Market forces `will short-circuit power'

Australian
Friday 28/3/2008 Page: 22

AUSTRALIA'S major electricity generators will suggest to Ross Garnaut's emissions trading review today that the application of pure market forces will cause severe disruption to the nation's electricity supplies. Professor Garnaut has proposed that the dirtiest power stations, three in Victoria's Yallourn Valley and those in Western Australia based on the Collie coalfields should receive no assistance in meeting emissions caps when the system is introduced in 2010.

John Boshier, executive director of the National Generators Forum, which represents the generating companies, said yesterday that Professor Garnaut was so far ignoring the realities of the Australian electricity market, which was dominated by coal-fired operations. Unless there was a transitional system that catered for the fact that some of the baseload operations were operating on low quality coals and therefore had higher emissions per unit of electricity generated, there would be no balance sheet security for investors.

Security was necessary for the electricity industry faced an investment of about $130 billion between now and 2050 if the nation was to meet its government-backed emissions targets. Mr Boshier said Professor Garnaut had acknowledged that if generators closed down, electricity prices would go up. But what he had failed to take into account was that existing generation operations could not be replaced overnight.

"The National Electricity Market has been operating for only 10 years and it was not set up to take account of the closure of important baseload units," he said. "When the NEM was established, Australia had a generating surplus of around 25 per cent of capacity over demand. Now it is down to world's best practice of around 14 per cent. "Taking baseload units out of the system will create huge instability in supply," he added, noting that the current supply shortages in South Africa resulted from under-investment in generation.

Mr Boshier said it was inconceivable that state governments, having gone through the pain of accepting reform of the electricity system as part of national competition policy, would accept an emissions trading system that did not make some concessions to operations that currently ranked first in the electricity system's order of merit.