Mountain, Bruce ORCID: 0000-0002-2093-2038, Harris, Peter, Woodley, Ted and Sheehan, Peter ORCID: 0000-0001-9450-8371 (2022) Electricity Storage: the critical electricity policy challenge for our new government. A policy proposal. Discussion Paper. Victorian Energy Policy Centre, Melbourne, Australia.

Abstract

Recent developments, both in Australia and overseas, provide sharp focus on the decarbonisation of Australia’s electricity system. Global supply shocks have led to escalation in coal and gas prices, with sharp increases in retail electricity prices likely in the near future, due to our dependence on fossil fuels. The new Australian Government is committed to a 43% reduction in emissions by 2030, with many members newly elected to the Parliament pursuing bigger reductions, as are the States. Achieving such reductions will require even more rapid change in the electricity sector. As all political parties are opposed to putting a price on carbon, these rapid cuts in electricity emissions must occur through government intervention rather than market transactions. The States are long embarked on this process. Their historic role in the provision of electricity, and their closeness to their own electricity markets provides reason to be hopeful of significant progress. The central proposal of the new Government is the $20 billion Rewiring the Nation (RNC) corporation, to facilitate the transformation of our electricity system to total renewables well before 2050. The central question of this paper is what role RNC might usefully play, given the recent failures of the Commonwealth’s direct interventions and the strong private sector interest in the components of a renewable energy system. We make five main points about this role: (i) The central role of RNC should be to support the States who have the key responsibility for this transformation, as well as the most intimate knowledge of local market realities, rather than establish a competing source of expertise. (ii) RNC should not be involved in generation. The private sector has considerable interest in renewable generation, with strong supply chains and intense competition. (iii) It is likely that the required investment in new transmission will be a modest component of new investment out to 2050, as much generation is localised to markets or can be placed near existing grids (e.g. offshore wind). There is not likely to be a major role for RNC in transmission since the States are best placed to ensure suitable incremental transmission expansion, avoiding past mistakes of over-investment. (iv) In our view the critical area for Commonwealth involvement is storage. The requirements for investment in new storage capacity by 2050 are very large (of the order of $90 billion). With technologies still changing rapidly and the time profile of future storage needs uncertain (as it is tied to closure of existing power stations) there is a real risk of under-provision through existing mechanisms or poor policy decisions as crises emerge. An important role for RNC could be to establish a market-based mechanism to facilitate provision, by the private sector, of adequate storage capacity. (v) To this end, we suggest that the Commonwealth Government directs the RNC to establish a Renewable Electricity Storage Target (REST) scheme, following closely the design of the existing RET scheme. Further details of the proposed REST scheme are provided in the body of the paper.

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