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Energy-only markets and renewable energy targets: Complementary policy or policy collision?

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  • Nelson, Tim
  • Reid, Cameron
  • McNeill, Judith

Abstract

Australia’s 20% Renewable Energy Target (RET) was designed and implemented against a backdrop of several decades of continuous growth in electricity demand. Since the introduction of the policy in 2009 electricity demand has declined continuously. In this article, we analyse how Australia’s National Electricity Market (NEM) has responded to falling demand and significant additional installed capacity as a result of climate change-related policies. We conclude that an energy-only market design, barriers to exit for incumbent plants, and time inconsistency of policy has resulted in investment in new renewable energy projects becoming largely intractable. In our opinion, changing the RET fixed GWh target will not alter this fact. To overcome barriers to exit, we examine three options for complementary public policy in the short-term: direct government intervention; a market-based solution; or regulation. In the long-term, a redesign of the energy-only NEM market seems inevitable.

Suggested Citation

  • Nelson, Tim & Reid, Cameron & McNeill, Judith, 2015. "Energy-only markets and renewable energy targets: Complementary policy or policy collision?," Economic Analysis and Policy, Elsevier, vol. 46(C), pages 25-42.
    • Handle: RePEc:eee:ecanpo:v:46:y:2015:i:c:p:25-42
    DOI: 10.1016/j.eap.2015.04.001
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    6. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
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    9. Rai, Alan & Nunn, Oliver, 2020. "On the impact of increasing penetration of variable renewables on electricity spot price extremes in Australia," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 67-86.
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    12. Rabindra Nepal & Tooraj Jamasb & Anupama Sen & Lawrence Cram, 2017. "Small Systems, Big Targets: Power Sector Reforms and Renewable Energy Development in Small Electricity Systems," Working Papers EPRG 1709, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    13. Nelson, Tim & Pascoe, Owen & Calais, Prabpreet & Mitchell, Lily & McNeill, Judith, 2019. "Efficient integration of climate and energy policy in Australia’s National Electricity Market," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 178-193.
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    15. Paul Simshauser & Joel Gilmore, 2020. "Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle," Working Papers EPRG2014, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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    17. Liepold, Constanze & Fabianek, Paul & Madlener, Reinhard, 2023. "Tradable Performance Standards for a Greener Automobile Sector: An Economists’ Appraisal of the German Greenhouse Gas Mitigation Quota," FCN Working Papers 9/2023, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    18. Tim Nelson & Stephanie Bashir & Eleanor McCracken-Hewson & Michael Pierce, 2017. "The Changing Nature of the Australian Electricity Industry," Economic Papers, The Economic Society of Australia, vol. 36(2), pages 104-120, June.
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    20. Nelson, Tim & Rai, Alan & Esplin, Ryan, 2021. "Overcoming the limitations of variable renewable production subsidies as a means of decarbonising electricity markets," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 544-556.
    21. Yasir Alsaedi & Gurudeo Anand Tularam & Victor Wong, 2021. "Impact of the Nature of Energy Management and Responses to Policies Regarding Solar and Wind Pricing: A Qualitative Study of the Australian Electricity Markets," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 191-205.
    22. Simshauser, Paul & Gilmore, Joel, 2022. "Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle," Energy Policy, Elsevier, vol. 160(C).
    23. Flottmann, Jonty, 2024. "Australian energy policy decisions in the wake of the 2022 energy crisis," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 238-248.
    24. Summerfield-Ryan, Oliver & Park, Susan, 2023. "The power of wind: The global wind energy industry's successes and failures," Ecological Economics, Elsevier, vol. 210(C).
    25. Yang, Mian & Hong, Yili & Yang, Fuxia, 2022. "The effects of Mandatory Energy Efficiency Policy on resource allocation efficiency: Evidence from Chinese industrial sector," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 513-524.

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