The Weatherill government reacted to a partial blackout affecting 90,000 homes during a heatwave last February by implementing an energy security plan that includes 200 megawatts of diesel generators, a 100 MW battery being built by Elon Musk's Tesla, a generator reliability obligation and a fast starting gas jet engine for the future.

Plugging the 1000 MW gap

AEMO is marshalling 1000 MW of "demand response" for the summer to fill a gap of that size it has identified in the event of extreme weather conditions following the closure of Victoria's 1600 MW Hazelwood brown coal power station in March.

AEMO has also prevailed upon gas plant owners to recommission 830 MW of capacity. Demand response rewards energy users for curtailing their usage and send energy back to the grid from "behind the meter" solar panels, batteries and smart appliances such as air conditioners and pool pumps at times of extreme demand.

Professor Garnaut said longer-term, new transparent markets would be needed for the multiplicity of grid stability services that are required to deliver electricity reliably.

AEMO has identified 1830 megawatts of additional supply to plug gaps in Victoria and SA's grid supply in extreme weather, CEO Audrey Zibelman told the National Energy Summit at the Sofitel Wentworth on October 9 , 2017 in Sydney, Australia. (Photo by Ben Rushton/Fairfax Media) Ben Rushton/Fairfax Media

He said AEMO recognised this in its advice to the Turnbull government on dispatchable energy supply and its approach was preferable to the Energy Security Board's National Energy Guarantee which relied on a single market for reliability, and at times conflated flexible dispatchable capacity with traditional baseload power which traditionally comes from coal plants.

Professor Garnaut said a combination of AEMO's transparent multiple grid stability services markets and realistic Paris climate agreement targets would be more likely to produce energy security with lower wholesale prices and less scope for monopolistic price increases.


Energy superpower of low carbon world

"We'll have a secure basis for Australia to emerge as the energy superpower of the low carbon world economy", he said. Professor Garnaut was a climate policy adviser to the former Labor government and is now President of ZEN Energy, which is working on a $700 million solar, battery and pumped hydro energy plan for Liberty OneSteel.

By contrast, he said the ESB's claim that the NEG would lower household electricity prices could not be supported because they were at odds with modelling done for the Finkel review of energy and the Warburton review of the Renewable Energy Target in 2014 which found that adding more wind and solar energy to the grid would lower wholesale prices.

The partially built Tesla Inc. Powerpack battery system at the Hornsdale wind farm, operated by Neoen SAS, near Jamestown, South Australia, on Friday, Sept. 29, 2017. Tesla Chief Executive Officer Elon Musk descended on South Australia on Friday unveiled progress on a giant battery that will help to avert crippling power shortages in the state. Photographer: Carla Gottgens/Bloomberg Carla Gottgens

Forward contract prices had also increased by a few dollars per MWh in the four main NEM states since the NEG was announced, Professor Garnaut said, "so the markets are not expecting the NEG to lower costs".

The NEG spelt danger for the forward contract market because integrated generator-retailers would be less likely to offer them if they had to meet a reliability standard themselves, and the ESB's determination that there be no explicit carbon price would make the market less transparent. Both factors would help dominant suppliers by making it harder for new generators to enter the market.

As well, the NEG's target for the electricity sector to reduce its emissions by 26-28 per cent was too soft to gain bipartisan support and end uncertainty, Professor Garnaut said.

Previous modelling by the Climate Change Authority, Treasury and the former Department of Industry his own review for the Labor government showed the electricity sector needed to cut its emissions by 50 per cent by 2030 and about 100 per cent by 2050 for the country as a whole to meet its Paris targets at lowest cost, he said.