Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.
Briefing Paper No. 2/2005 by Stewart Smith
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Up to around the 1980s, most electricity and gas markets in Australia were
based at state level, and were weakly linked. However, energy market reform
began to gather force internationally in the 1980s, and was given impetus in
Australia in the 1990s through the implementation of competition policy.
Australian governments engaged in a major reform program, culminating in the
formation of the National Electricity Market (NEM) which commenced operation on
13 December 1998. Today, the NEM supplies electricity to 7.7 million Australian
customers on an interconnected national grid that runs through Queensland, New
South Wales, the Australian Capital Territory, Victoria and South Australia.
Approximately $8 billion of energy is traded through the NEM per year. From
mid 2005, Tasmania will be connected to the National Electricity Market via
BassLink.
This paper reviews the electricity market from a national perspective, and then
focuses on the requirements of NSW. In particular, the NSW Government’s
Green Paper Energy Directions for NSW is discussed.
The National Electricity Market Management Company (NEMMCO) provides an
electricity supply – demand balance assessment on a regional basis. NSW
is forecast to have a reserve deficit of 157 MW by 2008/09. The NSW Government
published an Energy Directions Green Paper in December 2004 with the aim of
developing an Energy Directions Statement White Paper in April 2005. The
Green Paper noted that up to 6,000 MW of new supply, or demand reduction, may
be needed between now and 2020. In the shorter term, new electricity supply
for peak demand is likely to be required within the next few years.
The Government’s position is not to centrally determine the technology,
location or timing of new investment in electrical generation. The
establishment of the National Electricity Market was intended, in part, to
provide price signals to investors to develop new generation capacity at the
appropriate time. The Government’s preferred position is for the private
sector to take the risk to finance and build / operate new generation plant
– both for shorter term peak supply and longer term base load
generation.
However, there are significant obstacles in the way for the private sector to
take the risk to build and operate new generation plant. These include
greenhouse policy risks and monetary risks – the financial returns from
the wholesale electricity market do not presently seem to encourage the
construction of new generation plant. How the Government responds to these
issues will have considerable impact on consumer sentiment.