rising electricity prices highlight the need for Australia’s next federal government to prioritise an orderly transition away from fossil fuel generation, with a series of critical reform of the National Electricity Market (NEM) needed to manage the pace of change effectively.

“We are at a crossroads. There is a strong future for a NEM that allows sharing of clean energy across state borders to ensure that all Australians have access to cheap, zero-carbon electricity. However, the Federal Government needs to have a plan to reinvigorate the NEM, providing clear leadership on how Australia can best use renewables to deliver the lowest cost decarbonisation of the economy,” Clean Energy Council CEO Kane Thornton said.

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“Strong government leadership is crucial to manage the transition and facilitate private investment in low-cost clean energy, turbo-charging economic activity and job creation across Australia and accelerating our evolution to becoming a clean energy superpower.

“An orderly transition is about ensuring enough renewable energy capacity has been built and connected to the grid, well before Australia’s ageing and unreliable coal-fired power generation fleet fails or is decommissioned because it has become too expensive to run. A just-in-time approach to replacing this ageing coal capacity contributes to higher electricity prices for consumers—as we are already seeing—and potentially even has reliability impacts.”

The Australian Energy Market Operator’s (AEMO) latest Quarterly Energy Dynamics report revealed that coal generation outages and a lack of transmission investment have contributed to higher wholesale prices, which feed directly through to higher prices for end consumers.

AEMO’s report states that wholesale electricity prices averaged $87 per MWh in the first three months of 2022, up 141 per cent from a year earlier and two-thirds higher than the final three months of 2021. A combination of coal generator failures and increased gas and coal prices has been a primary driver of these higher prices.

According to AEMO, in New South Wales alone, from Q1 2019 to Q1 2022, unplanned black coal outages have increased by 164.46 per cent, from 439MW to 1161MW. Added to this, there have been outages at other coal-fired power plants, including Loy Yang A and Yallourn in Victoria and Callide in Queensland.

“A combination of coal generator failures and high gas and coal prices has been a primary driver of higher prices,” Thornton said.

“However, these coal generator failures also make it easier for the remaining coal generators to set the price, contributing to higher prices for customers.”

“A lack of transmission is exacerbating these high prices. AEMO has found that the inability to transport energy from southern states, where there has been record investment in renewables, also contributed to higher prices in Queensland,” Thornton said.

“Sharing energy across borders takes advantage of Australia’s abundant renewable energy resources and keeps costs down by maintaining competitive tension in the national energy wholesale market,” says Thornton.

“Without the Federal Government stepping up and again taking leadership, there’s a real likelihood we will enter a period of energy balkanisation, where each state races the other to build new generation and transmission. While this will support decarbonisation and create local economic benefits, we will lose out on some of the key benefits the NEM was designed to deliver. This scenario is basically unavoidable at present due to the absence of a federal plan, so one of the key tasks for the next federal government will be to provide the guidance and leadership needed to maintain a national approach to the electricity market.”

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In parallel to the energy transition, the transition for coal workers and their communities also requires federal government leadership. As part of its Federal Election Policy Recommendations, the Clean Energy Council urges the next federal government to establish a new authority with at least $1 billion in funding to invest in transition initiatives in coal communities across Australia.

Around 10,000 Australians are employed in the domestic thermal coal sector, with the coal workforce representing up to 5 per cent of the community in some regions. These communities need some level of certainty and forewarning about future coal generation closures, along with strong investment in re-skilling and creating new employment opportunities.

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