Pace of change requires a united approach to energy policy
There is no more potent evidence of the ongoing transformation of Australia’s energy supply than today’s assessment of the health of the national electricity market.
It finds that emissions across the NEM are about 25 per cent lower than in 2005.
By 2030, those emissions will be between 40 and 60 per cent lower than 2005. And between 70 and 95 per cent lower by 2042.
This shift is happening because we are generating more solar, wind and battery-stored energy, and less coal and gas. This same trend is happening globally.
The International Energy Agency (IEA) in its World Energy Outlook paper highlights the global expectation that renewables will meet 90 per cent of the anticipated growth in electricity demand during the next two decades.
This forecast is particularly relevant in Australia where the declining competitiveness of an ageing fleet of coal-fired power stations means they will inevitably need to be replaced or refurbished over the next 15-20 years or earlier.
The technology and renewables-driven transformation of our energy market is no longer an if or when proposition. It is here and now.
The fact our lights have largely stayed on throughout this transition so far is testament to the efforts of operators, industry, consumers and policymakers alike. Much has already been done to make sure we have enough electricity reserves, driving investment in resources through the recently introduced retailer reliability obligation (RRO), and adopting energy efficiency. The pace of change is accelerating. Band-aid solutions are no longer viable in the crucially important mission to deliver the reliable, affordable and secure energy this country needs to meet the challenges of the next decade and beyond.
The current set of systems, tools, market arrangements and regulatory frameworks is no longer entirely fit for purpose.
Rather than tinkering around the edges the energy ministers embarked on a major reform process through the Energy National Cabinet Reform Committee and their oversight of the Energy Security Board’s post-2025 market design project.
It is not a trivial challenge. When the national electricity market started in 1998 it followed years of policy development, mistakes, learning and ultimately successful implementation. Changes were barely noticed by the community at the time. The new interconnected market made the system stronger, backed up the individual power systems in each jurisdiction, and cut costs.
Since then everything has changed. And, importantly, has done so at unprecedented speed.
Government policies have encouraged the massive penetration of renewable generation, both large and small, at a phenomenal rate. The speed of consumer take-up of rooftop solar has exceeded all expectations. There is growing enthusiasm for smart meters and appliances, batteries and electric vehicles — they must be integrated at the lowest cost possible.
This pace of change means there is just months to finalise the redesign of the electricity marketplace so consumers can reap the benefits of this change.
For more than 18 months the Energy Security Board members have consulted widely and heard a range of views which have now been distilled to four areas of reform that address the critical needs of the energy sector — making sure we have the right mix of resources to keep the lights on; ensuring those services essential to maintain the system’s secure operation are available when needed; improving access to the grid; and providing for the integration of distributed energy (or behind-the-meter) resources into the overall market. It is about keeping the electricity system secure, reliable and affordable.
It is about connecting new generation at the lowest possible cost, and unlocking opportunities for consumers to benefit from contributing to the supply of energy and to manage the load.
Realising opportunities for customers will see new products and services emerge which means the regulatory environment has to change so the right protections are put in place.
Over the next three months the Energy Security Board will develop the detailed design for the reforms, and provide governments with various options for a pathway forward by the middle of 2021.
But while the extensive consultation has been under way, two things have been noticeable.
The first is reluctance by some stakeholders to recognise the pace of change and the need to embrace holistic changes in the sector — some seem to be more interested in protecting the status quo or perhaps their own interests rather than addressing challenges in the interest of the community.
The second is the diminishing patience of governments to wait for a NEM-wide solution.
While some stakeholders have failed to notice the pace of changes around them, or dithered about what to do, various government interventions and policy announcements have continued. These interventions are generally designed to either speed up the transition to cleaner energy or underpin concerns about reliability, or both.
There are many different forms of intervention such as driving new resources through government funded investment, or financial incentives delivered outside the market. In many ways the political response to the exponential increase of system instability in recent years is completely understandable. The energy sector was slow to deal with the reality that power systems with rising levels of intermittent, weather-driven generation are simply harder to manage. It is more difficult to maintain security and reliability with more variable generation. Years of insufficient action in the face of this fact has cost us.
Right now we have urgent decisions to make. But we cannot afford to lose sight of the importance of keeping the national market national to put downward pressure on costs. Long-term interventions are likely to impact the national market’s ability to attract investment. And these interventions change who bears the risk.
As more and more governments intervene in the market, the efficient sharing of energy across borders using the interconnectors which are currently being planned becomes less likely. That’s not a good outcome for anyone.
Sharing resources across the national grid drove the development of the NEM. And while much has changed, those benefits remain and will be even more important in the future.
The Energy Security Board has heard loud and clear that this is undermining investor confidence and the ability to manage risk in a way that supports investment operation, retirement and innovation decisions.
The longer we resist fundamental market changes, the more difficult or disorderly that change becomes. It’s time to calm down and simply get on with it.