Australia needs a unified national energy policy and should avoid “ad hoc policy fixes”.
That’s the advice handed out in a Productivity Commission report made public this week.
The report found technological change is radically altering the economics and structure of the energy sector, particularly the electricity industry.
“The Australian energy sector, especially in the east coast, is in a fragile state,” the PC said. “While the past reforms that injected competition into the sector and radically altered its structure have served Australia well, the sector has undergone significant change in the last decade.”
Government policies mandating the uptake of renewable energy have significantly altered the mix of technologies being used. The report also found “insufficient investment in new generating capacity that complements renewable generation”. This was the result of “an uncertain environment”.
Australia needs a long-term strategic vision, national energy policy
This complementary generating capacity was hampered by high gas prices, preventing the sector from reducing emissions by replacing coal-fired generation.
“No one jurisdiction can fix the issues currently confronting Australian energy markets,” the PC said. Australian governments need to work cooperatively to resolve the issues with a long-term strategic vision. These should:
- Include a clear transition path from current arrangements;
- Make consumers central to the vision; and
- Strike a balance between reliable, affordable and sustainable energy.
“Governments should avoid ad hoc policy fixes,” the PC warned. “A market-driven national emission reduction policy should replace the myriad of existing Australian and state and territory government policies.”
Renewable energy generators need to meet demand
The PC also found the uptake of renewables is having unintended implications for network security and reliability. Because of this, renewable generators should bear the costs of ancillary services that the characteristics of their supply impose on the network.
These ancillary services include demand response services to meet the fluctuations of energy use throughout the day. Unlike large coal and gas-fired turbines, solar and wind are not as steady in their power output. Solutions include using solar storage batteries to store excess energy to add to the grid when needed.
The report concluded that “the cost of not fixing the current mess” would be significant, citing South Australia’s 2016 blackouts.
It also recommended more effective stakeholder consultation to end the moratorium on gas supply. There is a moratorium on conventional gas exploration in Victoria until 2020.