1,721,015 research outputs found
Vertical integration, peaking plant commitments and the role of credit quality in energy-only markets
No full textResource adequacy in energy-only markets is of continual interest to policymakers and in Australia has historically been navigated via energy retailer investment commitments in peaking plant capacity. This in turn has been driven by the National Electricity Market's very high Market Price Cap (AUD $15,000/MWh). The market is rapidly transitioning with rising levels of renewables and coal plant closures. Ironically however, investment commitments in peaking plant capacity by major energy retailers has stalled. This raises the question as to whether the model of vertical integration, a pattern which dominated energy-only markets, has somehow broken down. In this article, peaking plant dynamics are tested using historic data – first as a stand-alone generator, then as part of a merged vertical entity over 16 years of trade. Results reveal the canonical merchant peaking plant remains too risky as a stand-alone project financing, but vertical integration and energy retailer incentives to commit to on-balance sheet peaking plant remains strong, with transaction cost synergies of 13% and investment grade credit quality being contingent on integration. Any lack of commitment must be explained by other variables.Full Tex
The cost of capital for power generation in atypical capital market conditions
No full textDetermining the cost of capital in the energy sector requires considerable care. Whether being derived by firms, stock analysts, policymakers or regulators, the consequence of error is amplified because the energy sector is the world's most capital-intensive. No other cost variable has a greater impact on electricity price/cost estimates. Historically, the Capital Asset Pricing Model could be applied mechanistically and produce reliable estimates for equity costs. But the Global Financial Crisis produced atypical capital market conditions and a mechanistic application will produce results that are intuitively erroneous. The model is not broken, but inputs require professional judgement and adjustment.Full Tex
Fuel Poverty and the 2022 Energy Crisis
No full textThe Ukraine war has increased coal and gas prices during 2022. Consequently, spot prices in Australia's National Electricity Market rose from 225/MWh, year-on-year. Households are shielded from spot prices, but as energy retailer hedge contracts mature, they are replaced by higher cost contracts, and end-use retail tariffs will then rise. In this article, fuel poverty levels in Queensland are analysed. Model results forecast that fuel poverty rises from 6.8 per cent to 10.5 per cent of households. However, changes to energy concessions policy in 2016‒2017 materially enhanced horizontal and vertical efficiency, with successful targeting rising from 51 per cent to 69 per cent of vulnerable households.Full Tex
Australia’s National Electricity Market: An Analysis of the Reform Experience 1998–2021
No full textAustralia’s National Electricity Market (NEM) commenced in 1998. The centrepiece of NEM reforms was the restructuring of vertical monopoly electricity utilities and the creation of an energy-only, gross pool wholesale market and associated forward market. For most of the past 20+ years, NEM has displayed consistent economic and technical performance. But missing policies relating to climate change, natural gas and plant exit produced results that tested political tolerance in 2016–2019. However, as with prior episodes of high prices, market participants responded—most recently—with a renewable investment supercycle. Prices have since reverted, but power system security remains challenging as the plant mix changes.No Full Tex
Lessons from Australia's National Electricity Market 1998-2018: strengths and weaknesses of the reform experience
No full textAustralia’s National Electricity Market (NEM) commenced in 1998. The centrepiece of NEM reforms was the energy-only wholesale market and accompanying forward markets. For most of the past 20 years it has displayed consistent economic and technical performance. But missing policies relating to climate change, natural gas and plant exit recently produced results that tested political tolerances. Piecemeal and random interventions are now following andwill likelyinflame rather than resolve matters, at least over the near term. Network policy failures in the mid-2000s led to sharp regulated tariff increases from 2007 onwards.These policy problems were largely cauterised by 2012, but regulatory timeframes and business inertia meant network tariffsdidn’tstabilize until 2015. The retail market has been forced to deliver sharply rising prices, and, in consequence, the problem of rising prices has been conflated with pricediscrimination;a largely unhelpful development in an otherwise workably competitive market.Full Tex
The Gains from the Microeconomic Reform of the Power Generation Industry in East-Coast Australia
