Reform of Australia’s energy markets is overdue.
Successive governments at state and federal levels have successfully implemented policies to build up a renewable energy industry. It’s now possible to imagine renewable electricity as the central and dominant source of all of Australia’s energy needs, not too far in the future. This success should be celebrated.
But a system designed in the 1990s is now creaking under strain. The key assumptions that underpinned that design – generators that consume fuel, slow and predictable demand patterns, and passive consumers – have been invalidated by technology change.
Gas is no longer a bridge from using coal to using renewable energy, it will be a back-up fuel for the small number of times when renewable electricity can’t do the job. Most transport in the future will be electric too.
The electricity market is in a messy period, as coal-fired generators are retired and new renewable generators and associated transmission are built. This is largely an urgent co-ordination problem, and as such, will not be solved by market reforms. Markets and governments should accept a few years yet of ‘muddling through’.
Beyond the coal-exit era, there will be an era where the key driver of change will be growing demand for electricity, as industry, households, and transport are electrified to meet net-zero goals. It is this era that market reforms should serve.
Energy market governance needs to be fit for a net-zero economy. The three laws governing energy markets should be merged into one, to best serve the interests of consumers. And governments must give better policy direction so that market bodies can make better, faster decisions.
The Integrated System Plan should be extended and expanded to become a clear plan for delivering a least-cost, reliable, net-zero energy system, that has strong community support. And governments need to resolve planning bottlenecks that are holding back the infrastructure we urgently need.
Governments should begin reforms now, because market reforms take time, and the post-coal era will be here within the decade.
And finally, it is time to grasp the carbon pricing nettle. Reforming and operating the market becomes easier if participants have predictability over when, and how much, they have to pay to pollute.
Federal forays into energy policy fail when the federal minister tries to go it alone or to bully the states into line. Reform requires the federal, state, and territory governments to work together. The right
vehicle to pursue our recommendations is a revised Australian Energy Market Agreement delivered through the Energy and Climate Change Ministerial Council. Cooperation between all levels of government may take a little more time and patience upfront, but it will be quicker and more effective in the long run.