Reducing Investment Uncertainty in the National Electricity Market

Publication date: Tuesday, 01st September 2015.

The National Electricity Market (NEM) is witnessing changes in the electricity generation mix, particularly with growth in renewables. However, the changing generation mix has resulted in increasing levels of generation that offer little or no power system inertia levels due to the displacement of synchronous generation, which may have implications for power system security and reliability.

Also, the resulting surplus generation capacity in the NEM is contributing to subdued wholesale electricity prices with implications for attracting future, efficient investment in generation capacity. The Council considers that it is for the market to provide signals for investment and de-investment for generation, and opposes the transferral of the costs of retiring assets onto consumers or taxpayers. However, the Council recognises there might be potential barriers to generators managing their assets in response to market signals, such as the first mover disadvantage, site remediation costs and policy uncertainty.

In December 2014, the COAG Energy Council committed to reduce investment uncertainty where possible to enable the NEM to continue to efficiently deliver a reliable supply of electricity in an environment of policy and economic change. The Council requested the Australian Energy Market Operator (AEMO) and the Australian Energy Market Commission to explore whether there are any material barriers in the National Electricity Law and Rules for generators who potentially want to exit the electricity market, and whether the existing regulatory arrangements allow AEMO to maintain a secure and reliable electricity system given potential exits and the changing generation mix including more intermittent generation.

Their advice as well as further background information is provided below.