Resource Adequacy Mechanisms in the National Electricity Market

A Report for the Energy Security Board (ESB)

Economic Consulting | Energy, Power & Products (EPP)

September 9, 2020

Drawing on the expertise of our UK, European and US energy teams, FTI Consulting has examined potential mechanisms to support energy reliability and to incentivise investment in additional resources in the National Electricity Market (“NEM”) in Australia

Power systems provide an essential service to consumers by producing, transporting and delivering electricity. To deliver a reliable supply of electricity, sufficient provision of energy resources needs to be made at the appropriate time and location to match demand – this is referred to as resource adequacy.

Delivering such resource adequacy is increasingly challenging as Australia’s National Electricity Market is undergoing a rapid transition in which share of generation from renewable intermittent sources, notably solar and wind generation, is increasing rapidly. This puts increasing pressure on regulators and policymakers to ensure that the appropriate wholesale market and other mechanisms are in place to deliver resource adequacy for consumers at value for money.

FTI Consulting examined the conditions under which electricity markets may fail to deliver resource adequacy. Based on this analysis, FTI’s report highlights, in a systematic way, how potential Resource Adequacy Mechanisms can, in certain circumstances, complement electricity markets, and thus support resource adequacy in the NEM.

These options range from relatively minor adjustments to the current NEM arrangements, through to introducing scarcity pricing arrangements and the implementation of capacity markets. For each of the options, the FTI Consulting report describes each of the Resource Adequacy Mechanism options and considers their merits and disadvantages.

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