The security and affordability of Australia’s energy mix must be addressed as a matter of critical importance by the Independent Review into the Future Security of the National Electricity Market.

The Minerals Council of Australia’s submission to the Review, which is being chaired by Chief Scientist Dr Alan Finkel, says that over the last decade Australia has surrendered a key natural advantage in affordable and reliable energy.

“The living standards of all Australians and the competitiveness of Australian export and import-competing businesses have suffered as a result,” the submission says.

“Australia has moved from having some of the lowest cost electricity and gas in the OECD to among the most expensive.

“At the same time, grid instability has worsened. The September 2016 outage in South Australia represents the inevitable consequence of federal and state policy interventions which have favoured intermittent sources over low cost, reliable continuous sources of generation.

“The scale of the adverse impacts of these policy choices on households as well as commercial and industrial users should not be underestimated.”

The MCA submission includes new research by economic consultants BAEconomics on the cost and reliability impacts of moving to high levels of wind power as a share of Australia’s energy mix.

The BAEconomics research shows that as the share of intermittent wind and solar power rises, electricity systems face significant integration costs including the need to maintain back-up generation capacity in the system to meet demand when the wind is not blowing or the sun is not shining.

Other integration costs include the need for conventional generators to ramp output up and down at short notice as wind power supplies fluctuate and the impact of difficulties in forecasting the output of wind generators on planned schedules for dispatching electricity to the grid.

These integration costs are on top of the $3 billion a year slug to Australian households and businesses from subsidies to renewable generators.

The MCA submission says the costs imposed on the energy system by intermittent renewable generators should be transparent and borne by the responsible power providers.

Under current National Electricity Market rules, integration costs are borne by the electricity system as a whole.

Policy options to tackle the impact of intermittent energy sources on costs and reliability include imposing a minimum performance standard on all electricity generators – to guarantee a minimum quantity of on-demand power – or a “causer pays” approach to meeting integration costs.

These options would help to minimise integration costs and create incentives for renewable generators to invest in technologies (such as storage) that reduce variability in their output and improve security of electricity supply.

The MCA submission is critical of the failure of the Independent Review to conduct a serious review of the economic costs of competing options. It says the Review’s final report must do more than just pay lip service to the need for technology neutral policy settings to secure affordable, reliable and low emissions energy sources.

A technology neutral approach would:

Treat all low emissions energy sources in a comparable manner and not guarantee market share to single energy sources (the effect of the Renewable Energy Target)

Remove Australia’s blanket ban on zero-emissions nuclear energy (which currently delivers 11% of global energy needs)

Evaluate the potential of High Efficiency Low Emissions (HELE) coal technologies which are transforming energy generation in the Asian region

Allow carbon capture and storage (CCS) projects access to finance from the Clean Energy Finance Corporation, acknowledging that the Intergovernmental Panel on Climate Change has said that a 2 degree warming target will not be achievable without CCS.

The MCA submission calls on the Review to use its final report to map out an early transition to technology neutral policy settings.

“It is not rational, plausible or sustainable policy to simply overlay an (unreformed) mess of policy distortions with a new set of policy proposals and then claim it represents a technology neutral approach.”