National Disability Insurance Agency price review

March 2017

We are very pleased to be helping the National Disability Insurance Agency (NDIA) with the review of its price controls. Sam Forrest, Luke Wainscoat, Adrian Kemp and Greg Houston will design an impact assessment framework to assess potential changes to the NDIA’s price controls. They will draft a consultation paper on the options being considered and apply the impact assessment to prepare recommendations to the NDIA on the changes it should make to its price controls in 2017/18. For more information on the review please click here.

Posted on March 9, 2017 and filed under Announcements.

Five fixes for the NEM

February 2017

Load shedding in South Australia on Wednesday 8 February and successive ‘close shaves’ in NSW and Queensland as the heatwave spread north have exposed serious weaknesses in the national electricity market (NEM).

For some time now, it has been fashionable to blame South Australia’s near 40 per cent renewable (wind) generation mix for outages in that state. However, reliability problems in regions with much less renewable generation underlines that the challenges facing the power system are much more complex and extend far beyond South Australia.

The NEM’s ‘energy only’ market design means that generators get paid when they are called to run, but not otherwise. It was and remains a fundamentally sound basis for organising generation markets.[1] However, the consequences of some poorly-conceived interventions in that market design are now starting to show.

At the time of its instigation, the bi-partisan renewable energy target (RET) seemed straight-forward: mandate that purchasers of wholesale electricity buy an increasing proportion from renewable sources, and impose stiff penalties for non-compliance. Few appreciated that subsidising one form of generation amounted to imposing a tax on all others.

Compounded by weak demand growth since 2009, the RET has driven a steady exodus of fossil fuel generators from the market. Some aging, CO2 heavy, coal-fired plants had in any case passed their time and needed to go if carbon reduction targets are to be met. But several much newer, CO2 light, gas-fired plants have also been mothballed – squeezed between high domestic gas prices and electricity market revenues deflated by subsidised wind turbines.

These forces have caused the once contemplated role of gas as the ‘transition fuel’ to a much lower carbon generation mix not to materialise, so that we now have a sub-optimal generation portfolio with too few highly reliable, shoulder- and peak-period generators.

With the planned closure of the giant 1600 MW Hazelwood plant next month, market rules and operating protocols must be adapted quickly if the past week’s problems are not to be much worse come the summer of 2017/18.

Here are five suggestions warranting close attention:

1.       The protocols and norms by which market operator AEMO makes decisions need careful review, so that the system is run more conservatively and with greater emphasis on the consequences of ‘getting it wrong’ – for example, in assessing capacity requirements in South Australia, AEMO assumes a contribution towards peak demand from wind of nine per cent, yet when demand was high last Wednesday the weather delivered only half that amount. On its face, a much more cautious approach is needed.

2.       Greater caution as to target levels of supply reliability would also assist the case for AEMO invoking its ‘reliability and emergency reserve trader’ powers more frequently and, longer term, for much stronger interconnection between NEM regions. Heatwaves rarely hit all of the south eastern states simultaneously, and providing for greater diversity of supply across regions is critical.

3.       The generator playing field must be levelled so that the structural disadvantage imposed by the RET on forms of generation that can be scheduled with very high reliability (eg, fossil-fuelled and solar-thermal units) is eliminated, thereby improving the incentives to invest in this form of capacity. There should be no need to throw out the energy-only market design, but there is opportunity for market-saving innovation, perhaps by introducing a price premium for output from scheduled generation, paid for by a discount on the output from semi-scheduled generators (mostly, wind) that only ‘turn up when they can’.

4.       The market price cap should be raised so that it more closely reflects the cost to customers of losing load, and encourages peaking plant to be more available – even if deployed for just a few days per year. For the energy only market design to work as intended, it must not prevent peak period prices from reflecting the high cost of load shedding or non-supply. Ensuring the demand side of the market can see and respond to high price events would also assist energy consumers to make informed choices on peak days.

5.       Lastly, the Victorian and NSW governments could assist by easing their moratoria on gas exploration and development, and facilitating arrangements that enable land-owners to share a greater proportion of the potential value of onshore gas reserves. Improved availability would take the pressure off domestic gas prices and strengthen the viability of gas-fired generation.

The first four of these measures would all add to the cost of generating and delivering electricity, and so the prices paid by consumers, while the fifth is also far from popular. However, the cost to consumers and the economy as a whole of an unreliable power system is a much higher price to pay. Decarbonising our energy system involves hard choices, and time is running out for those choices to be made.  

