Press conference with Australian Energy Markey Operator CEO and Managing Director Daniel Westerman
CHRIS BOWEN: Thanks for coming this morning everybody. As you know our energy system on the east coast has been under very significant pressure in recent weeks. As I said, at the outset of this challenge, Australians can take comfort in some key points. Firstly, that the Federal and State Governments across the National Energy Market were working very closely together to make sure that the lights stayed on. Secondly, that we have world class energy market operators and energy regulators ensuring that the consumers’ interests were put first. And, as a result of all those things, we have been able to avoid blackouts and load shedding over recent weeks despite very considerable challenges.
The actions taken by AEMO last week were very significant and very necessary and, as I said at the time, had my full support. I also said that they would stay in place for not a day longer or a day shorter than the chief executive of AEMO judged as necessary. The chief executive of AEMO, Daniel Westerman, will make further announcements this morning, but I do want to say again the Australian people can have confidence in their regulators, confidence in their market operator who works very closely with State and Territory and the Federal Governments to make sure that the consumers’ best interests are protected and that our energy system remains reliable despite very considerable challenges we’ve been facing in recent weeks.
Daniel will make an announcement as the market operator. I’ll then say just a few more brief things. Then happen to take your questions and if it’s all right with the members of the media, if you have questions about this announcement and AEMO’s role, I’ll invite you to use those first. If you then have broader political questions about matters of day, Daniel will step aside, and I’ll take those.
DANIEL WESTERMAN: Good morning. I would like to acknowledge Minister Bowen who’s here today as well as all state and territory ministers who have supported AEMO through a very challenging week. I’ve spoken with each energy minister this morning.
Last week, when AEMO suspended the Australian electricity market we put the security of the grid and keeping the light on above everything else. At that point, the market had become impossible to operate, so we intervened. And because of that intervention, we’ve been able to operate the system through a tight and challenging a couple of days. We’ve been working with generators to gradually restore more normal operating conditions. We’ve asked generators to bid their plant back into the system, as they normally would, and we’re seeing this happen more and more. That’s giving us greater visibility both in real time and for the periods ahead, and it’s reduced the number of directions that AEMO has needed to give to generators to dispatch their energy.
In addition, we’ve seen nearly 4,000 megawatts of generation return to service since this time last week, and that means the risk of any shortfall has reduced markedly. We know that many generators are working hard and closely with governments to improve the confidence of their fuel supply, to ensure that they’re able to operate at their desired level of output. Now, I’ve said that we will not keep this market suspended for a minute longer than it is needed, and today I can confirm that we are activating a staged approach to lift the suspension of the National Electricity Market.
The first step will take place at the end of trading day today, and that is 4.00 am tomorrow morning, when we’ll allow the market to set the price again. The second step will happen 24 hours after that, when we will be able to formally lift the market suspension.
After taking that first step, I’d expect to see three things. First, the system that we use to schedule generation into the grid at the lowest cost to consumers, the dispatch engine, will be working without failure. Second, that AEMO will be able to reduce the number of directions that we’re giving to generators. And third, we’d expect to see a reduction in the forecast shortfalls of energy or low reserves as generators respond to those market signals. We’ll monitor the market closely for at least 24 hours and if we see normal market behaviour again, then we’ll formally lift the suspension.
We know that a well functioning National Electricity Market is key to ensuring the lowest cost energy to Australian homes and businesses. And this step by step approach minimises the risk of seeing the dysfunctional behaviour that led to the market suspension last week. Thank you. I’m happy to take any questions.
CHRIS BOWEN: Thanks, Daniel. We’ll take questions in just a moment, but just before I do, obviously what the chief executive has outlined today is, I think, a prudent and carefully imagined approach to return to more normal market conditions. Risks remain in the system, and I know that AEMO remains very vigilant about what needs to be cared for in the coming days but the process laid out by AEMO, as Mr Westerman has said, that has been briefed to state and territory ministers in the lead up to today’s announcement is a prudent, carefully managed and staged return with the same prudence that AEMO has shown over recent days.
