Speeches

ADDRESS TO CLEAN ENERGY COUNCIL POLICY FOR A 21ST CENTURY ENERGY SYSTEM

July 27, 2016

SYDNEY

WEDNESDAY, 27 JULY 2016

 

[Acknowledgements omitted]

 

Well we’re finally past the longest election campaign in fifty years, and I hope that it will be another fifty years before someone has the bright idea of an eight week campaign during winter.

We now enter a very challenging 12-18 month period for the Climate Change and Energy policy areas.

The early signs, I have to say, are rather mixed.

On the positive side, I very much welcome the decision of the Prime Minister to combine the Climate Change and Energy portfolios, and to appoint a very talented Minister in Josh Frydenberg.

We took the decision late last year to link the climate change and energy portfolios.

It was one that was very broadly welcomed across not only the electricity industry in all of its forms, but also by organisations like the Business Council and other big energy users, and, more broadly, observers of good energy policy.

In the sense that imitation is the highest form of flattery, we’re very pleased that the Government has also decided to link these two portfolios - a trend we also see happening in a number of states.

On the more negative side, we’ve also seen quite an extraordinary exploitation of a price surge in wholesale power in South Australia to relaunch a campaign by some in the media and some unfortunately also in the Federal Coalition against renewable energy.

I’ll have a bit more to say about that over the course of my remarks, but where Malcolm Turnbull and Josh Frydenberg head in these two areas, after two very mixed signals I think in this policy area, will be critically important, not only for your industry but more broadly for Australian society.

Before I address those challenges I just wanted quickly to refresh your recollection of Labor’s election policies and what we would be doing right now had we won the election on July 2, because this very much will frame our attitude to this policy area in the Australian Parliament and more broadly in the community debate that is already underway.

If elected, and if I had been appointed the Minister for Climate Change and Energy, I would already have moved to start to establish the Electricity Modernisation Review, which would be a very broad review of the fundamentals of the National Electricity Market.

As I said a number of times, in the lead up and during the campaign, the NEM, although it’s still not twenty years old, was essentially constructed in a very different era of energy policy.

It was built on the two traditional pillars of energy policy of reliability of supply and affordability and takes no account at all of the third pillar of modern electricity policy which is that of de-carbonisation.

The National Electricity Objective needs to be revisited to integrate that third pillar and the rules and the law need to be reviewed to take account of the emerging trends that Kane referred to and that you all understand so well. Trends like more intermittent renewable generation, emerging technologies in storage, the distribution of electricity generation and so on and so forth.

We would already have started to commence preparations for that Review which we committed to start formally by the end of 2016.

We would also have asked that Review not only to review the fundamentals of the NEM, but also to start to construct a framework for the orderly closure of our oldest, most heavily polluting fossil fuel generation.

This year, if elected, I would also have begun consultations about the design of post 2020 arrangements for renewable energy.

We made a commitment to a 50 per cent Renewable Energy Target by 2030 but I said that I wanted to undertake consultations about the design of that scheme to determine whether it would be based on a retailer obligation model, or something more similar to the trends you see around the world of reverse auctions. That would be something that we, again, would have commenced by the end of this year.

I would also have asked the AEMC to establish a process to finalise the proposal that it put to the Government last year for a fully internalised carbon market for the generation sector based around an average emissions intensity baseline – something which we adopted, again, as part of our election policy.

I remain convinced that that broadly is the right framework to take Australia forward.

Now the Coalition said precious little about climate change and energy policy during the campaign, no matter on how many occasions we tried to draw Malcolm Turnbull into a debate about those issues, but I do genuinely hope that Josh Frydenberg in his new appointment will come to see this pathway – this framework – as the best way forward.

In that broader context, I think there are essentially three different challenges for your industry at a national level.

The first is an immediate one and that is that the past three weeks have seen a cocktail of exaggeration, hyperbole and downright misinformation about what is happening in the electricity market in South Australia.

We saw a dress rehearsal for this in November, when a price surge in South Australia that was essentially caused by the Heywood Interconnector going down was blamed on South Australia having too much wind power.

But this push at present is a much more determined push by interests that frankly have nothing more or less than an ideological bent against renewable energy.

It’s a push that should not be underestimated and it’s a push that must be overtly challenged.

As always, a useful place to start of course is the facts.

I looked at the AEMO price data yesterday and particularly at the average monthly price data for the NEM jurisdictions. In the first eleven months of the 2015-16 year, so up to the end of May, the average wholesale price in South Australia was $56 per megawatt hour.

In Queensland it was $58 per megawatt hour.

In Tasmania it was a little bit more than $100 per megawatt hour obviously because of their perfect storm of the depletion of the dams and the breakdown in Basslink.

New South Wales and Victoria were lower than South Australian prices but by a margin that was pretty much comparable to the margin you’ve seen over the history of the NEM between South Australia and the two big jurisdictions.

In June, all states in the NEM saw very big increases in average wholesale power prices; mostly by about 50 per cent or more except for Queensland which saw an increase of about 25 per cent.

