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Renewable Energy Zones in Australia's National Electricity Market

Paul Simshauser ()

Energy Economics, 2021, vol. 101, issue C

Abstract: Australia's National Electricity Market (NEM) operates in one of the world's longest and stringiest transmission networks. The 2016–2020 investment supercycle, in which 13,000 MW of renewables were committed, produced a series of adverse side-effects for various new entrants including connection lags, deteriorating system strength and associated remediation costs, and rising levels of generation curtailment. The NEM's Energy Security Board considered a key source of the problem to be market design and consequential geographic congestion of investments. This implies inadequate locational investment signals exist within the NEMs multi-zonal market design. However, diagnosis suggests NEM locational investment signals – which arise through a combination of site-specific Marginal Loss Factors and multi-zonal spot prices – remain visibly strong. Primary problems revealed through an analysis of the 2016–2020 period include policy discontinuity in prior periods. This in turn caused the supercycle, viz. multiple simultaneous entrants under asymmetric investment conditions. Above all, the supercycle revealed the NEM's rapidly diminishing network hosting capacity for new renewables. Markets participants are seeking to expand renewable capacity, and by implication transmission hosting capacity, faster than existing regulatory frameworks allow. A new policy proposal, known as ‘Renewable Energy Zones’ (REZ), represents a promising means by which to accelerate renewable hosting capacity. In this article, REZs are examined through both i). a consumer-funded regulatory model and ii). a renewable generator-funded market model. A ‘super-sized concessional mezzanine’ facility is presented as a critical element of REZ capital funding. It forms the means by which to optimise and accelerate market-based REZ transmission augmentation, and moderate sponsor risks of transient underutilisation.

Keywords: Electricity; Renewable Energy Zones; Transmission investment; Locational investment signals (search for similar items in EconPapers)
JEL-codes: D25 D80 G32 L51 Q41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.eneco.2021.105446

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