Mar 20 2019

A credible re-set of energy policy: What it should look like

The current polarization of climate and energy policy is nothing new. It’s been a gradually disintegrating political dynamic for nearly a decade.

While industry and environment groups have been seeking a return to the bi-partisan unity ticket of the 20th century, the wedge driven between political positions only seems to widen: new coal power stations vs a renewable energy utopia. Two equally incredible positions argued with increasing ferocity in a political debate demonstrating diminishing interest in delivering a functional outcome.

As we approach the looming federal election, our thoughts and prayers, as in the last four elections, are that the result delivers a reversal of this process. That whomever wins the next Federal election uses the victory to re-set Australian energy policy onto a credible pathway in a carbon constrained world.

So what might this fantasy look like in 2019? After taking time out to try and catalogue the rocky journey of climate and energy policy over the past decade, I’ve come up with this simplified shortlist.

1. Climate and energy policy

Self-evidently, effective climate and energy policy remains the centrepiece of reform. Australia has explored a range of different options over the past decade. The National Energy Guarantee or the Finkel Review’s Clean Energy Target would satisfy this technical requirement, noting these designs may evolve over time depending on how efficiently and effectively they deliver emissions targets and reliability requirements. As we have seen with the Renewable Energy Target, regular repair of major policy is possible if the major parties are already committed to the process.

An essential feature of this design is to actively encourage firmed renewable generation to be competing in the forward contracting of electricity in the wholesale market. Easing of wholesale prices remains the single most important metric for governments and consumers. Governments have already demonstrated they will intervene if more sustainable wholesale prices are not delivered.

The oddity here is that Labor state governments and oppositions in Queensland and NSW are creating government-owned renewables-only generation businesses which countermands this objective. They appear to be designed more around political optics and vehicles for increased unionisation than to improve the performance of the market.

2. Politics and board

A NEG or its equivalent would be necessary, but not sufficient. Over the past decade, electricity and climate change have expanded significantly in the public consciousness. Millions of Australians – politicians, industry leaders, activists, consultants, academics, commentators, celebrity businesspeople and just thousands of ordinary punters – have formed a range of variously informed views on the subject. Government ministers have extolled the virtues of their most recent energy policy announcements, sometimes with the confidence that only the cloak of ignorance can provide.

In the modern 24-hour news cycle, governments are reacting to media reporting and creating media events to steer the news cycle. This need for constant messaging and strongly worded, simple claims can undermine the considered design and investment needed to get the best outcome in electricity. In energy, governments will continue to fill the media void out of sheer political necessity unless someone, or something else does. It’s like a law of political physics: something has to occupy that political vacuum, or governments will instinctively be drawn back in.

This was one of the rationales behind the Finkel Review’s recommendation to create an Energy Security Board (ESB). The A-team (AEMC, AEMO and AER[i]) are the expert regulatory, operational and policy technicians managing the grid. From a political perspective they tend to be risk-averse, less likely to intervene in fast-moving political and media debates. They prefer to speak in considered reports.

This is important, but it doesn’t fill the political vacuum. Electricity needs a visible, public-facing entity, chaired by a Reserve Bank Governor type of figure, whose primary job is to constantly and sagely inform and reassure Australians that the electricity reform is being managed successfully by experts, while being able to respond quickly to political or technical debates about the operation of the grid.

This public-facing role of the ESB should not be limited to media. A critical and relentless task is for the ESB to hold the public debate on energy policy to account. Exaggerated and outrageous claims are possible because expertise is a relative concept. Bold claims get a lot of traction in this debate because most consumers of information don’t know enough to filter fact from fiction. In the land of the blind, the one-eyed man is king.

Some of these claims get recycled to support even more outlandish and less accurate positions. Some of these can even end up part of major political speeches and policy commitments. Managing public expectations starts with a trusted, reliable base of information that is credible and neutral.

To support this, the ESB should become the librarian and publisher of all key electricity data in Australia. Currently, this data is located all over the place: it is collected by industry bodies, held by the Clean Energy Regulator, the Australian Bureau of Statistics, and produced in different reports by the AEMO, the AER and the AEMC. Network, generation, clean energy and retail businesses hold quite detailed data, some of it on the changing amounts of electricity used by different sectors of the economy.

This kind of data provides greater insight into the changing shape of the economy, corrects false and misleading claims, and, in doing so, provides better information to existing and potential new entrants into competitive markets. Information should be an enabler, not a barrier, for potential disruptors.

As well as guiding the public face of reform, correcting misinformation and organising the various data streams, the ESB should also be given oversight of agencies created to support the reform process. In 2011, the Australian Renewable Energy Agency (ARENA) was created, followed by the Clean Energy Finance Corporation (CEFC) in 2012. Their efforts should be coordinated and focused on the technical gaps identified by the Board.

3. Treat renewables like the mature technology that they are

Wind energy and solar PV are no longer emerging technologies. There are nearly as many households with rooftop solar panels as Foxtel subscribers. It makes no sense to treat renewables as a special needs technology but then expect them to play a major generation role in the grid. New investment should be de-risked, not subsidised. The AEMO’s Integrated System Plan reflects this trend towards facilitating more strategic investment.

The inappropriate treatment of renewables is more acute in the distributed electricity market. Governments are returning to implementing populist government support for solar PV, ignoring the resulting high voltages in some suburbs. We should treat all distributed generation as if they were part of grid. Networks need greater control over directing and limiting distributed generation.

Solar panels should be able to be remotely monitored, home batteries should have conditions attached to their sale that enable the market operator to, on occasions, control the devices to help manage power quality or perform other functions. These terms and conditions should be clearly defined ahead of any accelerated uptake of these technologies.

For this reason the notion of cutting the wires and truly going off grid should not be permitted, at least not without network approval. It makes no sense to have hundreds of megawatts of households batteries that cannot help support a future grid because their owners have decided to isolate themselves. The electricity system is not just there to facilitate individual consumer preferences. It is one of the fabrics of a functioning society. All owners of distributed energy technologies have a shared responsibility to support the grid.

4. Gas market reform

The biggest challenge facing an evolving electricity system is how to efficiently firm low-cost renewable generation. Increased use of renewables will create periods of over and under supply. Technologies that smooth these peaks and troughs are preferred, but will takes decades to match the scale of the renewables they firm. In the interim rapid dispatch bulk generation is needed at scale. This will be provided by gas fired reciprocating engines. The cost of gas will become an even more critical factor in the future wholesale cost of electricity. Gas market reform is therefore essential. This starts with increasing gas supply into the east coast market.

5. Encourage more dynamic demand response

Current retailing of electricity reflects the 20th century supply model. Flat prices reflected the flat supply from large, industrial scale generation. Increased variability in supply requires more dynamic demand. Governments who promote renewables need to support this with increased supply of gas and active support of reform of tariffs, advanced metering and other measures to support more flexible demand from commercial, industrial and residential customers.

Most political attention will focus on residential customers. Shifting demand is likely to be more accessible for commercial and industrial customers. A changing electricity system requires serious consideration of industry policy in Australia. What does Australia do for a living in the 21st century? How can existing industries adapt? Given Australia is already a pioneer of high levels of intermittent generation, can Australia also pioneer adaption of industrial processes to exploit periods of very low cost electricity.

Written by Matthew Warren, former Chief Executive of the Australian Energy Council and author of Blackout - how is energy-rich Australia running out of electricity? Published by Affirm Press

[i] Australian Energy Market Commission, Australian Energy Market Operator and Australian Energy Regulator.

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