Former ACCC chair Rod Sims says Productivity Commission has tools to reform National Energy Market
Former ACCC boss Rod Sims says Productivity Commission has the tools and experience to fix critical issues within the National Energy Market that threaten to impact Australia’s energy supply.
Former Australian Competition & Consumer Commission chair Rod Sims says the Productivity Commission has the power and skillset to deliver much-needed reform to the National Electricity Market for the first time in three decades.
The Productivity Commission is expected to be asked within weeks to overhaul the NEM to ensure there is enough clean, reliable energy as coal-based power is phased out.
Mr Sims, who is currently chair of the Superpower Institute, writes in The Australian that the Productivity Commission not only has the skills to take the widest possible view, it can also be truly independent by sitting outside existing market institutions and arrangements.
The commission did a key electricity market review in 1990 that laid out the platform for consumer benefits and productivity improvements for more than a decade.
“We need another dose of the same, though this time we are facing a different set of problems,” he writes in his opinion piece.
“Our electricity system must be affordable, reliable and sustainable. As consumers know, our electricity prices have gone from being among the world’s lowest to now being too high. The market operator has been expressing concerns over reliability. And in recent years the move to zero emissions appears to have slowed.”
Mr Sims says that the three issues are closely aligned as a poorly managed transition to sustainability could make electricity unacceptably expensive for consumers, while the same policy levers can help achieve all objectives.
He says that the review needs to consider the entire interconnected energy system as the country transitions to a grid dominated by renewable energy: “Specifically, the role of transmission and congestion issues, the distribution network and behind-the-meter resources such as rooftop solar PV and batteries, the wholesale market, demand flexibility and the retail market”.
“Increasingly policy and planning will also need to account for large-scale flexible demand and supply from industries such as exporting green iron and green transport fuel, as Australia is best placed to do this and contribute to reducing world emissions.”
An expected review of the NEM comes as investment in new clean energy has stalled and wholesale power prices have spiked, at a time when households facing a range of cost-of- living pressures have been slugged with costly gas and electricity price rises.
Households have seen the cost of power jump by more than 20 per cent in the last quarter amid a renewable drought and coal outages, with the price surge threatening to punch a hole in Labor’s promise to slash $275 from bills by 2025.
The cost of producing electricity across the national market averaged $133/MWh in the three months to June 30, 23 per cent higher than the same period one year earlier, Australian Energy Market Operator data shows.
Mr Sims writes that the wholesale market faces particular challenges and that Australia needs to weigh up to what extent the country wants market-based versus centrally planned decision-making.
“The former was for a long time a complete success. Certainly, there are strong signals to build more storage, but the incentives to build more generation have been lacking,” he writes.
“There have been suggestions of a capacity market, which would pay generators simply for being available, but there is evidence this leads to the building of more generation than is needed, which increases costs for consumers.”
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