International review of Australia’s energy policies backs NEG

High-voltage powerlines against beautiful orange sky (ergon energex)

An in-depth review of Australia’s energy policies by the International Energy Agency (IEA) has found the National Electricity Market (NEM) is “world-leading”.

The report said the energy market and policy environment in Australia have seen “rapid changes” during the five years since the IEA presented the last in-depth review of Australia in 2012.

“While the NEM wholesale reliability standards are high, the states’ reliability levels have been often breached in recent years, as old capacity retires faster than expected and as new variable renewable energy follows different standards,” the review says.

“The electricity blackouts and load-shedding events during the storms and heatwaves of 2016/17 illustrated the low physical resilience of the energy infrastructure and the close interplay between electricity and gas security.

“A more flexible system with new system services, updated technical standards and grid codes, and appropriate network investments, including in new interconnectors across the NEM, remain critical to ensuring electricity reliability.

“The NEM is a world–leading, five-minute energy-only market, which has been the cornerstone of power security.

“However, greater collaboration on energy security within the NEM is needed, including better risk identification and assessments.”

Australia should rely on long-term policy and energy market responses to strengthen energy security, foster competition, and make the power sector more resilient, International Energy Agency executive director Dr Fatih Birol said.

“The government’s efforts to ensure energy security and move ahead with market reforms have been impressive,” Dr Birol said.

“Australia can develop its vast renewable resources and remain a cornerstone of global energy markets as a leading supplier of coal, uranium and liquefied natural gas (LNG), securing the energy for growing Asian markets.

“A comprehensive national energy and climate strategy is needed for Australia to have a cleaner and more secure energy future. The National Energy Guarantee (NEG) is a promising opportunity for Australia to integrate climate and energy policy.”

However, the review said the NEG should not be a “silver bullet”.

“The NEG could be an effective market-based mechanism if the government can ensure more competition, better interconnection among the NEM regions and stringent rules for the integration of renewable energy capacity into the system,” the review said.

“… its design should remain compatible with the NEM energy-only market, otherwise, it could create new barriers and windfall profits, if those elements are not considered.

“Undoubtedly, the power sector will be at the heart of Australia’s energy system transformation.

“There is a lack of visibility for business, consumers and policy makers alike with regard to the pace and magnitude of this transformation.

“International best practice suggests that both energy efficiency and renewable energy are key drivers of the energy transition.”

Federal Energy Minister Josh Frydenberg said the recommendations in the review align with reforms already underway.

“These include the responses to the Finkel Review into the National Electricity Market, gas market reforms and the NEG,” he said.

“In particular, the NEG goes towards the review’s overarching recommendation – for a stable, enduring policy response so that Australia can manage the energy transition already taking place.

“As the IEA review highlights, the creation of the NEG is a welcome development in this regard, describing it as a ‘promising opportunity’ to integrate energy and climate policies.”

The review was undertaken in March 2017 and is undertaken every four years.

The expert panel met with more than 100 companies, industry associations and government representatives in Canberra, Sydney and Melbourne.

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