National electricity market

WHAT YOU SHOULD KNOW ABOUT THE NATIONAL ELECTRICITY MARKET

The problems

Australians have the highest per capita greenhouse gas emissions which sums up to about 29 tonnes per year. Australia also has one of the most emissions intensive economies in the world which continues to increase in the past 20 years. 34% of Australia’s greenhouse gas emissions in the year 2005 were from electricity generation.

The abovementioned figures amounted to 261 billion kilowatt hours’ worth of electricity in the year 2009. That is 68% higher than the level in the year 1990 that has been growing up to 3% each year. About one-fifth of the energy is lost before the energy arrives to homes and commercial establishments for consumption. Aluminum smelting, an energy-intensive process that produces greenhouse gas emissions uses 10% of the remainder in the total energy consumption.

Based on the studies conducted, power produced from coal sums up to 78%. 14% is from natural gas, 4.7% is from hydro while the rest which amounts to 3.3% is new renewables sourced mainly from wind. About 20% of the network capacity is used to meet the peak demands for two to three hottest and coldest days of the year.

Australia is also known for its cheap electricity prices caused by cheap to mine and burn coal. In a single electricity bill, the total costs are distributed into various sectors. 40% goes to the generator or power station, about 10% goes to the transmission line company, about 40% goes to the distribution company and the leftover 10% goes to the retailer. Electricity prices continue to increase because of the higher charges paid to the distribution and transmission companies which is said to be used in replacing aging infrastructures and to add more poles and wires to meet the increasing demand for energy for the summer and winter period demands for energy consumption.

The context

About 90% of electricity produced in the Australian territory is moved to the national grid. The national grid is called the National Electricity Market or NEM. The NEM runs from Port Douglas in far north Queensland to Port Lincoln in South Australia. The NEM is governed by a complex national regulatory system and is being overseen by the Standing Council on Energy Resources or SCER. The regulatory system is also implemented through the National Electricity Law and Rules.

The National Electricity objective focuses in promoting efficient investment in and efficient operation and use of electricity services for the long term interests of consumers of electricity with respect to price, quality, safety, reliability and security of supply of electricity and the reliability, safety and security of the national electricity system; however, compared to other comparable countries such as the United Kingdom, there are no existing environmental or social objectives for Australia and the SCER itself has resisted attempts to introduce such objectives.

There are two possible responses to the continuously rising demand for electricity: to build more infrastructures relevant to providing more electricity and to reduce demand. The National Electricity Rules is responsible for making “poles and wires” companies attractive to encourage investment in new infrastructures instead of investing in energy-efficient and demand management solutions. Such choices result in excessive investment in infrastructure that increases the demand for electricity. The prices of electricity rise along with the increasing demand.

The solution

There are two critical steps possible in converting Australia to a low carbon economy: large-scale investment in renewable energy and substantial price on carbon pollution. What Australia needs is an existing energy market that can both help or hinder such transition. While the off-grid renewable energy’s value continues to increase, it has not yet been given full priority on a national level.

The more potent way to address the greenhouse emissions’ impact on Australia is “Greening the grid”. This refers to investing in renewable energy, improving the energy efficiency of household appliances or commercial machinery, “smartening” the grid for it to become more responsive to the environmental needs of the consumers, and of course, demand management. The TEC focuses on two of the drivers namely “improving the energy efficiency results in lower greenhouse emissions” and “demand management” and since the year 2004, they have been working to “green the grid” by ensuring that “poles and wires” companies take the alternatives into consideration before investing further in new infrastructures.

The International Energy Agency states that an estimated 60% of the carbon pollution reduction required by the year 2050 will be sourced from the gains in energy efficiency. Demand management produced indirect benefits to the environment and encourage consumers to ponder on their energy consumption and discouraging network infrastructure over-investments. The TEC also continues to support other causes that ensure the NEM’s contribution to the greenhouse gas emissions reduction.

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