UPDATE: The impact of a 26-45% NEG target on electricity prices to 2030

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Modelling indicates that increased ambition under the National Energy Guarantee (NEG) will place downward pressure on wholesale electricity prices in the National Electricity Market (NEM) through to 2030.

Under the current design of the NEG (26 per cent scenario), we view electricity prices falling to 2020 as more than 6 GW of renewable energy investment enters the NEM under the LRET. Increased competition will see average prices become less influenced by high priced gas, falling toward $60 MWh in 2020.

Although some new renewable energy continues to be supported after 2020, underpinned by demand from corporate Power Purchase Agreements (PPAs) and the Victorian Renewable Energy Target (VRET), annual additions are projected to be small relative to pre-2020 levels. The result is the continuation of a coal-dominated market with a fairly static picture for large-scale renewables investment, as gas provides flexibility to meet evening ramp ups. As a result wholesale electricity prices rise above $70 per MWh after the closure of Liddell, and above $80 per MWh after the expected retirement of Yallourn in 2028.

In contrast, a 45% emissions guarantee would imply a constraint on coal-fired emissions, while providing a signal for additional investment in clean energy. Similar to the price decline under the 26 per cent scenario prior to 2020, the competitive pressure from higher solar and wind energy is modelled to push wholesale prices lower. As a result wholesale electricity prices are projected to oscillate around $60 per MWh through to 2030, rather than rise above $80 per MWh as seen under the low investment scenario under a 26% NEG.

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