As the renewable energy industry awaits the release of legislation surrounding the VRET (Victorian Renewable Energy Target), there is one thing we already know: all industry and electricity consumers in Victoria will benefit from it.
Given the fact that as a nation we lack a national energy market or national policies that will provide a smooth decarbonisation path, Victoria must plan to proceed alone.
Following the closure of the Hazelwood brown coal generator, Victoria will have an extremely concentrated generation market that will operate in its own self-interest. If the state treasurer wants to understand what that is like, he should call his South Australian counterpart.
Self-interest in the electricity sector revolves around ensuring high prices for longer by restricting supply and new competition. This is only achieved at the cost of consumers, industry and jobs.
Without significant new transmission, the VRET is the only policy tool the State Government has to manage this problem.
Victoria’s fleet of ageing coal fired power stations will continue to close. Yallourn will be next. This closure will present Victoria with two alternative outcomes.
It will either have to build an oversupply of new generation ahead of closure supported by the VRET or wait for closure to occur and then build after closure in a market of under generation and elevated prices. Building ahead of closer will benefit Victorian consumers’ industry and jobs. Building after closure will benefit the existing generators.
The VRET as discussed will be a flexible policy allowing the managers of the scheme to seek power at the times needed and from the locations best able to match the demand.
It would even allow the Government to build a portfolio of long dated power contract at very attractive prices, it could then offer to industry something severely lacking and needed by industry if they are to invest in Victoria.
Perhaps the VRET should be considered a Victorian Replacement Energy Target, given no alternative new generation can be built that would provide an offer of a fixed price of $60-80/MWh for 15 years!
Given the prevailing price of wholesale electricity, it is therefore easy to see why the VRET is the “only bet” for Victoria, and why a first auction round should get underway soon.
Oliver Yates is an industry consultant. He is the former CEO of the Clean Energy Finance Corporation.