 

[1] By contrast, generators in Western Australia (not part of the eastern states market) get paid just for being available, and WA consumers now pay a high premium for capacity they do not need.

 

Greg Houston was interviewed in relation to the challenges facing the NEM on ABC’s 7.30, Monday 13 February. See: http://www.abc.net.au/7.30/content/2017/s4619264.htm

Article originally published on LinkedIn
Posted on February 14, 2017 and filed under Articles.

Best paper at the Renewable Energy World Asia 2016 conference in Seoul

November 2016

Ehson Shirazi was invited to prepare a paper for, and present at, the Renewable Energy World Asia 2016 conference in Seoul earlier this year. His paper explores the opportunities created by solar PV and batteries, and specifically how these technologies broaden the policy options available to South East Asian governments for the removal of long standing fuel and electricity subsidies, and hence the transition to a more cost effective and efficient power system.

Ehson showed that if South East Asian governments invested the money that would otherwise be used to fund future electricity subsidies towards the cost of installing renewable generation for customers that would have benefited from those subsidies, then this will reduce the customers’ reliance on thermal generation, and so negate any increase in electricity bills that would occur if the subsidy was not provided. This would then allow the subsidies to be removed far quicker than traditional subsidy rationalisation programmes, with little or no impact on customers. His analysis is supported by an empirical case study from Malaysia.

Ehson was awarded the ‘Best Paper’ award for the renewable energy track at the conference. A copy of his paper and presentation slides can be found here and here.

Posted on November 14, 2016 and filed under Presentations.

VCR estimates and transmission reliability

November 2016

We were engaged by TransGrid to determine Value of Customer Reliability (VCR) estimates suitable for customers experiencing low probability but high impact supply outages in the Sydney CBD and Inner Suburbs regions.  We were asked to determine these VCR estimates by drawing on existing, publicly available VCR studies.  The values we derived were $90/kWh for Inner Suburbs customers and $150-$192/kWh for customers in the Sydney CBD. 

IPART has subsequently adopted our $90/kWh estimate in recommending reliability standards to apply to the Inner Sydney transmission network from 1 July 2018, available here.

Posted on November 2, 2016 and filed under Reports.

New Singaporean office

November 2016

We are pleased to announce the relocation of our Singaporean office to Asia Square Tower 1. The move to a new, permanent location reflects our ongoing commitment to expanding our presence in Singapore and the wider southeast Asian region. We hope to welcome you to our offices in the near future.

Posted on November 1, 2016 and filed under Announcements.

Reforming remote and regional road funding

October 2016

Adrian Kemp and Martin Chow led a team of HoustonKemp economists that examined potential road funding reform options and the implications of these reforms for remote and regional roads for Austroads. The report also provided a snapshot of current and past road related revenue, expenditure and funding to inform the debate. A copy of report can be found here.

Posted on October 27, 2016 and filed under Reports.

Applying economics to the analysis of mergers and vertical restraints

October 2016

Luke Wainscoat gave a lecture on how economics can be applied to assess the effect that mergers and vertical restraints have on competition at the school of economics in the University of Sydney. His lecture sets out what questions economists can help address in order to determine whether a merger is likely to lead to a substantial lessening of competition. It also sets out some of the types of analysis that can be used, and the conditions under which they are appropriate.

Luke explained what vertical restraints are, and some of the main anti and pro-competitive effects that they may have on competition, before setting out a mechanism by which the vertical restraints that are likely to substantially lessen competition can be identified. Luke’s presentation is available here.

Posted on October 6, 2016 and filed under Presentations.

Review of maximum fees and site occupation charges for cruise ships in Sydney Harbour

September 2016

Adrian Kemp and Daniel Young led a team of HoustonKemp economists assisting the Port Authority of New South Wales to engage with the Independent Regulatory and Pricing Tribunal’s (IPART) review of maximum fees and site occupation charges for cruise ships in Sydney Harbour. We helped the Port Authority prepare its responses to IPART’s issues paper and draft decisions, and to understand the implications of IPART’s emerging views on its business. Adrian and Daniel attended IPART’s public hearing on this topic on 23 August 2016. A transcript from the hearing is available here.

Posted on October 6, 2016 and filed under Reports.

