Economists often use a sneaky shortcut when describing trade in a particular good or service. We describe the good – say a banana – as just that and ask: “Are you willing to pay $2 for a banana?” Of course, everyone knows that means a certain type and quality of banana – such as nearly ripe, organic, from Queensland.
What we have much less visibility into is what the social benefit of using energy at a particular point in time is. But we know that, in principle, it could be very high. Cooling homes in summer and heating homes in winter can literally save lives – particularly among the elderly. Nobody likes blackouts, but what are we willing to pay to avoid them? A capacity market provides the answer to these questions.
Imagine we had an electricity market that involved, on average, 90 per cent renewables but at peak times used some amount of gas. Would that be a good thing or a bad thing? A hardcore environmentalist would no doubt say it’s a bad thing since all fossil fuels are bad.A more centrist perspective is that there will naturally be some amount of gas, or even coal, as we make our energy transition.
The decision facing Climate Change and Energy Minister Chris Bowen is how to design the capacity market. He looks to be paying close attention to important issues such as how long the contracts should be and other design features.
By the end of the decade, probably green hydrogen. Ask Twiggy. In any event, industry consensus is for Australia to be ~79% renewables by 2030 (AEMO). So, a little while still until we need to cross that 'final few percent' hard deadline.
Unless our government sinks billions of dollars into the Industry for a gas lead economy.