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AEMO report foreshadows more uncertainty and risk for business and the community

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“The latest projections from the Australian Energy Market Operator reinforce the unsatisfactory state of the electricity market and the need for greater policy certainty and coherence if we are to secure ongoing investment in energy supply and in energy-intensive industries,” Ai Group Chief Executive, Innes Willox said.

“The potential for increased electricity supply uncertainty in such a finely balanced market is intolerable especially given how much time successive governments of all persuasions have had to better prepare our energy market for the sorts of shocks we are increasingly seeing each summer. There is a clear risk of continuing underinvestment in energy-intensive businesses in Australia in these circumstances.

“Governments can’t and shouldn’t provide all the investment the electricity system needs, although all levels of government have a role in delivering an investable environment of coherent, credible, long term and integrated energy and climate policies.

“Governments need to put politics aside and work together on the long list of jobs to be done.

“Better interconnection across the NEM regions and transmission to new renewable and storage resources is needed over the next five years.

“The planning and approval processes need to accelerate – while continuing to protect consumers against the risk of footing the full bill for bad assets.

“New flexible resources are needed across the market; the Australian Energy Market Commission’s proposed wholesale demand response rule change will help, and so will investment in generation and storage assets.

“The one comforting note is that the report’s purpose is to show where further action is needed, not to predict the future, so its headline projections exclude many energy resources that in practice are likely to be available.

“Victoria will clearly still be a very tight region of the electricity market this summer. Additional generation from South Australia is likely to help a lot, as will the demand response that AEMO is currently contracting from energy users across the market.

“But the likelihood of load shedding will rise if there are delays to the repair of broken generators at Loy Yang A and Mortlake, or if Victoria experiences extreme heat. AEMO notes that the summer of 2018-19 was Australia’s warmest on record.

“However, while sensible steps already being taken by energy suppliers, energy users and governments should reassure us that electricity reliability can be maintained, the market is finely balanced. Bad weather or bad luck could see more energy users lose supply this summer.

“Finally, AEMO argues that the electricity reliability standard – currently 0.002% expected unserved energy – is flawed and should be replaced. This deserves very careful scrutiny. Everybody should understand that meeting the standard does not mean perfect reliability. The weaknesses of the current metric in an evolving market subject to more extreme weather need to be assessed. But tighter standards could have costs that greatly outweigh their benefits, as we saw when sterner network standards saw the cost of poles and wires balloon over the past decade,” Mr Willox said.

Source: Ai Group

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