The AEMC is Australia’s representative on the World Energy Council which organizes the triennial world energy congress. Chairman John Pierce addressed the 24th Congress on 12 September. This forum has been running since 1924 enabling dialogue between the world’s energy ministers, policy-makers and industry on critical developments in the energy sector.

By John Pierce AO, Chairman

As the World Energy Congress convenes in Abu Dhabi, it is worth reflecting on the Australian experience of the energy trilemma – the desire for affordable energy, reliable and secure supplies of electricity and the need to reduce greenhouse gas emissions to address climate change.

Why is Australia such an important marker in this debate? Australia is one of the largest coal and gas exporters in the world yet it is well advanced down the pathway of renewable energy adoption. The state of South Australia sources around half of its energy from renewables with significant volumes of large scale wind and solar and one of the highest penetrations of household and commercial solar PV of anywhere in the world. Close to a quarter of houses in South Australia and Queensland have solar PV on their rooftops.

South Australia today is one of only three markets in the world to be in the most advanced stage of renewable energy integration, according to the International Energy Agency.

Wholesale electricity prices are now reflecting a much greater diversity of energy supplies.

At times during the middle of the day and night, prices on Australia’s east-coast are zero, with abundant supplies of solar PV and wind respectively. But at other times, prices are much higher to signal the need for fast-start technologies to accompany renewables, such as gas turbines, reciprocating engines, pumped hydro and battery storage. In fact, the world’s largest battery is now installed in South Australia.

It is indeed puzzling for people that despite renewables providing the cheapest form of energy now in Australia, the need for complementary higher-cost capacity is causing overall total system costs to increase.

System security and reliability have come into sharp focus by policy makers because of the unprecedented reliance upon variable renewables (i.e. wind and solar). Reliance upon an ageing incumbent coal-fired generation fleet has resulted in policy makers designing new mechanisms to deliver a reliable system.

Australia’s recently adopted Retailer Reliability Obligation requires electricity retailers to demonstrate they have sufficient contracted capacity, not just energy, to deliver to their customers. In this way, policy is being implemented to deliver capacity and energy when customers require it, not just when the sun is shining and the wind is blowing.

New technologies are fundamentally shifting the market for electricity around the world, not just in Australia. Increased adoption of variable solar and wind has significantly reduced the unit costs of these technologies. The take up of emerging digital technologies may also provide material opportunities for efficient reductions in energy demand.

In this context of technological shifts, innovation in policy design will be critical for the world to successfully address the energy trilemma.

In the Australian context, it is worth remembering that the Retailer Reliability Obligation was designed with the option of also requiring retailers to contract for energy and capacity in a manner that reduced greenhouse gas emissions over time. This broader policy was known as the National Energy Guarantee and may be worth considering by countries interested in pursuing the World Energy Council’s trilemma objectives using competitive markets.