Policy report
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The National Electricity Market (NEM) is changing. New, variable renewable generation is entering the system at an unprecedented rate, and older forms of dispatchable generation continue to close. Over 10 years to September 2017 around 5,200 megawatts (MW) of traditional thermal generation was withdrawn from the NEM. Of the 2,600 MW of capacity added over six years to March 2018, 90 per cent was variable renewable generation.

The Australian Government (the Government) has taken action to put downward pressure on electricity prices, including securing more gas supplies, abolishing the ability of energy networks to appeal decisions of the Australian Energy Regulator (AER) and increasing transparency for retail customers. This is beginning to have an effect. Businesses and households are beginning to see electricity prices fall, and further electricity price relief is on its way.

The Government must ensure that the right incentives are in place to ensure that Australia’s electricity supply is affordable, that businesses are confident making investment decisions in the right mix of dispatchable generation assets, and that we meet our international commitments to reduce emissions.

The National Energy Guarantee (Guarantee) is a key piece of the puzzle. It is the first and best opportunity to integrate climate and energy policy to support investment in the right combination of resources. Its reliability requirement will build the signals into the market to enable it deliver the right dispatchable resources.

Building on the work of the Finkel Review and advice from the Australian Energy Market Operator (AEMO) about the NEM’s dispatchable capacity, the Government sought advice from the independent Energy Security Board (ESB)—which comprises our nation’s foremost energy market experts—on the best way to ensure the NEM provides reliable and affordable electricity, while meeting Australia’s international commitments to reduce emissions.

The ESB proposed the Guarantee as a technology-neutral policy—designed to encourage investment in the lowest cost mix of technologies, making energy more affordable for households and businesses, while maintaining a reliable system and meeting Australia’s international emission reduction commitments.

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