South Australia was at the top of that table with an increase of about 76 per cent but Victoria saw an increase in their wholesale power price of about 71 per cent.

It’s the July price that has seen South Australia start to diverge substantially from the rest of the market in the last few weeks.

The reasons for that are very complex, but also reasonably clear.

Tom Koutsantonis, the South Australian Energy Minister has described the situation –I think very accurately – as a ‘perfect storm’.

There are undoubtedly very significant supply constraints in South Australia, some of which have been exacerbated over recent weeks.

The closure of the Northern power station is a significant factor in the market.

The mothballing of Pelican Point power station has also, as you understand, constrained supply.

And the Interconnector, The Heywood, was down for upgrade during this period of few weeks as well.

It has been, to quote a phrase, ‘bloody freezing’ in South Australia, so demand has been up as it has been in some other states over the last several weeks as well.

But the main cause for this, which is very well encapsulated in a very important position paper that the CEC has released over the last week or so, undoubtedly is a huge spike in wholesale gas prices, the Adelaide hub price in South Australia.

As the CEC paper demonstrates very clearly, there is a very clear, unambiguous historical relationship between wholesale gas prices and wholesale electricity prices in South Australia.

At a time after the closure of Northern and Playford when more than 90 per cent of our dispatchable power in that state is gas power, that link is going to be closer, not more separate.

As the CEC paper also points out, these supply and demand trends and the impact of the gas price are exaggerated in South Australia because of our historically lower levels of competition, both in the wholesale gas market and the wholesale electricity market.

Now I don’t deny for a minute that what is happening in South Australia is very serious.

It is, but to put the blame for this situation on renewable energy is fatuous at best and downright misleading at worst.

This is precisely why we’ve argued so strongly for a comprehensive review of the National Electricity Market.

As Tony Wood from the Grattan Institute said a couple of days ago – this is urgent. This is not something that can wait for the rest of the year. This should be beginning very soon.

Now I welcome Josh Frydenberg’s decision to convene the COAG Energy Council in the next few weeks but I also agree with the CEC that this should be a broader discussion than just the COAG Energy Council.

It should obviously involve industry itself, but it should also involve big energy users and ordinary household and small business consumers as well.

The second related challenge is meeting the 2020 Renewable Energy Target.

I’m very concerned about the impact the current debate through so many of our media organs is going to have on investor confidence that is needed to deliver that revised target of 33 terawatt hours by 2020.

I am very concerned about the calls from Nick Xenophon to establish an Senate Inquiry to re-open the fundamentals of the Renewable Energy Target.

Nick has a long-standing opposition to wind power. Whenever you have to start a sentence all the time by saying, “I’m not against wind power but…” you know there is something afoot.

The third challenge which Kane has also referred to is the longer term challenge of having a policy beyond 2020.

Greg Hunt and I, very early in the election campaign, had a debate about environment policy which included renewable energy and climate at the National Press Club.

Greg was asked what the policy for renewables of the Coalition beyond 2020 was. He referred to the tail, the payment tail, through the certificates that are earned though building renewable energy before 2020.

That is not a policy for building renewable energy generation beyond 2020.

We took a policy of 50 per cent by 2030.

We still think that is the right policy.

The new government and the new Minister must start a process over the next 18 months to send a very clear signal to investors about what the rules will be for building renewable energy generation beyond 2020.

That has to be largely completed by the end of next year.

Now, in summary, I think everyone would agree that we have a very challenging time ahead.

Some of the debate suggests that either people don’t understand or are misrepresenting the fundamentals of energy policy.

They almost assume that the transition happening in the sector is an optional transition.

Playford in part, in very significant part, closed in Port Augusta because it was more than 50 years old.

So much of our energy generation infrastructure was built more than 30 years ago, some of it over 40 years ago.

Even without the imperative of de-carbonisation, even without the revolution in renewable energy technology, as a country we would be having a debate about renewing our electricity generation infrastructure.

Added to this reality is the imperative to de-carbonise this sector.

Now fortunately, from a glass-half-full perspective, we must also stress that Australia has a competitive advantage in this area.

We have some of the best renewable energy resources – solar, wind, wave, tidal, geo-thermal and many others –in the world.

We have some of the best minds as we’ve consistently demonstrated through our universities, CSIRO and the like.

And we have some of the most exciting and innovative businesses in the world.

We’ve been there before, and we should again aspire to being one of the top four or five renewable energy jurisdictions in the world.

But we do need ambitious, stable policy, particularly at a national level, although I recognise that state and territory government policies in this area are critically important as well.

What Malcolm Turnbull and Josh Frydenberg do over the next few weeks is critically important.

I desperately hope that they put the instability of the last few years behind them and recognise not just the challenge but the opportunity involved in Australia setting that stable policy environment for you guys to do what you do best, which is to build exciting, successful renewable energy businesses.

I, on behalf of the Labor Party, am committed to doing all that we can, constructively, to make that a success and continuing to work very closely with the CEC in the three years ahead.

Thank you very much again for the invitation to be here.

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