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<!doctype html>
<html>
<head>
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<div class="reveal">
<div class="slides">
<section>
<h4> Government interventions and the evolving political economy of the National Electricity Market </h4>
<br><br>
Dylan McConnell<p>
12 Dec 2018
<br><br>
<font size="5px"><a href="https://dylanjmcconnell.github.io/neg/">https://dylanjmcconnell.github.io/neg/</a></font>
</section>
<section data-markdown>
## Outline
* The last 2 years ...
* Political interventions
* Reviews and Inquiries
* Finkel and the ESB
* ACCC recommendations
* More political interventions!
* AEMO interventions?
* Future of the NEM
* Will the energy-only market survive?
</section>
<section>
<h3> The National Electricity Market </h3>
<h4> a socio-technical system </h4>
<blockquote>
"In Australia, the National Electricity Market is a ‘synthetic market’. It did not arise naturally, but was deliberately created by Australian governments using the tools of microeconomics. Every time you turn on a light switch, you are participating in a market designed and run by microeconomists."
</blockquote>
<b>-Stephen King, August 2010 </b>
</section>
<section data-markdown>
### Political interventions: Act I
* State renewable energy targets
* ACT Reverse Auction Scheme
* Victorian Renewable Energy Target (VRET)
* Queensland Renewable Energy Target (QRET)
</section>
<section data-markdown>
### Political interventions: Act II
* South Australian Power Plan
* Hornsdale Power Reserve
* 'Temporary' State-owned generators
* Emergency Powers to the State Minister
</section>
<section data-markdown>
### Political interventions: Act III
* "Nation building"
* Tasmania as "Battery of the Nation"
* "Snowy 2.0"
* Commonwealth acquires Snowy 1.0
* Commonwealth now the 4th largest gentailer!
</section>
<section>
<h3>The NEG</h3>
<blockquote cite="http://www.worldwildlife.org/who/index.html">
"In general, the NEG is a stupendously complicated idea that isn't really designed to achieve anything - other than political agreement"
</blockquote>
<b>-Alan Kohler, August 2018 </b>
</section>
<section data-markdown>
### ACCC: "Recomendation 4"
The Australian Government should operate a program under which it will enter into low fixed-price
(for example, $45–50/MWh) energy offtake agreements for the later years (say 6–15) of appropriate
new generation projects which meet certain criteria
</section>
<section><h3>ACCC "Recomendation 4" </h3>
<ul>
<li> Have at least three customers who have committed to acquire energy from the project for at least the first five years of operation</li>
<li> Not involve any existing retail or wholesale market participant with a significant market share.</li>
<li> Be capable of providing a firm product so that it can meet the needs of C&I customers.</li>
</ul></section>
<section>
<h4> Retail hedge book </h4>
<img src="pics/retail-hedgebook.png" height="100%" width="100%" style="border:none">
</section>
<section>
<h3> Political interventions: Act IV? </h3>
<ul>
<li>"Baseload underwriting"</li>
<blockquote class="twitter-tweet" data-lang="en-gb"><p lang="en" dir="ltr">Looking forward to <a href="https://twitter.com/ScottMorrisonMP?ref_src=twsrc%5Etfw">@ScottMorrisonMP</a> & <a href="https://twitter.com/AngusTaylorMP?ref_src=twsrc%5Etfw">@AngusTaylorMP</a> getting baseload underwriting scheme underway ASAP to develop new coal-fired power stations, inc one in Nth Qld. More is needed: major equity fund for new coal-fired power & abandon costly green treaties, mandates & subsidies.</p>— George Christensen (@GChristensenMP) <a href="https://twitter.com/GChristensenMP/status/1033635119376949248?ref_src=twsrc%5Etfw">26 August 2018</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<li> Scope for further political interference ...</li>
</ul>
</section>
<section data-markdown>
### Political interventions: Act IV?
* "Default market offer" for electricity prices?
