In 2001, Australia introduced legislation requiring investment in new renewable electricity generating capacity. The legislation was significantly expanded in 2009 to give effect to a 20% Renewable Energy Target (RET). Importantly, the policy was introduced with bipartisan support and is consistent with global policy trends. In this article, we examine the history of the policy and establish that the 'stop/start' nature of renewable policy development has resulted in investors withholding new capital until greater certainty is provided. We utilise the methodology from Simshauser and Nelson (2012) to examine whether capital market efficiency losses would occur under certain policy scenarios. The results show that electricity costs would increase by between $51 million and $119 million if the large-scale RET is abandoned even after accounting for avoided renewable costs. Our conclusions are clear: we find that policymakers should be guided by a high level public policy principle in relation to large-scale renewable energy policy: constant review is not reform.
One of the seemingly complex areas associated with energy-only wholesale electricity pools is at what point the abuse of market power is present on the supply-side. It shouldn't be this way. If a theoretically robust measure of Normal Profit exists, identification of potential market power abuse is straightforward. Such a definition readily exists and can be traced back to the groundbreaking work of financial economists in the 1960s. In this article, we present a multi-period dynamic power project financing model to produce pragmatic estimates of benchmark wholesale power prices based on the principles of Normal Profit. This in turn can guide policymakers as to whether price spikes or bidding above marginal cost in wholesale electricity markets warrants any investigation at all.
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