Also, I’ve spoken this morning with the Australian Energy Regulator, Clare Savage, who’ll continue her very close activity and monitoring of behaviour of generators and ensure again that consumers’ interests are put first. And again, I say the Australian Energy Regulator has the full support of the Federal Government as we go through this period for any action, she deems necessary to take.
Either Daniel or I will be happy to take questions. As I said before, if you can limit questions to this matter and then I’ll take questions on other matters of the day afterwards.
JOURNALIST: If there was a capacity mechanism already in place, would that have prevented last week... (Inaudible)
DANIEL WESTERMAN: Well, the Energy Security Board has provided a series of advice on how the Australian energy market does need to evolve to deal with the energy transition. The capacity market is an important part of that and ensures that we do have sufficient dispatchable capacity on hand at any moment in time. That sort of a mechanism will prevent in future these types of things from happening.
JOURNALIST: Given what you’ve learnt in the last week as you had to intervene and suspend the market, are you taking any steps that will reduce the likelihood of having to suspend the market again such as reviewing maybe anti-competitive behaviour?
DANIEL WESTERMAN: We’re taking a number of steps operationally and working closely with generators to make sure that that dysfunctional behaviour doesn’t reoccur. We’re working closely with generators to make sure that sufficient generation is available at the right time. And in terms of the monitoring of bidding or those types of things, you’d have to talk to the Australian Energy Regulator, who are monitoring that closely.
JOURNALIST: Minister, Mr Westerman has just referred to the behaviour of this last week as dysfunctional. Have the generators damaged their social licence?
CHRIS BOWEN: I think Mr Westerman was referring to a dysfunctional market which he’s made comments on before and I’ve made comments on before. In relation to the generators, I have made clear AEMO has our full support in the actions they’ve taken. I made clear again the Australian Energy Regulator, through Ms Savage, remains very vigilant to their behaviour. I’m not here to comment on the particular activities of any particular generator other than to reinforce the Federal Government’s expectation that all generators – and I’m sure I’m joined with all my state and territory colleagues – that generators bid into the market as they’re required to do as a matter of law.
JOURNALIST: You say we should have faith in our regulator or regulators. At the end of the day, should we have faith in the generators? Have they acted in good faith?
CHRIS BOWEN: Well, the generators – well, Daniel can talk about how the generators have interacted with AEMO, but the government’s expectations through the Australian Energy Regulator have been made very, very clear to the generators. I’ve spoken to the generators. I know state and territory ministers have spoken to the generators relevant to their markets. I know Daniel’s team has been in much contact with the generators several times a day. The regulator, the AER in this case, will have our full support for any further action that she deems necessary. Do you want to add to that, Daniel, at all?
DANIEL WESTERMAN: Sure. Just to add, at an operational level we have successful working relationships with each generator and to sort of quantify that, we’ve been able to reduce the amount of generation that’s under direction from AEMO from about 5,000 megawatts down to less than 1,000 megawatts today. That’s been a result of really collaborative working, re-profiling of generation and a trajectory back towards making the market more functional and restoring normal order to it.
JOURNALIST: [Indistinct] coal fired generators at the [indistinct] expecting this to be the new normal in outlier [indistinct]?
DANIEL WESTERMAN: This situation is caused by a multitude of factors and, yes, ageing plant which does break down and has more maintenance issues is an issue. Of course, the war in Ukraine and the impact of global commodity prices is an issue. I think it points you to the long term answer to this, which is a transition to firmed renewables and transmission. That is the long term answer to de link us from international price shocks as well as ageing infrastructure.
JOURNALIST: [Indistinct] what’s actually changed the metric of 4,000 megawatts.
DANIEL WESTERMAN: Yes.
JOURNALIST: Is that what has changed for you guys to lift the suspension?
