Nov 24 2022

Deep Dive: 2022 Victorian Election Commitments

Recent data shows that energy is an issue that more and more voters are conscious of as they consider which politicians are best to lead us. The latest True Issues Survey conducted by JWS Research and published in the Australian Financial Review shows that 39% of people believe that energy is the one of the most important issues the Federal Government should focus on, compared with 20 per cent in March.

This movement comes against a background of an energy crisis in June precipitating higher wholesale energy prices and the effects beginning to filter through to consumer bills. War in the Ukraine and uncertainty in international markets have also contributed to higher prices.

Given the rhetoric and actions of state and federal governments to date, it is not a complete surprise that energy is more front of mind for consumers. In the lead-up to the federal election, the Labor Party under now Prime Minister Anthony Albanese promised to reduce household power bills by $275 on an annualised basis. In a similar but more direct way, the Victorian Government under Premier Daniel Andrews made $250 payments to each household in Victoria who visited compare.energy.vic.gov.au to check that they were getting the best energy deal possible. Governments have been talking to consumers about their energy bills for months.

Likewise in the Victorian election currently underway, energy has emerged as a big issue. Major promises have been made by both sides of politics. Labor and the Liberals/Nationals have each set out ambitious programs they would seek to implement if elected. Both parties, for example, are offering some form of rebate or energy bill discount like the Andrews Government provided previously. The amounts on offer are almost identical - $250 again from Labor and $235 from the Liberals/Nationals. We take a look at this and other election commitments made by the major parties this election.

Labor

$1bn spend for SEC to build 4.5 gigawatts of clean energy generation

Reviving the State Electricity Commission to play a key role in the state’s energy transition

Revive the State Electricity Commission and create 59,000 clean-energy jobs

Create at least 6,000 apprenticeships and traineeships as part of our plan to bring back the SEC

On 20 October the AEC’s media release, “Victoria’s Back to the Future’ announcement a retrograde step” noted the Andrews Government’s proposal to reinstate the State Electricity Commission and expedite the exit of coal plant from the state will damage market and investor confidence and ignores the lessons of history.
The proposal risks chilling private investment and sees Victorian taxpayers carry the lion’s share of risk around new generation. While it might be popular in the electorate to relive the ‘glory days’ of state owned resources, there is little detail in the proposal that suggests that Victorian energy prices will be reduced as a result of bringing back the SEC.

Minister Lily D'Ambrosio has commented that the $1 billion committed for investment in renewables projects over the next decade is a ‘down payment,’(ABC Radio Melbourne, Monday 14 November) so there may be future additional funding commitments made. Victorian Labor has also indicated it would seek investments  from super funds for SEC projects. 

In the last week of the campaign the Premier stated that a returned Andrews Government would enshrine the SEC in the Victorian Constitution.  This announcement appears to be largely symbolic – similarly an amendment was made to insert the fracking ban into the Victorian Constitution in 2021.  Most amendments to the Victorian Constitution can be made by the introduction of a Bill into the Parliament and the attainment of a simple majority in both Houses of Parliament.

The AEC’s view is that governments don’t need to make direct energy investments where the private sector has demonstrated it is ready and willing to do so. The energy industry has shown its willingness to invest in the energy transition with significant large wind, solar and pumped hydro projects already in service or under construction.

A goal of 2.6-gigawatts of renewable energy storage capacity by 2030 and 6.3 GW by 2035 — which Victorian Labor says is enough to power around half of Victoria's current homes at peak energy use

While an announcement has been made, Victorian Labor has not published a rationale, nor has it yet determined what depth (energy storage), locations or type of storage these capacities imply. Rather than state government technology targets, the AEC believes in a technology-neutral national competitive market tuned to achieve a national reliability standard. 

Aim to cut the state's greenhouse gas emissions by 75-80 per cent by 2035 and to net zero by 2045

This target is more ambitious than the target recently legislated by the federal government of a 43% economy wide emissions reduction by 2030 and net-zero by 2050. It will require action well beyond the electricity industry, most likely requiring substantial shifting of the community off gas and petrol into electricity through the 2030s.

Deliver new renewable energy targets for Victoria – increasing to 65 per cent by 2030, and 95 per cent by 2035

This is an additional target for the electricity industry for 95% renewables by 2035, which suggests coal would no longer be operable. This announcement was made without consultation with industry. and  Alinta Energy is presently planning to close its Loy Yang B plant in 2047. If implemented, this announcement will create significant challenges for the Victorian energy market.

Install 100 neighborhood batteries to drive down power bills

It is important that these installations are targeted to areas where demand requires them, to minimise market distortion, and avoid crowding out private investment.

Another round of the $250 Power Savings Bonus

Direct government subsidies are often welcomed by consumers, however must be funded by other tax revenue. Given rising energy debts, any subsidies should directly reduce customer bills rather than be paid as cash to mitigate further inflationary pressure.

