The Australian Energy Market Commission (AEMC) has announced a review on whether wholesale energy market frameworks are suitable to complement increasing volumes of renewable energy and to maintain power system security as the industry transforms. The review will seek to address challenges in the NEM that are increasing with the shift from synchronous generation to non-synchronous and intermittent generation.
The AEMC and the Australian Energy Market Operator (AEMO) will work together on the review, which will provide recommendations to the COAG Energy Council. Click here to read more about the review.
Research authored by AGL economists has shown that the interaction between renewable energy targets and energy-only electricity market design may not be sustainable with high penetration of non-firm renewable generation. As more intermittent renewable supply enters the market (such as wind and solar), wholesale electricity prices are likely to become volatile, with very low prices for much of the year and a handful of extreme pricing events (during which generators can recover their fixed costs). This volatility is unlikely to be acceptable to either investors or consumers, and policy makers should begin to assess whether a new fit-for-purpose market design is necessary to incentivise both the entry of lower-emission generation capacity, and reliable capacity to be available at times of low renewable output or high demand (to maintain security of supply and system stability). In light of these changing market outcomes, AGL welcomes the AEMC's review announcement.
For more on these topics see Energy-only markets and renewable energy targets: Complementary policy or policy collision? and Climate and electricity policy integration: Is the South Australian electricity market the canary in the coalmine?