This report presents the findings and recommendations from the project called ‘Analysis of institutional adaptability to redress electricity infrastructure vulnerability due to climate change’. The objectives of the project are to examine the adaptive capacity of existing institutional arrangements in the National Electricity Market (NEM) to existing and predicted climate change conditions. Specifically the project:
- identifies climate change adaptation issues in the NEM;
- analyses climate change impacts on reliability in the NEM under alternative climate change scenarios to 2030, particularly what adaptation strategies the power generation and supply network infrastructure will need; and
- assesses the robustness of the institutional arrangements that supports effective adaptation.
The project finds that four factors are hindering or required for adaptation to climate change:
1. fragmentation of the NEM, both politically and economically;
2. accelerated deterioration of the transmission and distribution infrastructure due to climate change requiring the deployment of technology to defer investment in transmission and distribution;
3. lacking mechanisms to develop a diversified portfolio of generation technology and energy sources to reduce supply risk; and
4. failure to model and treat the NEM as a national node based entity rather than state based.
The project’s findings are primarily to address climate change issues but if these four factors are addressed, the resilience of the NEM is improved to handle other adverse contingences. For instance, the two factors driving the largest increases in electricity prices are investment in transmission and distribution and fossil fuel prices. Peak demand drives the investment in transmission and distribution but peak demand is only for a relatively short period. Exacerbating this effect is increasing underutilisation of transmission and distribution driven by both solar photo voltaic (PV) uptake and climate change. Using demand side management (DSM) to shift demand to outside peak periods provides one method to defer investment in transmission and distribution. Recommendation 2 addresses investment deferment.
The commodity boom has increased both price and price volatility of fossil fuels where the lack of diversity in generation makes electricity prices very sensitive to fossil fuel prices and disruptions in supply. A diversified portfolio of generation would ameliorate the price sensitivity and supply disruptions. Furthermore, long term electricity price rises are likely to ensue as the fossil fuels become depleted. A diversified portfolio of generation would also ready the NEM for this contingency. Recommendation 3 addresses diversified portfolios.
This project makes four inter-related recommendations to address the four factors listed above. The non-technical summary in the report’s preface presents the recommendations without discussion and Chapter 10 discusses the justification for these recommendations in more detail.