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National energy ‘anarchy’ must be solved

The Australian Energy Market Operator has had to intervene 250 times in the past financial year to either turn off grid-destabilising renewable power or turn on gas-fired peak demand plants.

Three years ago, there were just 20 such requests. Today, the AEMO must juggle with what Energy Security Board chairwoman Kerry Schott once called the “anarchy” of the Australian electricity market just to keep the lights on.

The problem is that the gift of cheap, zero-carbon wind and solar power needs a boost from gas generation when it’s windless or dark. It is two halves of the same equation. Solving it is urgent as more renewables undermine returns from base-load coal. That’s what they are meant to do – but in a controlled decline and exit for coal, not a bumpy slope and crash. Coal might recede faster than future gas can supplement renewables, and the gap means blackouts and cost.

As Dr Schott told The Australian Financial Review Energy and Climate Summit in November, the transition is not reversible, and players in the National Electricity Market must get on with this year’s reform of the market to generate the investment signals to fill the gap. But governments keep jumping in, trying to take control of a politically damaging threat. The federal government has talked about building power stations. NSW proposes state underwriting for investments. But they are fixes that are not fixes, because they have scared off real investment in new capacity.

The risk then is that all the advantages of cost competition in the NEM for the past 20 years are lost. In its place would be a disintegrating NEM, and more intervention bringing central control but at likely high cost. That is what this year’s crucial reforms must address and avoid.

Source: Financial Review