Technology Changes to Lift Competition and Reduce Power Costs

Changes to electricity generation and storage technology, market architecture and supporting infrastructure will smooth wholesale electricity prices and increase competition in the National Electricity Market, according to a new report.

The Australian Energy Council’s Chief Executive Sarah McNamara said that the analysis by Frontier Economics highlighted that the shifts underway would help overcome the need for short-term market interventions, which were becoming the “new normal”.

The Council commissioned the report, “National Electricity Market (NEM) Structure in Light of Technology and Policy Changes”, which assesses the implications of new technology and other developments on its competitive processes.

“Over the past few years there have been regulatory and investment interventions proposed for the NEM.  Many of the interventions have emerged because it’s argued that the NEM’s structure is not competitive enough.

“That debate over the competitiveness of the NEM has often occurred without considering the dramatic changes already underway in the electricity industry,” Ms McNamara said.

The report points to cost reductions in solar thermal plants and storage technology, increased investment in new transmission to reduce supply constraints, along with demand response, smart metering and energy management systems and increased rooftop solar and distributed batteries, as well as the possibility of LNG import terminals.

“These changes undermine a key assumption about electricity market competition; that of scale-economies that arise from large, usually coal-fired, power stations selling power in one direction to passive consumers.

“This combination of technological, economic and policy-driven changes is likely to have a very real effect on how competition in the market arises. When contemplating regulatory intervention, it is crucial to think about its necessity in the new industry, not the legacy one.

“Regardless of your starting viewpoint on the adequacy of the current-day structure, the implications of the changes flagged in this report will be profound.”

A copy of the report is available here.

About the Australian Energy Council
The Council represents 23 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets. These businesses collectively generate the overwhelming majority of electricity in Australia and sell gas and electricity to over 10 million homes and businesses.