Long-term modelling of Australia's national electricity market

Abstract

Nowadays, energy utilities are becoming more and more international, expanding their business to other countries. Before doing so, they must assess the risks that they may face, for example at investing in new generation units, since they affect profitability of new projects. Among others, risks may include future electricity prices, uptake of renewables, governmental supports, demand growth, etc. This Thesis evaluates, from a utility’s perspective, how might electricity fundamentals evolve in the future, such as: electricity prices, installed capacity mix and generation mix in Australia’s National Electricity Market. For achieving this objective, a long-term capacity expansion planning model which minimises system’s costs has been used. Two scenarios are simulated: the first one, called high renewables scenario, is based on a neutral scenario published by the system operator. The second scenario, which is called very high renewables scenario, is based on economical rationales: it considers that the minimum uptake of renewables is the one presented in the former scenario and more and more renewables are iteratively added in those states of Australia in which the profitability of renewable projects is positive. As renewables are installed into the system, their expected margins erode. Hence, the iterative process is stopped whenever the internal rate of return of a photovoltaics or wind project is lower than 7% in that state, which is considered the threshold under which utilities would not continue investing. The results show that coal generation will tend to disappear after plant decommissioning: it will be replaced by more modern and cheaper gas-fired power plants and renewable generators. Under the high renewables scenario, additional renewable capacity is not profitable until the year 2030. After 2030, new additional projects might be built in some states where their profitability is higher, thus increasing the uptake in the second scenario of very high renewables. In this scenario, cannibalisation is visible not only in the states where more renewables are installed (to reduce the internal rate of return until a value slightly lower than 7%), but also in the other states, meaning that the installation of more renewables in one state affects the whole market. As a conclusion, revenues received by renewable generators only from the energy market seem, in most of the cases, to not be enough to cover their investment, operation and maintenance costs. Therefore, they need other kind of supports so that utilities consider investing in more projects if Australia’s governmental institutions desire to have more renewable generators in the system.