Invest $10 million to deliver a Hydrogen Worker Training Centre

The AEC recognises that hydrogen could be a useful long-term decarbonisation option for those energy applications that are not easily electrified. The AEC has expressed concerns about proposals in New South Wales and Western Australia to impose blending targets on natural gas customers unlikely to ever make the switch to 100% hydrogen. In comparison, the Victorian proposal here seems a low-regrets move. If focussed on realistic uses (i.e. high temperature applications in industry) this long-term investment in worker skills could prove useful.

Possibly launch a state-owned retailer via the SEC

While detail is scant on what a retail arrangement might look like, it is important to note that there are many retailers for customers to choose from, including a number owned and operated as government-owned corporations. 

Liberal/National

Legislate Victoria's emissions reduction target of 50 per cent by 2030, achieve a net-zero target by 2050

This target is more ambitious in the short term than the target recently legislated by the federal government of a 43% economy wide emissions reduction by 2030 and net-zero by 2050.

Encourage conventional onshore gas exploration and production

The Victorian Gas Program’s geoscientific investigations concluded that there is likely to be 128-830 petajoules of commercially feasible onshore conventional gas yet to be discovered in the state. More supply generally supports lower market prices.

Quarantine 100 per cent of the state's newly found gas for Victorian use

The AEC supports unrestricted national trading of energy. Notwithstanding that, the AEC notes a number of challenges in implementing this policy:

    • There may be constitutional difficulties with respect to restraint of interstate trade.
    • Gas is traded in Victoria under the Declared Wholesale Gas Market which pools the gas and provides no obvious way of physically tracking individual molecules.
    • Newly discovered gas will only constitute a small percentage of Victoria’s gas supply, and if it is restricted to Victoria, it is likely that the market would simply adjust by increasing the export of existing gas supplies.
    • Limiting the sale opportunities for developers of new gas supply to only Victoria is a disincentive for investors. Especially when they can invest in other jurisdictions that don’t have this constraint on where their gas is sold. 

Freeze supply charges on power bills for the first half of 2023. The AEC understands this commitment is intended to be funded by government.

Direct government subsidies are often welcomed by consumers, however, must be funded by other tax revenue. It also leads to consumer anxiety when the support is withdrawn that unfairly targets the industry. 

Support one million Victorian households to install solar and batteries by 2035, with rebates of up to $4,400 for owner occupiers

Similar to the existing Solar Victoria subsidies. With solar already cost effective, further subsidies does not seem an efficient use of resources. That said, additional efforts to support renters and others less able to directly invest is welcome.

Establish a $1-billion hydrogen strategy to support the development of hydrogen technologies

If hydrogen gets to a stage where it is able to cost-effectively contribute to decarbonisation, this commitment may help support the industry’s establishment. According to a Hydrogen Council report baseload supply hydrogen will only be relevant in “regions constrained in renewables potential and situations where alternatives like fossil fuels with direct CCS or biomass … are not an option”..

Pause Victoria's new Electric Vehicle Tax until 2027

There has been substantial debate about road user charges with some concerns that introducing them too early could stifle the uptake of EVs and potentially limit model availability and restrict driver choice. The NSW approach is to introduce a road user charge of 2.5c/km from 1 July 2027, or when zero emission vehicles reach 30 per cent of vehicle sales, whichever comes first. The delayed approach is an attempt to limit the risks to uptake now by pushing user charges to later this decade when more EVs are expected to be on the road.

Support at least 100,000 rental households with a double rebate to work with landlords to install solar and batteries by 2035 (up to $8,800 in total)

Incentivising landlords to install solar on rental properties is a welcome step, and should enable reduced energy costs for renters traditionally unable to benefit from DER. 

Add solar panels across public infrastructure, leading with government schools and social housing

The rate of return achieved by modern solar PV generally makes them a sound investment that will provide affordable renewable energy. Utilising government-owned rooftops and installing solar PV will likely reduce the Government’s energy bills and carbon footprint. 

Unlock 1,800 megawatts of renewable energy by upgrading transmission infrastructure in Western Victoria

The regulatory investment test for transmission (RIT-T) has already been carried out on the Western Renewables Link on its current route. There may be implementation difficulties.

Rising cost of living, higher wholesale energy prices and increased commentary around the energy sector are all factors which have led to energy becoming a focal point in the 2022 Victorian election.

Voters going to the ballot box logically expect commitments from major parties that address major issues in the economy on both a short- and long-term basis. Unfortunately, the commitments provided by both parties appear to contain primarily short-term solutions, rather than long-term reforms.

While these commitments may provide a ‘sugar hit,’ the issues the commitments seek to address will more than likely reappear in the medium to long term.

The AEC looks forward to engaging with the next Victorian Government and Energy Minister as it seeks to implement these commitments in a manner that benefits Victorians in the long term.  

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