World Smart City Form, Singapore

August 2016

Dr Virginia Wheway recently participated as a World Smart City Community Ambassador, joining a select group of smart-city leaders from government, infrastructure, finance & investment, technology and industry to contribute to the www.WorldSmartCity.com platform and the World Smart City Forum in Singapore on July 13th 2016. The forum was co-located with the World Cities Summit and the Singapore International Water Week. Panellists focussed on the ‘pain points’ hindering  smart city development, as well as the tools - including International Standards - that can help accelerate progress towards smart city goals.

The online platform and discussion boards were designed by the International Electrotechnical Commission in partnership with the United Nations agencies, ISO and ITU. Virginia’s contributions to the discussions initiated and moderated debate on big data and analytics, with particular focus on transport.

Following her participation in Singapore, Virginia has been invited as a keynote speaker at the Smart Cities Expo World Forum event in Sydney December 2016. She will speak on data and analytics relating to urban mobility and transport. More information on the event can be found here.

Posted on August 16, 2016 and filed under Presentations.

Carol Osborne presents at the 2nd Annual Global Competition Law Forum in Japan

August 2016

Carol Osborne was invited to reprise her presentation on the Effects of most favoured nation clauses on competition at this year’s Kluwer Law Conference in Tokyo on 30 June.  Carol’s presentation was originally delivered on 21 April this year at the Hong Kong: 5th Annual Global Competition Law Summit, where she spoke about the theories of harm to competition associated with most favoured nations clauses as well as their potential benefits. She also discussed the empirical tools that are available to assist in the quantification of these effects. Her presentation can be accessed here.

Posted on August 16, 2016 and filed under Presentations.

Virginia Wheway, Guest Lecturer

August 2016

Earlier this year, Virginia Wheway spoke to students at the International Grammar School, as part of the Scientists and Mathematicians in Schools program. She utilised several of her data mining and visualisation techniques, such as this chart, which indicates WaterNSW delivered greater bulk water flows in the summer months, as well as on Sundays. The increase flows on Sundays continue to be observed in the winter months. Visualisation techniques like this one can help conceptualise large amounts of raw data, making the information more accessible. Virginia also frequently guest lectures at tertiary institutions, including the University of Sydney, UTS, UNSW and the University of Wollongong.

Posted on August 16, 2016 and filed under Presentations.

The economics of regulation – some examples from Australia

August 2016

Luke Wainscoat gave a lecture on competition policy and how regulation is applied in Australia at the University of Sydney. This lecture is part of a new unit on the economics of regulation, which is part of the economics program. In the lecture Luke explained what competition policy and regulation are before describing how airports, railways and electricity distributors are regulated in Australia. The lecture finished by providing an overview of the access regime in Australia. The slides to the lecture can be found here.

Posted on August 12, 2016 and filed under Presentations.

Microgrids – into the void

June 2016

Ann Whitfield presented at the ENA Networks 2016 conference in Adelaide.  She spoke about the current lack of a framework for customers ‘to go off grid’, both in cases where the network business has identified that that would be a lower cost solution overall to supplying those customers, and in cases where a group of customers have themselves decided that they would like to form a separate microgrid.  In the absence of a framework, network businesses will be spending above efficient costs, and customer choice in electricity supply risks being frustrated.  Ann’s presentation can be found here.

Posted on June 9, 2016 and filed under Presentations.

Australian Energy Storage Alliance conference in Sydney

June 2016

Ann Whitfield recently presented at a Market Update Briefing held as part of the Australian Energy Storage Alliance conference in Sydney.  Ann spoke to a group of potential investors in the Australian storage sector on the regulatory and institutional arrangements applying in the National Electricity Market, and in particular how the application and development of these arrangements will affect the investment opportunities for both grid-scale storage and behind-the-meter storage.  Ann’s presentation is available here.

 

Posted on June 9, 2016 and filed under Presentations.

Community Ambassador for World Smart City online forum

April 2016

Virginia Wheway has been invited to participate as a community ambassador in the World Smart City’s online platform. The International Electrotechnical Commission has convened a core group of participants of varying backgrounds to discuss the ‘pain points’ that hinder smart city developments as well as the tools that can help accelerate progress toward smart cities goals.  The online discussion will culminate at the World Smart City Forum in Singapore on 13 July 2016. Further information on the online discussion and details of the event can be found here and here.

Posted on April 14, 2016 and filed under Announcements.