Challenges in the Consumer‐Side of the Energy Transition

• Published date: 01 December 2024
• Author: Andrea La Nauze,Flavio Menezes
• Date: 01 December 2024
• DOI: http://doi.org/10.1111/1467-8462.12577

The Australian Economic Review, vol. 57, no. 4, pp. 422–431 DOI: 10.1111/1467-8462.12577

Policy Forum

Challenges in the Consumer‐Side of the Energy Transition

Andrea La Nauze and Flavio Menezes

Abstract

The decarbonisation of the Australianeconomy

relies on the transition of the electricity grid

from fossil fuel to renewable sources. In this

paper, we briefly summarise the logic behind

the design of the National Electricity Market,

the market servicing 88% of the Australian

population. We then explore the challenges

facing the National Electricity Market during

its transition and emphasise key proposals

aimed at reforming the consumer, or demand‐

side, of the market. We highlight four chal-

lenges ‐whether consumers will be active,

whether retail markets can deliver contracts

that facilitate efficient transition, whether t he

wholesale market will operate e ffectively and

whether regulatory barriers can be quickly

addressed.

1. Introduction

The decarbonisation of the Australian

economy relies fundamentally on the transi-

tion of electricity sources from fossil fuel to

renewables, and the electrification of sectors

such as transportation. The scale of the

challenge for the electricity sector is immense.

Under AEMO's (2024) step change sce-

nario, storage capacity (batteries, virtual

power plants and pumped hydro) would

increase more than 15 times, from 3 GW

today to 22 GW in 2030, and 49GW in 2050.

Under the same scenario, grid‐scale solar and

wind would increase sixfold and rooftop solar

fourfold between now and 2050.

The energy transition will also require

significant investments in transmission, and

the ability to optimise consumer energy

resources (CER). CER refers to resources

that consumers can use to generate, store and/

or supply electricity. It also includes con-

sumers’ability to change how much they

consume or supply back to the grid in

response to price or other signals. Examples

include rooftop solar, home batteries, electric

vehicle charging and discharging, and other

loads that can be shifted such as water heaters,

pool pumps and air conditioners.

For a variety of reasons, governments have

a substantial impact on the electricity industry.

They also play many roles. Despite or perhaps

because of these roles, the transition of the

electricity industry in Australia is not smooth.

In this paper, we briefly summarise the history

of the National Electricity Market (NEM), the

market that services over 88 per cent of the

*La Nauze: Department of Economics, Deakin

University, Melbourne, Victoria, Australia; Menezes:

School of Economics, The University of Queensland,

Brisbane, Queensland, Australia. Corresponding author:

La Nauze, email a.lanauze@deakin.edu.au

© 2024 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research, Faculty of Business

and Economics.

Published by John Wiley & Sons Australia, Ltd