Australia should rely on long-term policy and energy market responses to strengthen energy security, foster competition, and make the power sector more resilient, according to the International Energy Agency’s (IEA) latest review of the country’s energy policies.
In line with global trends, Australia’s energy system is undergoing a profound transformation, putting its energy markets under pressure. Concerns about affordable and secure energy supplies have grown in recent years, following several power outages, a tightening gas market in the east coast and rising energy prices.
Besides assessing progress since the IEA review of 2012, the Australian government requested the IEA to focus on how Australia can use global best practices in transitioning to a lower-carbon energy system. This question points to safeguarding electricity supply when ageing coal capacity retires, increased variable renewable energy comes on line and natural gas markets are tight. In this context, the IEA also contributed to the Independent Review into the Future Security of the National Electricity Market (NEM) by Chief Scientist Dr Alan Finkel.
“The government’s efforts to ensure energy security and move ahead with market reforms have been impressive. Australia can develop its vast renewable resources and remain a cornerstone of global energy markets as a leading supplier of coal, uranium and liquefied natural gas (LNG), securing the energy for growing Asian markets.” said Dr Fatih Birol, the IEA’s Executive Director, who presented the report’s findings in Canberra. “A comprehensive national energy and climate strategy is needed for Australia to have a cleaner and more secure energy future. The National Energy Guarantee is a promising opportunity for Australia to integrate climate and energy policy.”
Along with the United States, Australia is leading the next wave of growth in liquefied natural gas (LNG). As a major exporter of coal, Australia is also a strong supporter of carbon capture, utilization and storage technologies. The report commends Australia’s efforts which can be critical globally to meeting long-term climate goals.
The IEA’s review points out that the sustainable development of new gas resources is critical for natural gas to play a growing role in the energy transition, satisfying a growing domestic gas demand in power generation and industry and to honor export contracts at the same time. The report calls on Australia to continue efforts to improve transparency of gas pricing, boost market integration and facilitate access to transportation capacity.
Welcoming the government’s energy security focus, including the creation of the Energy Security Board, the Energy Security Office, and Australia’s plan to return to compliance with the IEA’s emergency stock holding obligations, the IEA recommends regular and comprehensive energy security assessments to identify risks early on, and foster the resilience of the energy sector.
In terms of power system security, the report offers a series of recommendations on how to improve the market design of the National Energy Market (NEM), one of the most liberalised and flexible power markets in the world. To accommodate higher shares of variable renewables, the IEA recommends that the NEM prioritises measures to safeguard system stability, enhance grid infrastructure, including interconnections, and regularly upgrade technical standards. As consumer choice and prices in retail markets are liberalised across Australia, the government needs to focus on wholesale competition and demand-side flexibility, in recognition of the changing ways energy is produced and consumed, thus contributing to reducing peak demand.