DANIEL WESTERMAN: No. The things that we’ve – the criteria by which we’ve looked at to lift the market suspension: is this market possible to operate again? It wasn’t possible to operate because the dispatch engine, the engine that dispatches part of the lowest cost to consumers wasn’t working because of the number of directions that we had to issue. The number of reductions – sorry; the number of interventions has now reduced and the dispatch engine, we’ve actually built a digital twin of the dispatch engine so we have confidence the market will be able to function. But like I said, we are taking a step-by-step approach. The first step will be to implement the market pricing and watch it carefully to a minister that our system and tools request can handle that situation before lifting the suspension completely.
JOURNALIST: Just to be clear, it was the first suspension in 24 years of operation and given this digital shadow I guess of this dispatch engine, are you planning to seek rule changes or a review to make sure that lessons learned from the past week will actually be set in stone?
DANIEL WESTERMAN: Look, we will absolutely be working very closely with the regulator and the Energy Market Commission on a series of actions that do take steps to prevent this from happening again. It’s not a place where the market operator wants to be in suspending the market and so we’re looking at – we will obviously undertake a detailed investigation, together with the regulator and others, to understand comprehensively the lessons learned and put in place actions so that it doesn’t happen again.
JOURNALIST: How soon?
DANIEL WESTERMAN: I couldn’t say that today. What I’m focused on today is the lifting of the suspension and making sure that the operating conditions for Australian homes and businesses are secure.
JOURNALIST: Minister Bowen how would you describe the energy market? Is it broken and what can be done to stop more small retailers going to the wall?
CHRIS BOWEN: In relation to the energy market, it requires very constant management. The issues, as Daniel has said and I’ve said on multiple occasions, that have led to this have been multifaceted. Ultimately, we need more transmission and more storage and more generation of electricity. That’s a policy question which I have addressed many times. What was the second part of your question?
JOURNALIST: What needs to be done to stop small retailers…?
CHRIS BOWEN: In relation to small retailers, again, I continue to remain in very constant contact with the regulator and with the ACCC about the state of the market. I know that Enova Energy entered a very difficult circumstance over the last 24 hours, which is disappointing for them and for all their customers. They’re a good company. But we continue to monitor the situation very, very carefully and closely.
JOURNALIST: Just on the capacity mechanism, minister, Queensland's insisting that their relatively new coal infrastructure needs to be part of any capacity mechanism they embrace. Victoria is going the other way, saying they will not accept coal and gas. That doesn’t look a great deal like an overall plan...
CHRIS BOWEN: Look, a capacity mechanism is very important going forward. Now, yesterday, or the day before, the ESB put out its latest thinking, its latest consultation paper which will help inform Ministers as we make decisions. As I made clear, ministers have instructed, all of us, that this be proceeded with as a matter of pace. We will do that. ESB’s work will now inform the next round of ministers’ consideration. I want to see this done. I want to see it done right. Now, as I’ve also made clear there will be a degree of flexibility as to how states implement the capacity in regard to their own state circumstance.
But this is a massive transformation that we need to get cracking on. We need to make faster progress on this transformation of the energy grid, and we need the capacity mechanism to help us do that to provide that safety net underneath as we engage in this very significant transformation to a much more renewable economy, a much more renewable energy system with much more storage. Now, I’ve made clear, and ministers have made clear, we want the capacity mechanism to primarily focus on new technology, storage being prime amongst it. That is what we will deliver. There will be further discussions between me and state ministers, but I’m very confident we’ll deliver a good national framework because we have to be getting on with the job because this transformation which is so important to the new government’s agenda is actually also so important to the country.
