Dec 09 2021

Year in review: Some hits, some misses

It was another year of significant developments in the energy sector and below we take a look at some of the more notable.

Emissions targets

Climate policy remained high on the agenda spurred by both the Glasgow climate summit (the Conference of the Parties, better known as COP26) and the looming Federal election.

After much ado the Federal Government announced a commitment to a net zero by 2050 economy-wide target and recommitted to its 26-28 per cent reduction by 2030 interim target. Whilst not adjusting its interim target, the government did declare that regardless it expected to actually achieve a 30-35 per cent reduction based on updated emission projections. Those projections also highlighted the energy sector would be expected to do the heavy lifting and has been leading the way.

The speed of the transition underway in the energy sector is impressive and is reflected in those emissions forecasts. Electricity sector emissions will be 55 per cent below the 2005 baseline (197Mt) in 2030 (88Mt) and will account for just 20 per cent of Australian emissions at that time (down from 34 per cent in 2019). Between 2019 and 2030 total electricity emission reductions are expected to be around 91Mt, which includes an 86Mt drop in National Electricity Market (NEM) emissions. Economy-wide emissions are expected to fall 17 per cent or by 90Mt with some sectors showing increases in the same period.

To round out the climate and emissions debate, the Federal Labor Opposition has committed to legislating an interim emissions reduction target of 43 per cent by 2030 (below the target it took to the last Federal election). The ALP intends to use the existing Safeguard Mechanism to gradually reduce economy-wide emissions. Included in other steps it would take were plans to invest $20 billion in the grid to accommodate around 82 per cent renewables in the NEM (without accelerating coal closures), making electric vehicles cheaper with an electric car discount and a National Electric Vehicle Strategy, rolling out 85 solar banks and installing 400 community batteries across the country.

Climate and energy policy promises to continue to feature strongly in the election campaign.

Post-2025 market

Mid-2021 saw the delivery of the Energy Security Board's (ESB) final advice on the proposed redesign of the NEM to the Energy National Cabinet Reform Committee. Chaired by Dr Kerry Schott, the ESB’s work on the all-important market design challenge has been a massive piece of work, driven by no less than 10 consultation papers and months of engagement with Australian Energy Council (AEC) members.

The emergence of support for some form of capacity mechanism was a major outcome that sparked discussion. The Physical Retailer Reliability Obligation (the Physical RRO) emerged as a signature piece of the ESB recommendations and sparked debate because it steers towards a fundamental change away from the energy-only NEM. The ESB's in-principle support for a capacity market, which was endorsed by Energy Ministers, will require detailed design work over the next 18 months.

There is an ongoing role for the ESB to refine advice to Ministers on the choice of market design for the post 2025 era, and other technical work critical to the maintenance of the system’s reliability and stability. The ESB is now chaired by the AEMC. 

Time for a change

2021 saw the momentous shift to five-minute settlements in the NEM. Energy had previously been settled in 30-minute periods on the average of six, five-minute dispatch prices. From midnight on 30 September each five-minute interval has been settled against its own dispatch price (5ms). Around four years in the making, this affected all parts of the industry, from generators, to retailers, to networks, to metering providers, to derivative traders and of course, the Australian Energy Market Operator (AEMO). It also required significant investment not only by the AEMO which spent an estimated $121 million, but also AEC’s members. Midway through the project the AEC conducted a confidential survey of its members’ costs and the estimated price tag for the competitive sector alone was in the order of $200-$300 million. The investment and extensive work undertaken has added up to a successful transition.

Renewable growth

The shift to an increasing deployment of renewable generation was very noticeable during the year with not just record levels of new capacity but, as a consequence, the regular setting of new minimum demand records in both the NEM and WA’s Wholesale Electricity Market (WEM), as well as increasing periods of zero or negative prices.

The Clean Energy Regulator’s (CER) quarterly carbon market report for September also highlights the shift - a record 32 per cent of electricity generated in the NEM in the third quarter was from renewable sources. The CER expects that across the full year renewables will generate around 30 per cent of all NEM electricity, double the 15 per cent reported in 2017.

Since 2018, an average of 6GW of additional renewable energy capacity has been added to Australia’s grid each year. Rooftop solar is leading the way with another 3.2GW of new capacity expected in 2021 (over 400,000 solar systems), despite extended lockdowns in New South Wales and Victoria inhibiting installation activity.

We take a further look at the CER’s latest findings in a separate EnergyInsider article.

The western transformation

Unsurprisingly, the challenges thrown up by the rapid transition underway in the NEM are also being faced in the WEM. The Energy Transformation Strategy was established by the WA Government in March 2019 to respond to the shift and with the aim of ensuring the reliability and security of the power system.

