Garbage can theory and Australia's National Electricity Market: Decarbonisation in a hostile policy environment

Abstract

After two decades of consistent economic and technical performance, conditions in Australia's National Electricity Market (NEM) deteriorated sharply in 2016/17. Prices more than doubled on the east coast, tripled in South Australia (SA), and the SA regional grid collapsed. Nothing spectacular occurred with final demand – this was a supply-side energy crisis driven by the exit of 18% of Australia's coal-fired generation fleet and the inadequate entry of new plant. Australia's NEM encountered an uncoordinated exit-driven episode of the Resource Adequacy problem. In the USA where 18% of coal plant has also exited, Resource Adequacy and low cost energy has been maintained by the entry of an enormous fleet of wind, solar and gas-fired generators. In Australia, an equivalent response did not occur; decades of climate change policy discontinuity meant the speed of coal plant exit was unpredictable, entry of renewables delayed through stop-start policy, and gas-fired plant was subject to critical hold-up due to excess LNG plant investment. Resolution requires a united and stable climate change policy architecture that works with, not against, the NEM's world-class institutional design, and greater transparency around planned plant exit.