JOURNALIST: Would coal in the capacity mechanism make 43 per cent harder to achieve or negotiations over legislating 43 per cent harder -
CHRIS BOWEN: Well, in relation to two matters, the capacity mechanism which we deliver will be consistent with 43 per cent emissions reduction. I made that clear from Opposition – yeah, 43 per cent emissions reduction. I made that clear from Opposition that we were supportive of the concept of a capacity mechanism, but it must be consistent with emissions reduction and it will be. Second, in relation to legislation – we’re sort of veering into matters I said we’d deal with after Daniel’s remarks, but I’ll just deal with this to say we have made very clear: I will be seeking to legislate, the government will be seeking to legislate our targets. We don’t need that legislation. We’ve also notified the United Nations. But legislation is best practice, but it will be up the Parliament as to whether they want to proceed. I will work in good faith across the Parliament, but we will be implementing the agenda we sought a mandate and received a mandate for.
JOURNALIST: Should giant generators owning retail be banned [indistinct]?
CHRIS BOWEN: In relation to the competitive nature of the market no, I’m not proposing any reforms in that regard. That’s the situation we have, but we’ll continue to consider any sensible reforms, but that’s not something that’s under consideration. Are we moving on from AEMO’s announcement today? One for Daniel just in case you’ve got any others and then we’ll wrap it up soon.
JOURNALIST: Obviously generators are on their best behaviour at the moment [indistinct]?
DANIEL WESTERMAN: I’d say again the level of cooperation and coordination that we’ve had with generators over the last week has been very strong. The operational relationship we have continues to be very strong and, frankly, that is why we’re in a position now where we’re able to take this first step towards lifting suspension of the National Electricity Market.
JOURNALIST: Can I ask about the commissioning of new solar and wind projects, does this announcement relax those pressure about bring those online?
DANIEL WESTERMAN: Australia’s got an enormous job to do in connecting new generation sources, particularly solar and wind as well as battery storage. Actually, over the last 12 months, we’ll have connected 4,000 megawatts of solar and wind projects and by the end of this calendar year, hopefully, 5,000 megawatts. Yes, we might have had a delay in the last couple of days while we’ve focused on keeping the grid secure for Australian homes and businesses, but our priority will be to continue to connect those new generation sources at pace.
JOURNALIST: Minister, how confident are you that the power prices promises Labor took to the election will be met given the current state?
CHRIS BOWEN: Clearly, our policy of introducing more renewables into the system will reduce power prices. That was the case before the election and that remains the case after the election. That’s what makes our agenda so important – more important now than ever before. Any other questions on AEMO?
JOURNALIST: Just on the capacity market. The consultancy - consultation period is going to run till the end of July, I think. A lot of people in the business side are concerned that capacity markets are going to have a lot of costs and there may be other ways to get the same result whilst firming the system to allow more renewables. Is there no chance [indistinct] I mean is it certain the capacity market will proceed? Or is it possible after this weighing up of the evidence that an alternative may be better?
CHRIS BOWEN: Look, ministers were unanimous in their view a couple of weeks ago that a capacity mechanism is necessary and important. Now, of course, we have a deal of work to do to get design principles right. We all want to support storage. We all want it to support new technologies and the massive transformation to an 82 per cent renewable grid, which the Government is committed to, that’s what we’ll continue to work on and that’s what we’ll implement. Any other questions?
CHRIS BOWEN: States have their own targets. States have their own targets which they are all committed to meeting as well, but they’re all – without speaking on it on their behalf, they are all working very closely with the Federal Government as we seek to implement our own target of 43 per cent.
CHRIS BOWEN: Well, again, I mean, I think Daniel and I have given pretty considerable answers to the questions about the generators. We’ll continue to work closely with them but our expectations of them are very clear.
JOURNALIST: So AER hasn’t had to be [Indistinct].
CHRIS BOWEN: The AER is integrally involved, integrally involved. And talking regularly to me and to Daniel.
JOURNALIST: They haven’t issued any infringements?
CHRIS BOWEN: That’s a matter for the AER.
JOURNALIST: How do you [Indistinct].
CHRIS BOWEN: Well, by the prudent careful management. Look, the market is under stress. But prudent careful management will ensure that we maximise the chances of keeping the lights on and keeping reliable service to consumers across the board. But we’ll continue to monitor the situation very closely. I think that might be a wrap. That’s a good guide. Cheers, guys.