The strategy’s first stage of work from May 2019 to May this year was led by the Energy Transformation Taskforce. The issues that led to the initial Energy Transformation Strategy have actually been amplified since 2019 with more than double the amount of large-scale renewable generation connected to the grid and a sharp increase (51 per cent) in rooftop solar PV. By 2030 one in two homes and businesses are expected to have rooftop solar (up from one in three today).

Renewables are accounting for increasing capacity and generation in the South West Interconnected System (SWIS), which covers the major population load centres. As a result, record minimum demand periods are being reported after more than a decade (up to 2019) when minimum demand remained fairly constant.

In response to the challenges posed in the SWIS the Western Australian Government launched the Energy Transformation Strategy Stage 2 in July 2021. One of the initiatives under the ‘keeping the lights on’ section is a review of the Reserve Capacity Mechanism. The RCM review is a welcomed announcement and comes at a timely point with the SWIS facing ongoing pressure from the changing way that electricity is demanded and supplied. The objectives of the review are positive but there is a now a need for the entire RCM to be fully considered to ensure it is a functioning part of the WEM for the next 5-10 years

An eventful year

In March, EnergyAustralia announced that it would bring forward the closure of the 1480MW Yallourn Power Station to mid-2028, four years earlier than originally expected.

Yallourn has been home to a coal-fired power station for 100 years and is responsible for around 22 per cent of Victoria’s electricity supply. Under an agreement with the Victorian Government, EnergyAustralia will retire Yallourn in mid-2028 and build new storage capacity through a 350MW, four-hour, utility-scale battery project which is expected to be completed by 2026. AEMO noted the extended notice — as well as the commitment to build the battery storage — would allow for a “considered market response to facilitate an orderly transition”.

Yallourn was also impacted by extremely heavy rainfall which led to flooding and cracks appearing in the Morwell River Diversion that runs through the plant’s coal mine. The Victorian Government declared an energy emergency and subsequently approved water diversion activities that allowed Yallourn to undertake a comprehensive damage assessment of the Morwell River Diversion and resume standard coal mining in late June. This followed detailed geotechnical risk assessment.

This was one of a number of notable incidents in NEM supply.

Others included a fire at Victoria’s 300MW, 450MWh big battery (VBB) at Moorabool near Geelong which began just after 10am on Friday 30 July. Following its investigation Energy Safe Victoria (ESV) concluded the fire most likely resulted after a cooling system leak caused a short circuit in an electrical component in a Tesla Megapack leading to overheating. There was also a delay in connecting the batteries to the SCADA system which meant there was no active monitoring of alarms. ESV has required the site’s owners and operators to implement a number of additional safety measures, which have been put in place. Commissioning was able to recommence on 29 September and on 8 December the VBB was officially switched on.

In Queensland an incident occurred in Callide’s C4 generating unit on 25 May, which resulted in an explosion, with substantial damage to the unit, forcing it offline. The incident led to a trip of multiple generators and high voltage transmission lines in Queensland. The initial event led to under-frequency load shedding and temporary synchronous separation between Queensland and New South Wales. By July Callide was back up to almost 75 per cent capacity. The Callide C4 unit is offline for repairs, and is not expected to be back online until early 2023.

Fairness plans

In the retail space during 2021, the Victorian Government made good on its election commitment of an Energy Fairness Plan (EFP), through two pieces of legislation which introduce tougher requirements and tougher penalties for energy retailers. The first bans all outbound sales (including door to door and telesales) and the second brought in $10 million penalties and search warrants.

While the AEC acknowledges the EFP was a commitment made by the Victorian Government in the days before the 2018 election, it still does not believe the State Government has made the case as to why these reforms will benefit energy consumers into the future.

The Energy Legislation Amendment (Energy Fairness) Act 2021 which was passed by the State Parliament includes a range of new prohibitions (on door-to-door sales, cold calling and “save” or “win back” offers) which are expected to begin by proclamation by the end of December. It also brings in new criminal penalties of up to $1 million (up from $5000) for the wrongful disconnections or where disconnection endangers a person on life support. The strict liability offence removes the requirement to establish fault; in other words, retailers who disconnect a customer due to human error could still face a penalty of up to $100,000.

There are also criminal penalties of up to $1 million for gas and electricity licensees who provide false or misleading information to the Essential Services Commission. 

The legislation includes several changes that differ markedly from the National Energy Customer Framework position and are inconsistent with the recommendation for uniformity across jurisdictions in the Australian Competition and Consumer Commission’s Retail Electricity Pricing Inquiry in June 2018. 