No full textPower generators in the east-Australian states of Queensland, New South Wales and Victoria comprise the dominant part of a 40,000 MW power system and operate at world benchmark efficient levels. But it has not always seem this way. During the late 1980s, the states were grossly over-supplied and the cost structure of the generation sector was spiralling out of control. Microeconomic reform has since corrected pricing practices and capital allocation. But electricity reforms need to be carefully orchestrated. While gains in productive and allocative efficiency will invariably occur, dynamic efficiency gains are harder to achieve. Inadequate restructuring or a supply-demand imbalance at the start of reforms may result in high prices, which in turn can drive an excess entry result, following which emerge systemic faults in signalling for new plant. Poor starting blocks can set off a chain reaction of events which may take a power system more than a decade to recover from.No Full Tex
Optimising VRE capacity in Renewable Energy Zones
No full textAustralia experienced significant growth in variable renewable energy (VRE) investment commitments during 2016–2021. A subset of projects experienced material entry frictions which stemmed from inadequate network hosting capacity. In this article we examine the development of Renewable Energy Zones (REZ) as a means by which to help guide forward market commitments and produce greater coordination between generation and transmission plant investments. Using an optimisation model comprising 1500 MW of transmission network infrastructure, we explore various definitions of a ‘fully subscribed REZ’ given portfolio benefits associated with complementary wind and solar resources in Southern Queensland. When minimising cost forms the objective function, full subscription is achieved by developing 2050 MW of VRE, comprising 1700 MW of wind and 350 MW of solar. When maximising output forms the objective function, ~3400 MW of wind and solar is developed in roughly equal proportions, accepting some curtailment is an economic result. And if maximising net cashflows forms the objective, VRE development is complicated by the dynamic nature of spot prices. Specifically, in the early stages of a REZ solar is preferred but as its market share rises and value of output falls, wind investments dominate holding technology costs constant.No Full Tex
Greenhouse gas emissions vs CO2 emissions: Comparative analysis of a global carbon tax
No full textBoth CO2 and non-CO2 emissions are liable in climate change policies in many countries around the world. However, there are still many impact assessment studies in different regions that consider only CO2 emissions. We hypothesise that excluding non-CO2 greenhouse gas emissions, which are also liable in climate change policies, may lead to misleading results and impacts. We employ a global climate change policy model (GTAP-E-PowerS) to examine how the impact of a uniform carbon tax at US$15 applying to the world regions are different when only CO2 emissions are liable compared to the case that non-CO2 emissions are additionally subject to the tax. That is, the impacts of the carbon tax applying to CO2 emissions only (against no carbon tax) will be compared to the impacts of such a tax applying to both CO2 and non-CO2 greenhouse gas emissions (against no carbon tax). Results show the deviations in the impacts between with and without inclusion of non-CO2 emissions are more obvious in developing countries particularly by comparison to developed nations. Iran, for instance, experiences a higher reduction in real GDP of 1.52 percentage points when non-CO2 emissions are overlooked. These impact deviations also rise with increased costs to economies (e.g., more sectors involved or higher tax rates). We find developing countries experience higher contraction rates in their economies than developed nations. Iran, Kazakhstan, South Africa, China, India, Russia, Mexico, and Indonesia all experience 2–5.1% reductions in real GDP relative to business-as-usual (no carbon tax), while such reductions are below 0.8% in Australia, the United States and other developed nations because emission costs compared to economy size are relatively high in developing nations. Major polluting countries like China, the United States, India, and Russia were also found to have low marginal abatement costs compared to other nations due to high emission levels and input substitution possibilities. To provide more accurate and insightful impacts of climate change policies, we recommend future studies include both CO2 and non-CO2 emissions in models.Full Tex
Contract design for storage in hybrid electricity markets
No full textFarhad Billimoria is a doctoral researcher in the Energy & Power Group, Department of Engineering Science at the University of Oxford. He is also a visiting research fellow at the Oxford Institute for Energy Studies and a director with KPMG. Paul Simshauser, AM, is a professor of economics at Griffith University and an associate at the Energy Policy Research Group, University of Cambridge. He is also the chief executive officer of Powerlink Queensland.Full Tex
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