Are investment signals adequate?

By Keith Orchison
(Published in The Weekend Australian, September 2006)

It is an open question whether the national electricity market will deliver investment signals to encourage enough generation to cope with peak summer demand in southern Australia after 2007-08, according to the SA Electricity Supply Industry Planning Council.

According to the SA government agency's 2006 planning report, because of the advent of the Basslink interconnector between Victoria and Tasmania, South Australia can expect to have enough capacity to meet peak demand and retain a reserve, or safety, margin of generation for the next two years.

However, the council says, reserve capacity across almost all of the NEM is expected to decline over the next two years to the point where "significant investment will be required in new generation if growing peak demands are to be reliably met."

No conventional generation plant has been built in South Australia over the past 12 months, the council adds, and a survey of the industry does not throw up any current plans other than the construction of two new wind farms and the expected development of two more, adding 390 megawatts of wind power. "However," says the council, "the contribution of wind energy at times of peak demand is not expected to be substantial."  It expresses concern that market investment signals for new capacity may not be strong enough to ensure that investment keeps pace with reliability targets. Consideration needs to be given, it says, to whether the balance between capacity and reliability is being adequately addressed by existing market mechanisms.

"For the summer of 2008-09," the council says, "unless additional (generation) capacity is developed in South Australia or Victoria, while there will still be enough to meet peak demand, there will not be enough to meet the industry-accepted safety margin."

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