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Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle

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  • Simshauser, Paul
  • Gilmore, Joel

Abstract

The recent history of Australia's National Electricity Market (NEM) from 2012 to 2016 was characterised by coal plant closures, tightening domestic gas market and sharply rising electricity prices. The supply-side response that followed from 2016 to 2021 could only be described as an investment supercycle – 16,000 MW of plant commitments comprising $26.5 billion across 135 (mostly) Variable Renewable Energy (VRE) projects. We examine causes and the effects of the supercycle. Underlying causes included disorderly plant exit and climate change policy discontinuity in prior periods. Adverse effects in the post-entry environment included connection lags, system strength-related VRE production constraints, ex-post remediation costs, system frequency careering outside normal operating bands, and rising system operator interventions. Market institutions were caught out and subsequently focused on market re-design and resource adequacy reforms. Yet analysis contained in this article reveals the NEM's most pressing problems relate to real-time power system security, not fundamental market design or resource adequacy issues. Resolution requires the establishment of ‘missing markets’ (i.e. fast frequency, additional operating reserves, ramping, system strength and inertia), and urgently, to restore power system resilience. Key insights for other jurisdictions are climate change policy continuity and policies which serve to defuse the risk of disorderly coal plant exit.

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  • Simshauser, Paul & Gilmore, Joel, 2022. "Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle," Energy Policy, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:enepol:v:160:y:2022:i:c:s0301421521005139
    DOI: 10.1016/j.enpol.2021.112648
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    6. 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.
    7. Csereklyei, Zsuzsanna & Kallies, Anne, 2022. "A legal-economic framework of electricity markets: Assessing Australia’s transition," MPRA Paper 114191, University Library of Munich, Germany.
    8. Measham, Thomas & Walker, Jim & Haslam McKenzie, Fiona & Kirby, Jason & Williams, Caroline & D'Urso, Jillian & Littleboy, Anna & Samper, Agnes & Rey, Rebecca & Maybee, Bryan & Brereton, David & Boggs,, 2024. "Beyond closure: A literature review and research agenda for post-mining transitions," Resources Policy, Elsevier, vol. 90(C).
    9. McDonald, Paul, 2024. "Interrelationships of renewable energy zones in Queensland: localised effects on capacity value and congestion," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 818-833.
    10. Gohdes, Nicholas & Simshauser, Paul & Wilson, Clevo, 2023. "Renewable investments, hybridised markets and the energy crisis: Optimising the CfD-merchant revenue mix," Energy Economics, Elsevier, vol. 125(C).
    11. Simshauser, P., 2022. "On dividends and market valuations of Australia’s listed electricity utilities: regulated vs. merchant," Cambridge Working Papers in Economics 2229, Faculty of Economics, University of Cambridge.
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    More about this item

    Keywords

    Coal plant exit; Investment cycles; Renewable investment;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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