Australia’s National Electricity Market: Financing the transition

Abstract

Australia has among the highest market share of coal-fired generation in the OECD. However, to honour its agreement to the Paris Commitment, the electricity sector will have to reduce its carbon intensity by at least 27.5 % from 2019 emissions. Under the existing market design, this would equate to an approximate 50 % increase in generation supply, with a requirement to invest in c. 3800 MW of new generation each year until 2030. Meanwhile, investor uncertainty is at an all-time high given market- and policy-driven factors, including the lack of clearly defined energy policy by Federal Government. Technical issues have also been a factor whereby some generators have had their output restricted for undetermined periods of time, and faced delays in commissioning which increases the costs of development for new renewable energy generators. No single solution to promote the investment in Australia’s transition is evident, but a coordinated approach to policy design, and well considered investment in networks will be crucial.