The Minister for the Environment and Energy, the Hon Josh Frydenberg MP, asked the Australian Energy Market Commission (AEMC) and the Climate Change Authority to jointly provide advice on policies to enhance power system security and to reduce electricity prices consistent with achieving Australia’s emissions reduction targets in the Paris Agreement (Appendix A). In developing its advice, the Authority and the AEMC were asked to draw on existing analysis and review processes and be informed by independent modelling.
This report outlines the AEMC and the Authority’s findings on these important matters.
Australia’s energy sector is undergoing a significant transformation. This change is being driven by new technologies, business models and consumer preferences. It also reflects the intent of governments (particularly the Commonwealth Government as well as the state and territories) to reduce emissions from energy generation to meet emissions reduction targets or, in some cases, to support renewable technology industries.
As many commentators have observed, energy and emissions reduction policies have been largely pursued as separate agendas. In the AEMC and the Authority’s view, this lack of cohesion between energy and emissions policy has placed considerable pressure on the National Electricity Market’s (NEM’s) ability to supply secure and low cost electricity for Australian businesses and consumers. The policy advice provided in this report is intended to provide a platform to underpin the better integration of energy and emissions reduction policies in the future and in doing so, help keep electricity prices as low as possible while enhancing power system security.
The NEM was established to introduce competition in the wholesale electricity sector with the objective of decentralising operational and investment decisions to commercial parties who are best placed to bear the costs and manage the risks of those decisions. The overall aim of the NEM is to provide reliable, secure energy at the best possible price for consumers. To continue to do so, the NEM will need to continue to transform and significant commercially driven capital investment will be needed.
Investment decisions taken today affect reliability, security, prices and emission levels for many years to come. A policy or policies to reduce emissions and help meet Australia’s Paris targets would need to attract widespread support, if they are to be durable and provide investment certainty.