* Federally: constitutionally challenging
* (State: Victoria Default Offer)
* Return to regulated energy pricing moves a step closer
</section>
<section data-markdown>
### Political interventions: Act IV?
* ALP Policy:
* $10 billion top up to the CEFC
* $5 billion for 'grid modernisation'
* Grants for residential storage
</section>
<section data-markdown>
### Re-Centralisation & Re-Regulation?
#### Return of the State
* State action dominating decision making and resource allocation
* Much more 'command and control' than 'market led'
* ACCC recommendation were more market led
* Next chapter will be interesting
</section>
<section>
<h3> AEMO and Reliability </h3>
<a href="https://www.smh.com.au/business/the-economy/action-urged-as-victoria-faces-summer-blackouts-20180823-p4zzd4.html">
<img src="pics/1in3.png" height="100%" width="100%" style="border:none">
</a>
</section>
<section>
<h3> <i>Expected Unserved Energy</i> </h3>
<a href="https://theconversation.com/amid-blackout-scare-stories-remember-that-a-grid-without-power-cuts-is-impossible-and-expensive-102115">
<img src="pics/USE1.png" height="100%" width="100%" style="border:none"><p>
</a>
<font size="3px"> See here for more: <a href="https://theconversation.com/amid-blackout-scare-stories-remember-that-a-grid-without-power-cuts-is-impossible-and-expensive-102115"> Amid blackout scare stories, remember that a grid without power cuts is impossible… and expensive</a></font>
</section>
<section>
<h3> <i>Probability</i> of Unserved Energy</h3>
<a href="https://theconversation.com/amid-blackout-scare-stories-remember-that-a-grid-without-power-cuts-is-impossible-and-expensive-102115">
<img src="pics/USE-outcomes.png" height="100%" width="100%" style="border:none">
</a> <p>
<font size="3px"> See here for more: <a href="https://theconversation.com/amid-blackout-scare-stories-remember-that-a-grid-without-power-cuts-is-impossible-and-expensive-102115"> Amid blackout scare stories, remember that a grid without power cuts is impossible… and expensive</a></font>
</section>
<section data-markdown>
## AEMO and the RERT
* Reliability and Emergency Reserve Trader (RERT)
* $52 million in total
* Mostly paid for by Victorians
* One event was $24 million for 390 MWh (...$62,000/MWh)
</section>
<section data-markdown>
## AEMO and the RERT
* Reliability and Emergency Reserve Trader (RERT)
* Market wasn't at VoLL
* Why wasn't the market at VoLL??
* ... Was it actually needed?
</section>
<section data-markdown>
### Death of the NEG
#### Components of the NEG limp on
* Retailer Reliability Obligation?:
* "the ESB will consult on two additional options: the inclusion of an additional trigger at T-5, and the removal of the T-3 trigger"
* "proposed ability for a jurisdiction to trigger the reliability obligation as a transitional arrangement" (!!!)
* Might (?) still go ahead
</section>
<section>
<h3> What does this mean for the NEM? </h3>
<h4> What does it mean for energy-only markets? </h4>
<ul>
<li> The market has (perhaps) been usurped: </li>
<ul><li> Has it ever really worked to incentivise new capacity?</li></ul>
<li> Perhaps political and institutional interventions have not <i>allowed</i> it to work</li>
<ul><li> The political cost might be too high to do so</li></ul>
</ul>
</section>
<section>
<h3> New capacity over last 20 years </h3>
<a href="https://link.springer.com/article/10.1007/s10818-016-9216-9">
<img src="pics/Nelson.png" height="70%" width="70%" style="border:none">
</a> <p>
<font size="3px"> <a href="https://link.springer.com/article/10.1007/s10818-016-9216-9">Nelson, T. Redesigning a 20th century regulatory framework to deliver 21st century energy technology. Journal of Bioeconomics (2016). doi:10.1007/s10818-016-9216-9 </a></font>
</section>
<section data-markdown>
### What does this mean for the NEM?
#### What does it mean for energy-only markets?
* This is not to say energy-only are "good" or "bad":
* But questions need to be asked about if it is working
* And if it _can_ work
* And if not, to be consciously aware of this!
</section>
<section data-background-image="pics/Joinus.png">
</section>
<section> <h3>OpenNEM</h3> <p>
<iframe
title="OpenNEM"
frameborder="0"
scrolling="no"
marginheight="0"
marginwidth="0"
style="box-shadow: 0 3px 10px rgba(0,0,0,.05); width: 100%; height: 300px;"
data-src="https://opennem.org.au/widget/index.html">
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</section>
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