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Energy reform agenda needs to be recharged

Australia’s energy policymakers and regulators already had a huge job on their hands to draw up and implement reforms to deliver a cheaper, fairer and lower-emissions power sector for consumers. COVID-19 has turned that into an even bigger challenge.

The problem is that while the pandemic has disrupted pretty much everything – the energy market reform process included – the march towards a cleaner energy mix and everything that entails for the power grid, prices and energy security won’t be stopped.

As Australian Energy Market Operator chief Audrey Zibelman notes, a new photovoltaic system is being installed on an Australian home every six-and-a half minutes, adding to the more than 2.2 million in place at the start of 2020 and making the country a front-runner worldwide.

AEMO is preparing for a world where by the mid-2020s, up to 75 per cent of the cheapest available electricity used in the National Energy Market (NEM) will at times be supplied by a combination of roof-top solar and grid-scale renewable resources.

While that’s possible technically, AEMO found, to get there involves a transformation of the supply system and many of the rules to go with it. While that work is well under way, the schedules of some reforms have had to be revised.

“Like most industries, the energy sector has felt the impact of COVID-19,” Zibelman tells The Australian Financial Review.

“Despite these impacts, AEMO and the market bodies remain committed to progressing reforms to benefit market participants and consumers.”

Adding a further complication, just as horror summer bushfires pushed “net zero” emissions by 2050 firmly onto the agenda, the power sector is facing a downturn in prices and demand, combined with rising bad debt levels. That poses a risk to investment plans in Australia, which still depended on coal for 56 per cent of its electricity last year.

While solar and wind farms are still coming online, a 50 per cent collapse last year in commitments to build new renewable energy projects has been compounded by the impact of COVID-19. Australia, already a global superpower in LNG exports, is also wrestling to set an agenda for a domestic gas-based manufacturing recovery.

Globally, the pandemic is expected to slash spending in the power sector this year by almost $US80 billion ($118 billion) or 10 per cent to the lowest in a decade, which the International Energy Agency executive director Fatih Birol describes as “worrying” for the development of more secure systems that can also accommodate rising wind and solar power.

“From an economic perspective, the drivers for the transition have not gone away,” says EY utilities leader for Oceania, Matthew Rennie. “The transition is not a choice, nor something that can be slowed down.”

Rennie says it is essential that the regulatory agencies keep pace.

“The Federal government’s technology road map provides a first signpost of the future of the energy system; it is now up to the Energy Supply Board to incorporate these principles into its 2025 Vision and to release this as soon as possible,” he says.

“From there, AEMO and the Australian Energy Regulator must work together to establish the equilibrium between what is technologically and technically required to make the energy transition a reality, and what customers can realistically bear and over what time frame to make it a reality.”

In their latest update on their work timetable, the AER, AEMO and the rule-making Australian Energy Market Commission advised of some delays to rule changes and a more specific focus for others given the urgency of tackling immediate security and affordability issues arising from COVID-19.

The switch from a 30-minute to five-minute settlement on the wholesale electricity market is one reform that faces a 12-month delay.

On the policy front, the government’s long-awaited technology investment road map, a key pillar in its emissions reduction strategy, has left businesses still seeking clarity on long-term climate goals and the framework to achieve them.

“It was a good paper to start with and there’s plenty to do,” says Origin Energy chief executive Frank Calabria.

“It really just highlighted what technologies are there and what they want as stretch targets for high-priority technologies, so we support those.

“It is one part of an overall policy response that’s required.”

Source: Financial Review