May 11 2023

A budget big on energy

The Albanese Government’s latest budget is big on the energy transition while seeking to help manage energy cost pressures for households and businesses.

There is a range of areas that will touch on those in the energy sector ranging from funding to get auctions for the Capacity Investment Scheme designed and underway in various jurisdictions, through to additional funding for the Australian Competition and Consumer Commission (ACCC) to manage the Consumer Data Right. In the lead up to the formal budget release there was a significant focus on cost-of-living measures, including electricity bill relief that has been included and that will be distributed to eligible customers by electricity retailers from July.

Below we take a look at some of the key energy-related areas included in the budget.

Energy Savings Plan

There is more than $1.6 billion to support upgrades for homes, businesses and improvements to social housing.  The bulk of this funding is for the Household Energy Upgrades Fund which will deliver $1 billion to the Clean Energy Finance Corporation to partner with banks and other lenders for low interest loans to support the upgrading of homes with solar, more efficient appliances as well as energy efficiency improvements, such as double glazing. This is expected to support around 110,000 households out of Australia’s estimated total of 10.2 million households.  While design details are still to be finalised it is not expected to be means-tested or capped.

The funding also includes $300 million for upgrades to social housing, co-funded and co-designed with the states and territories. As noted in the government’s announcement social housing has some of the lowest energy efficiency ratings in the country. There is an increasing gap between those who are able to benefit from new energy technology and efficiency measures in homes and those who cannot; which this measure seeks to help address. Targeted support is an effective way, along with direct bill relief (discussed below), to help the most vulnerable deal with cost-of-living pressures.

The Small Business Energy Incentive in the budget also targets energy efficiency and greater electrification for businesses with turnover under $50 million. This is through an additional 20 per cent tax deduction for up to $100,000 of eligible expenditure. It’s expected to help up to 3.8 million small and medium sized business benefit from ongoing energy savings.

Energy Bill Relief

The energy rebates to be delivered by retailers on customers’ bills has been previously announced along with price caps on gas and coal, but the Budget includes details of the $1.5 billion spend to support eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers.

The rebates are expected to deliver up to $500 to an estimated 5 million low-income households and $650 to 1 million eligible small businesses. This is off the average annual household bill of around $2000 currently.

Payments will commence from July and will be paid automatically by retailers for customers already receiving energy concessions and rebates. Other eligible customers will be contacted by the Government in September advising them how they can receive the payment. The direct payment via electricity bills is the result of both the Australian Energy Council and its retail members working closely with government on the mechanics of delivering the price relief.

The budget also has funds for enforcement by the ACCC of the gas price cap and development of the mandatory gas code of conduct. Other spending allows the Australian Energy Regulator to monitor coal and gas markets and will support the New South Wales and Queensland governments to implement the $125 per tonne price cap on coal for electricity generation (although the level of funding for this is not disclosed).

Capacity Investment Scheme

The Capacity Investment Scheme (CIS), which was agreed by all Energy Ministers last year, is intended to underwrite revenue for a mix of zero emissions dispatchable generation and storage. To date there has been little information on its scale or how it will operate, and industry remains unclear as to what role the scheme will play in what is already a highly complex environment for investors.

The budget includes $9.9 million over five years for the Australian Energy Market Operator to deliver auctions in South Australia and Victoria and $6.4 million for the Department of Climate Change, Energy, the Environment and Water to design the auction process to operate in SA and Victoria and to continue work on a national rollout.

The government will underwrite the costs of selected projects in SA and Victoria, while it will work with New South Wales to deliver CIS auctions this year in partnership with that state’s Electricity Infrastructure Roadmap.

The financial implications of this measure have not been released “due to commercial sensitivities”. The CIS is intended to be the cornerstone of maintaining grid reliability as coal plants continue to exit the market, so the AEC looks forward to the opportunity to be engaged in the design work.

Certification Integrity

The budget includes initiatives aimed at ensuring the integrity of emissions certification, which will be increasingly important as other measures such as the Safeguard Mechanism ramp up.

Funding of $38.2 million over four years has been allocated to establish a Guarantee of Origin Certificate scheme which is intended to track and certify the emissions heritage of energy sales. It will verify emissions associated with hydrogen and other low emissions products and is intended to become an “enduring mechanism to certify renewable electricity”.

Elsewhere the budget has delivered funding ($18.1 million) over the next two years to implement priority reforms from the review of Australian Carbon Credit Units (ACCUs), this includes conducting audits, upgrading of the Clean Energy Regulator’s systems and establishment a Carbon Abatement Integrity Committee to ensure method integrity for ACCUs.

These are welcome announcements, and reflective of the huge efforts that will be undertaken by industry in the coming years to deliver net zero goals.

Hydrogen

There is $2 billion allocated for revenue support for early stage, large-scale renewable (green) hydrogen projects through competitive production contracts with the aim of helping them get onto a commercial footing. The aim is to have up to 1GW of electrolyser capacity in place by 2030 through two or three projects. There is also $2 million to establish a fund to support First Nations people and businesses to engage with hydrogen projects.

The government is expected to consult industry on how best to support a series of “large-scale” renewable hydrogen projects over the coming months for this “Hydrogen Headstart” program. The government has confirmed that it is targeting just green hydrogen projects and the new funding has also been seen as a direct response to the US’s Inflation Reduction Act.

Early assessment was that the investment could be through “production credits” with the aim of making green hydrogen competitive with fossil fuel alternatives.

This is a significant investment by the Federal Government. It is important government funding is reserved for genuine innovation, to help establish early-stage clean technologies while also encouraging private sector investment, which this appears to be targeted towards.

National Net Zero Authority

Funding of $83.2 million to establish the National Net Zero Authority, which was announced last week, is included in the budget.  The Authority is intended to support an orderly transition in the regional areas most impacted as coal plants leave the market.

While the Authority is being put in place an agency will be established from 1 July this year, initially within the Department of the Prime Minister and Cabinet. That agency will be responsible for the design and establishment of the Authority and undertake its functions in the interim.

CDR

There is $88.8 million over two years from 2023–24 to support the continued operation of the Consumer Data Right in the energy, banking and non-bank lending sectors and to progress the design of action initiation and improve cyber security. The CDR in the energy sector began in November last year.

Coupled with the costs retailers are incurring to deliver their own CDR programs, what is becoming increasingly clear is that this reform will be hugely costly. It is too early to tell whether that spend will be efficient, but the lack of clear benefits today would point to a need to slow down its evolution to allow customers to get used to their new right.

Powering the Regions

There is a range of funding under this heading to support decarbonisation investments for trade-exposed industries covered by the Safeguard Mechanism and to support emissions reductions at existing industrial facilities or clean energy developments in regional Australia.

Separately there is $400 million over 3 years from next financial year to establish the Critical Inputs to Clean Energy Industries Stream and support the sovereign manufacturing capability of industries, such as primary steel production, cement and lime, alumina and aluminium, which are essential to the development of clean energy industries.

There is a further $14.5 million over 4 years to accelerate the development of the offshore renewable energy industry growth strategy and regulatory compliance activities and $8.6 million over the same period for implementation and review of the Safeguard Mechanism reforms.

The Powering the Regions Fund will also support Government purchase of Australian Carbon Credit Units.

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