Opinion: There is no energy crisis and the lights won't go out this summer
With so much discussion about the current and future health of Australia's energy sector, it is important that the facts are not overlooked for a good story. Any implication that the sector is destined to experience a power crisis next summer is over-inflated, as confirmed by the facts underpinning our recently released Energy Supply Outlook. AEMO's most recent report highlighted the improved outlook for next summer than what was evident back in February. This outlook reflects both government and market responses, together with the significant work done to prepare the industry for a range of worst case, extreme scenarios should they be realised next summer.
Hazelwood's closure doesn't make a difference
The Energy Supply Outlook also outlined that the retention of Hazelwood is simply not required to maintain power system security for next summer. Our analysis summarised that retaining the oldest coal plant in the market to simply provide system peak services was inefficient.
Importantly, AEMO's outlook highlighted that the Reliability Standard set by the Australian Energy Market Commission will be met within all National Electricity Market (NEM) regions over the next two years. The Reliability Standard is a strong planning benchmark for the industry.
AEMO has been collaborating closely with governments and market participants to develop capacity within the power system to meet peak demand during critical summer periods for the immediate two-year horizon. AEMO's immediate job, in close coordination with its market body counterparts the Australian Energy Regulator and the Australian Energy Market Commission, is clear. We must take all actions necessary and appropriate to restore and build confidence in our energy markets.
New generation, storage and sufficient gas
Various initiatives undertaken throughout 2017 focus on ensuring generation and generation fuel availability, completion of generation and transmission maintenance prior to summer, the facilitation of new generation and storage, greater utilisation of consumer owned energy resources, and ensuring sufficient gas supply to meet both domestic gas consumption and electricity generation.
Sufficient gas supply for the domestic market remains a critical component of a secure power system in Australia. Due to this increasing dependency on natural gas, we need to have a very clear process to ensure gas is available domestically. The federal government-led gas supply guarantee is a critical mechanism to ensuring domestic gas availability.
Initiatives such as the ARENA pilot program, which has received additional support from the New South Wales government; the development of robust energy reserve contracts; and the installation of battery storage facilities in Victoria and South Australia will support power system security. The positive progress of these initiatives should provide the industry with confidence and clear signals that the industry is willing to evolve.
System security means rule changes
AEMO's commitment is to secure efficient energy supply for all Australians. With that commitment, we welcome the recognition embodied in the recently released Finkel report that substantial changes are naturally occurring in the power sector. This means that enabling system security in the future will require comprehensive changes in the rules we use to secure the grid and operate the markets.
The implementation of these changes will take time. Therefore, it is essential that we have a good transition plan for the interim. As a core foundation of this transition plan, at the request of the Prime Minister, AEMO will work with market participants and the wider industry to identify whether new supply resources are needed in the near term to secure the grid.
If required, AEMO will look to identify the best auction mechanism to utilise the innovative and competitive benefits provided by the market to secure resources that supply greatest value to consumers, and meet the security requirements of the system.
We welcome the opportunities to engage with industry and policy makers to enable an efficient and secure Australian energy market for future generations.
Thursday, June 29, 2017
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