Climate change and the National Electricity Market
Dr William Paul Bell
Dr Phillip Wild
Professor John Foster (Director)
Energy Economics and Management Group
Climate Action Summit 2014 September 20-21, Brisbane
Key points
• Successful climate change adaptation breeds
new problems and inappropriate policy
responses
• The success, falling electricity demand & CO2
• The problems
– oversupply of generation capacity
– increasing transmission and distribution (t&d)
networks charges
Falling demand and oversupply of generation capacity
Permanent transformations
Excess capacity until after 2023-24
Successful CC adaptation
- LED Light bulbs
- Household solar PV
- Solar water heating
- Price awareness
- Smart meters
- Building standards
- Minimum Energy Effici.
Manufacturing decline
- Resource boom
- LNG international linkage
Irregular transformations
(Source: Australian Energy Market Operator’s
Electricity Statement of Opportunities 2014 )
- ENSO - La Nina bias
(Masking CC)
- GFC
Why is excess capacity a problem for
renewable energy?
•
•
•
•
Excess capacity => low market prices
Hence insufficient revenue to cover capital cost
Affects new investment in renewable energy
But investment in coal already sunk cost
– so can just cover variable costs
• Hence renewables wholly reliant on subsidies
• But policy inconsistency make investors wary
Solutions
• Owners of the coal generators pay for closures
– Coal generators remain hoping for a change in demand
– Reducing economic viability of entrants to the market
• Government pays coal generators to close down
(AGL Emerging Issues in Energy Economics seminar)
Implementation
• Federal Government auctions for the demolition of
coal generation capacity
– No longer a carbon price, so suboptimal demolition order
– Opportunism in recent coal generation purchases
– Transfer of wealth from Federal to State Governments
Falling electricity demand inducing a price spiral in
transmission and distribution (t&d) charges
• Price increases
o Network companies guaranteed a fixed rate of return on capital
expenditure
o Less electricity flowing in the lines
o Therefore, cost per unit of electricity transferred must rise
• Exacerbating price increases
o Infrastructure expenditure based on over forecasted demand
• Price spiral
o people install more solar PV and solar water heating
o batteries become economically viable (people disconnect)
o less financially able left paying for the network
• Policy responses to date that are maladaptive to CC
o State Gov.’s privatising t&d
• bring in new distance sources of renewable energy
• demand side manage to minimise new t&d investments
o
Network companies charging a daily connection fee
•
deters renewable energy investment
Transmission and distribution (t&d): a natural monopoly
Ownership patterns in the NEM by indicative market share (Source: QCA 2013)
•
International market structure comparison of t&d (Foster, Bell & Wild, et al 2012)
– Australia’s NEM approx. 20 million people with 13 t&d companies
– South Korea’s 55 million people single t&d company
– UK’s single electricity and gas transmission company
• Solution amalgamating t&d
– Gain economies of scale savings (13 CEOs and boards of directors)
– Retain government ownership to pursue mixed CC policy objectives
Pricing consumption of electricity generated and network usage
Traded Electricity: Generator -> Network -> Retailer -> Customer
• Pricing for consumption of electricity generated
• Fixed cost per unit of electricity (OCGT = renewable energy)
• Time of Use (TOU) prices reflecting wholesale market prices
• Pricing for consumption of network usage
• A fixed price per day
–
under investment in renewable energy
• A fixed price per unit of electricity consumed (kWh)
•
Network usage fixed pricing problems
•
•
•
•
Person uses constant 1 kWh every hour for one year (= 8,760 kWh)
Person uses 8,760 kWh in one hour (8,760 times network investment)
Transfer of wealth from poorer to richer electricity users
Congestion of lines ignored (ENSO - El Nino phase unmasking CC)
• Network usage pricing solution
•
Charge at the maximum power (kW) reading for the previous year
–
–
Encourage renewable and battery storage installation to levelised demand to
defer t&d investment
Easy to understand and motivating
• Both TOU and maximum power usage pricing require smart meters
Acknowledgements
• References
– Bell, WP, Wild, P & Foster, J 2014, Collinsville solar thermal project: Energy
economics and dispatch forecasting, University of Queensland, Brisbane,
Australia.
– Foster, J, Bell, WP, Wild, P, Sharma, D, Sandu, S, Froome, C, Wagner, L, Bagia, R
& Misra, S 2013, Analysis of Institutional adaptability to redress electricity
infrastructure vulnerability due to climate change, National Climate Change
and Adaptation Foundation, Brisbane, Australia.
– Wild, P, Bell, WP & Foster, J 2014, Impact of Operational Wind Generation in
the Australian National Electricity Market over 2007-2012, Energy Economic
and Management Group, University of Queensland, Brisbane.