In the balance: Electricity, sustainability and least cost competition

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This thesis assesses the potential to enhance economic efficiency and environmental sustainability by reconciling the principles of least cost planning with the competitive electricity industry. The thesis proposes a novel balanced approach of ‘least cost competition’. Least cost competition aims to encourage both more effective competition in delivering energy services, and better alignment of industry practice with the public interest. The thesis makes the case for adopting this approach through the following steps: 1. developing an innovative Description and Cost of Decentralised Energy (D-CODE) assessment model, and using the model to compare the costs and benefits of decentralised energy resources with centralised electricity supply (including network costs) 2. surveying the implementation of demand management by electricity distribution network businesses in the Australian National Electricity Market 3. surveying stakeholder perceptions of the institutional barriers to demand management and decentralised energy 4. identifying and analysing the value of monopoly network costs that are avoidable through demand management, and mapping these avoidable network costs and associated data in innovative, publicly-accessible, online ‘Network Opportunity Maps’ 5. developing and applying an analytical framework for describing and understanding barriers to the efficient adoption of demand management and decentralised energy resources 6. addressing these barriers by reviewing, analysing and synthesising policy options through an innovative ‘Policy Palette’. The Policy Palette aims to support efficient investment in demand management and decentralised energy resources in the context of competitive electricity retail and generation markets and centrally planned monopoly distribution and transmission networks. The thesis then develops a theory of ‘least cost competition’ based on five key principles: 1. Clear and appropriate purpose; 2. Public participation and accountability; 3. Cost-reflective pricing; 4. Competition among all feasible options; and, 5. Competition based on all relevant costs. The thesis applies these principles to the particular case of the Australian National Electricity Market. Drawing on these principles and the above research and analysis, the thesis proposes practical reforms to policy, regulation and decision-making and resource allocation processes within the electricity sector. If implemented, these reforms could lower bills and expedite the transition to a clean, low emission and affordable electricity sector, while encouraging the greater and more efficient use of demand management and decentralised energy resources.
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