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World Forum on Energy Regulation IVAthens, Greece
October 18 - 21, 2009
Energy Market Design and Promotion of Efficient Emissions Reductions
John TamblynChairman, Australian Energy Market Commission
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
A change in energy policy focus
• Original motivation for energy market liberalisation was competition and efficiency
• Now charged with delivery of a different policy objective– lower carbon emissions with efficiency and
energy security
• Are existing market structures and frameworks consistent with the new policy agenda?
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Energy markets are “front and centre”
• Meaningful emission reductions require large-scale change in energy markets
• 49% of Australia’s carbon emissions are from the stationary energy sector– Because we rely on coal for electricity
generation
• Given effective climate policy still reliant on coal medium term.
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Energy 49% Australia’s Carbon Emissions
STATIONARY ENERGY 49%
TRANSPORT 13%
FUGITIVE EMISSIONS 6%
INDUSTRIAL PROCESSES 5%
AGRICULTURE 16%
LAND USE, USE CHANGE AND FORESTRY 9%
WASTE 2%
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Still reliant on coal in the medium term
CURRENT 2020
Source: ESAA Source: Commonwealth Treasury
BLACK COAL 45%
BROWN COAL 15%
GAS 20%
RENEWABLES 20%
COAL 84.3%
NATURAL GAS 9.7%
HYDRO 5.6%
WIND 0.3%
OTHER 0.1%
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Australian climate policy
Carbon Pollution Reduction Scheme (CPRS)
• Explicitly price CO2 emissions• ‘Cap & Trade’ design• Proposed to commence 2011• With $10 cap for first 12 months
Renewable Energy Target (RET)
• Obligation on retailers• % of electricity from
Renewables• Profiled to 20% by 2020
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Changing energy market dynamics
• Pricing carbon will:– Increase prices in energy spot and contract markets– Increase level of volatility of retail costs– Change the pattern of generation entry and retirement– Alter the timing and location of new transmission
investment
• The obligation for retailers to buy a proportion of supply from renewable sources will:– Compound the change in generator entry– Initially, focus on wind-powered generation– Increase intermittent output, in potentially remote locations
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Absolute & relative generation costs
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
0 3,288 6,575 9,862 13,149 16,437 19,724 23,011 26,298 29,586 32,873 36,160 39,447 42,735
Gas
Black Coal
Brown Coal
Wind
Hydro
Wind/Hydro
Coal
Gas
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
0 3,288 6,575 9,862 13,149 16,437 19,724 23,011 26,298 29,586 32,873 36,160 39,447 42,735
Gas
Black Coal
Brown Coal
Wind
Hydro
Gas
Brown Coal
Current running costs ..with $40 carbon price
$20$20
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Australia’s current electricity transmission and generation
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Australia’s wind and geothermal resources
Mean Wind Speed Heat Flow Map
Source: www.environment.gov.au/renewable/atlas Source: http://www.rise.org.au/info/Res/geothermal/index.html
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
More highly variablegeneration output
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
AEMC Review
• Directed to undertake a review on behalf of Australia’s council of energy Ministers
• Stress test of current market frameworks against ETS and 20% Renewable Energy Target
• Reported to Ministers last month, following 14 months of analysis and consultation
• Key findings:– many aspects of the framework appear resilient
– but a number of changes are required
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Delivering generation and network investment• “Energy Only” market can signal required
generation investment.– Ability to raise price cap– Climate policy changes signals does not
invalidate market mechanism
• Economic regulation of networks can incentivise and finance efficient investment
• But some refinements proposed
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Findings (1)
• Retail– Price regulation, where maintained, needs to be more
flexible to cope with uncertainty in carbon inclusive energy costs
– Necessary to mitigate risk of regulation-induced retailer financial distress
• Transmission investment planning– Regulatory framework needs to provide for investment in
initially ‘over-sized’ connection assets to support prospective new (particularly remote) generation clusters
– Benefits because of large scale economies – but also risks of asset stranding
John Tamblyn - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009
Findings (2)
• Transmission cost recovery– Greater inter-regional flows mean cost recovery on a
regional basis is increasingly problematic
– Proposal for inter-regional transmission charging regime
• Generation– Significant new entry and exit highlights need for robust
locational signal
– They can mitigate trading risks from network congestion, and risk of inefficient transmission investment
– Proposal to develop ‘deeper’ connection or use-of-system charges for generators
