Graph of the Day: Why the NEM is broken

As the Australian energy market slouches towards decarbonisation, one of the biggest drags on the transition is widely considered to be the state of its National Electricity Market.

As South Australia’s environment minister noted last week, while the NEM was a great piece of market reform for the 1990s, it’s not the 1990s any more.

Indeed, at the 2016 Solar and Energy Storage Conference in Melbourne this week, much discussion has centred around the urgent reform of the NEM that is required to facilitate even the minimum of Australia’s low-achieving climate commitments.

So what is wrong with the NEM?

According to solar industry expert Nigel Morris, plenty. “The NEM is like the latest budget,” Morris told the Australian Solar and Energy Storage conference in Melbourne on Thursday – “transparent for what it really is, suspicious and utterly lacking in vision.”

Morris had a lot to say about about what is wrong with Australia’s current electricity market. But in point form it goes something like this: lack of flexibility; staggering complexity that leads to perverse outcomes; unfathomable conflicts of interest (including links to state revenues); the use of “blanket rules” that inhibit the uptake of renewables; and increasingly angry consumers.

A lot of NEM’s biggest problems, he said, stem from the fact that the utilities and regulators didn’t see the solar PV juggernaut coming. And now that it has arrived, they’re still pretending nothing has changed.

But, of course, plenty has changed. More than $20 billion has been invested in installing solar PV over the past 10 years – a shift that has cost utilities $1 billion in annual revenue losses. And, as the blow chart shows, some 4.7GW of coal-fried generation has come off line since 2011, as the capacity of PV and wind has increased by roughly double that amount. As the chart says: “that’s gotta hurt”.

“Utilities didn’t think we’d have any impact on their industry,” he told the conference. “If that’s not having an impact, I don’t know what is,” he said.