But Australia’s National Energy Market (NEM) needs to prioritise safeguarding system stability and enhance grid infrastructure to accommodate higher shares of variable renewables, the agency recommended.
Energy procurement policies, too, have "lacked co-ordination", the IEA stated.
Wind and solar power have both grown "rapidly" in recent years, the IEA stated in its report ‘Energy policies of IEA countries — Australia 2018 review’.
Wind power’s installed capacity in Australia has grown from 2.13GW in 2011 to 4.23GW in 2015, while solar power has increased from 1.4GW to 4.36GW over the same period. Coal’s capacity, meanwhile, has declined as plants have been taken offline.
But wind and solar still represent less than 1% of Australia’s total primary energy supply (TPES) each — 0.8% and 0.7% respectively, the IEA stated.
Accordingly, wind and solar power’s potential "remains largely untapped", according to the IEA, and installed capacity is unevenly distributed between states.
With the national electricity market’s "stretched power system", "low levels of interconnection", and "declining base-load capacity", electricity costs are high and integrating renewables "remains challenging", the IEA wrote.
And as coal plants come offline, wind and solar will feature more prominently in Australia’s energy mix, the IEA wrote. The report’s authors added: "It is important they are installed and operated in a system-friendly manner to provide the flexibility to accommodate the needs of the power system."
The authors added: "While Australia is well-endowed with natural resources, energy security risks across several sectors have increased."
The country should rely on long-term policy and energy market responses to strengthen energy security, foster competition, and make the power sector more resilient, the IEA concluded.
Fatih Birol, the IEA’s executive director, described the government’s efforts to ensure energy security and push through market reforms as "impressive".
However, he added: "A comprehensive national energy and climate strategy is needed for Australia to have a cleaner and more secure energy future. The National Energy Guarantee (NEG) is a promising opportunity for Australia to integrate climate and energy policy."
National Energy Guarantee
The IEA’s report comes as the government issued a consultation paper on the NEG — a proposed policy to reduce emissions and ensure reliability by encouraging retailers to invest in dispatchable energy supply.
Kerry Schott, chair of Australia’s energy security board, argued that with suppliers meeting such obligations, wholesale prices would be lower. She added: "Since retailers will need to contract with new low emissions and dispatchable generators, the increased supply will place downward pressure on wholesale prices."
Australia’s Clean Energy Council (CEC) welcomed the consultation, and said that a dialogue on energy policy was needed to "overcome the chronic long-term uncertainty confronting energy investors".
Kane Thornton, the CEC’s chief executive, said: "While investment has been booming recently behind the 2020 Renewable Energy Target, the lack of a coherent and bipartisan national policy puts further growth in doubt over the long term.
"We are open-minded about (the NEG’s) potential but many questions remain, including the fundamental question about whether the policy signals will be able to underpin new investment in clean energy and address issues with market concentration.
"Ultimately the enduring success of any national energy policy will require not just careful policy settings but the support of the state governments and the federal Labor opposition."
He added: "We encourage all parties to consult in good faith towards the development of a workable policy that will deliver clean, affordable and reliable energy over the long term."