On 7 September 2021, the second piece of legislation “Essential Services Commission (Compliance and Enforcement Powers) Amendment Bill 2021” was introduced to the Victorian Parliament. The legislation overhauls the ESC's existing enforcement framework and introduces a new civil penalty framework with additional remedies. The maximum penalties payable have also significantly increased, with higher penalties for energy licensees than other regulated entities. Penalties could be as high as $10 million.

The ESC will also be able to seek a range of remedies including orders:

  • requiring a regulated entity to publish an advertisement that will attract adverse publicity;
  • directing a regulated entity to perform a service for the benefit of the community, establish a compliance, education or training program or revise internal business operations;
  • declaring that a contract or agreement (or part of it) is void or should be varied; and/or
  • requiring a regulated entity to refund monies or pay compensation.

Consumer Data Right

The Consumer Data Right (CDR) for energy will start on 15 November 2022 for customer data held by the Australian Energy Market Operator, AGL Energy, Origin Energy and Energy Australia. This is a six month extension on the original start date.

From November energy companies will need to provide consumers with access to their usage and connection data, mirroring the requirements by financial institutions for the ‘‘open banking’’ regime. The government intends the CDR regime to give consumers greater access to and control over their data and make it easier for them to shop around, but also make it easier for start-ups. It will allow customers to authorise third parties to access their energy data. Initially the CDR for Energy will apply only to the NEM.

This is a significant work required to change data systems, retailer platforms and program interfaces while ensuring retailers comply with information security and privacy protections.

and will require significant investment and retailers have been given an additional six months for its implementation. our data systems and platforms, building new application program interfaces and customer dashboards, and ensuring compliance with information security and new privacy protections

Retailer best practice

Amongst other retail developments this year, the Australian Energy Council, energy companies and a broad range of consumer advocates undertook a unique collaboration to develop Best Practice for Energy Retailer Assistance.

The first iteration of a best practice guide was published and this is designed to support retailers in their efforts to enhance the support they provide customers who are having trouble paying their energy bills.

Two documents were released. The first provides a range of agreed principles to guide retailers in the developing assistance frameworks. They are designed with positive customer outcomes in mind, focusing on building trust, genuine engagement, debt mitigation, and maintaining connection wherever possible.

The second sets out practical steps and examples for retailers to implement these principles. The examples illustrate the broad challenges facing energy consumers, and measures retailers might take to support them. It is important to note this document is not a checklist, but a resource to assist retailers in better designing their own processes, based on expert guidance from consumer advocates.

COVID challenges

The ongoing challenges of COVID-19 - and the various lockdown restrictions across the states – continued to bring the economic stress on households to the fore. The Australian Energy Council supported by its retail members launched initiatives to alert energy customers to the support available if they were experiencing hardship including, Helping You Stay on Track and in cooperation with Financial Counselling Australia information to encourage people, particularly small business owners, who may be experiencing financial difficulties to speak to their energy retailer or seek assistance from a financial counsellor.

Heading offshore

During the year the Federal Government unveiled new legislation to clarify offshore energy developments was greeted with suggestions it would prompt a rush of offshore wind farms around our coastline. The Offshore Electricity Infrastructure Bill 2021 passed both Houses of Parliament on 25 November 2021.

Currently many of proposed projects are in pre-feasibility stage. The 2.2GW Star of the South project proposed off the Gippsland coast is the most advanced, but just this week Alinta Energy announced the potential for a 1GW wind farm around 10km off the coast of Portland, in southwestern Victoria, that could supply the Portland Aluminium Smelter and east coast electricity grid.

Related Analysis


A peek at community attitudes and awareness towards the energy transition

Recent surveys from KPMG, SEC Newgate and the CSIRO have all provided good insights into the community’s attitude to the changes underway in the grid and the way we generate electricity. They also highlight the level of knowledge of what this involves as well as how overall views on the speed of the transition are being influenced by factors like cost-of-living pressures. We take a look at what they found.

May 16 2024

Just Transition: Case Studies Highlight Work Underway

With the recent introduction of legislation to establish a Net Zero Economic Authority, there has been a renewed focus on the issue of coal-fired power station closures and how their operators are supporting their employees through the transition. We take a look at four transition program case studies, that are in progress or emerging.

May 16 2024

Report assesses state of play for SMRs

A recent report by a pro-nuclear UK think tank has shone a light on the challenges needed to be overcome to accelerate the development and rollout of small modular reactors (SMRs) globally. While the sees SMRs playing an important role in helping countries decarbonise and impressive growth out to 2050, it is a little less optimistic than some projections and highlights the uncertainties and key hurdles that need to be dealt with. We take a closer look.

Apr 26 2024
Do you have a question or comment for AEC?

Send an email with your question or comment, and include your name and a short message and we'll get back to you shortly.

Call Us
+61 (3) 9205 3100