Director Achieving an efficient secure and clean electricity supply an economic and policy analysis Australias experience Outline Arrangements prederegulation and preprivatisation Deregulation in the 1990s ID: 362217
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Bruce MountainDirector
Achieving an efficient, secure and clean electricity supply: an economic and policy analysis.
Australia’s experienceSlide2
OutlineArrangements pre-deregulation and pre-privatisationDeregulation in the 1990sWhyWhatOutcomes in 2010GenerationTransmission and distributionRetail
Current challengesNetwork economic regulationRetail and wholesale competitionDemand-side participationLow emission development
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Pre-deregulation and pre-privatisationVertically integrated generation, transmission and distributionSome distribution by local authoritiesNo meaningful demand-side participationFocus on large scale, capital intensive, “base load” fossil fuel generationConcerns about efficiency, “gold-plating” and “empire-building”3Slide4
Deregulation from mid 1990s, and laterStarted in Victoria in mid-1990s, largely borrowing British experienceVertical disaggregation and the privatisation of generators, transmission and distribution and retailersIntroduction of independent economic regulations and five year price cap regulationMajor innovation was creation of wholesale spot market with offers from generatorsPressure to reduce cross-subsidiesProgressive introduction of retail competitionGrowing importance of environmental obligations (renewable energy schemes and, most recently emission reduction schemes)4Slide5
Outcomes: electricity prices5Slide6
Outcomes by 20106Slide7
Wholesale markets have worked reasonably well7Extreme prices (up to $12,500/MWh are possible)Wholesale markets competitive for most of the yearFinancial markets have offered effective spot market risk management (and some evidence of financial speculation)Peaking generation capacity has been constructed – largely to manage spot market peak demand risksSlide8
But wholesale market has failed to provide effective retail price signals to end users8Slide9
….…. and resulting extremely peaky load duration curve9The last 4000 MW of production and distribution was used for just 50 hours (100 settlement periods) in 2011Slide10
The failure to effectively involve the demand side has been significantly higher costs – mainly as a result of higher network expenditure 10Present Value of costs avoided in the NEM through DR assuming 3,000 MW of DR availableSlide11
Current challenges – network economic regulation11TransmissionDistributionPrices have risen stronglyMain problem is poor regulatory design: incentives schemes appropriate for privatised companies are being used with state-government owned companies, leading to significant over-investment. Slide12
Low emission subsidies – the burden has been borne by energy users12For renewable generators commissioned by the end of 2010Slide13
And substantial subsidy has been paid to high cost technologies13Subsidies for renewables commissioned by the end of 2010Slide14
Emission reduction policiesRecent introduction of fixed price emission permit scheme ($24/tonne CO2e) becoming tradable from 2015.Linkage to EU Emission Trading Scheme.With declining average demand for electricity, gas prices rising more than coal prices it is not clear that emission prices will be sufficient to drive development of low emission technology.14Slide15
Current challenges – demand side participationDespite very volatile wholesale prices, there has been little demand-side participation.Network regulation incentives have discouraged non-network solutions (demand side participation, energy efficiency, demand shifting).Feed-in tariffs for distributed generators do not consider avoided transport costs.Effective price signals through the production-transmission-distribution value chain are not reflected in retail tariffs and network use of system charges.Distribution connection arrangements have been a barrier.15Slide16
Some summary commentsDe-regulation and reform can be misnomers – be careful what you wish for. Competition in wholesale, centrally dispatched production has been reasonably successful.Network regulation has been a disaster: problem of political economy and regulatory design and implementation.Demand-side participation has been problematic, despite very strong wholesale market price signals.Renewables subsidies have allocated funds to expensive technologiesFeed-in tariffs have failed to consider all avoided costs.“Market reform” is better characterised as many little markets along the supply chain, poorly connected and operating in isolation of each other. Development of “clean energy” largely isolated from the energy market16