Energy market reforms will create the grid we need for the future

Published in the Herald-Sun - 26 August, 2021

Australia’s shift towards renewable energy is something to be proud of. Last year alone, a record 7,000 megawatts of new renewable capacity was added to our electricity grid, confirming Australia’s standing as a world leader in solar and wind energy generation.

This wave of investment was driven by the quiet Australians in our suburbs and towns. From Frankston to Hoppers Crossing we have seen 2.9 GW of new capacity installed on homes across Victoria.

Across Australia, one in four households have solar power on the roof, powering everything from lights to dishwashers, computers to hot water systems.

The rapid adoption of renewable energy, a necessary step in reducing Australia’s carbon emissions, presents a significant challenge to the security of our energy system however.

Solar and wind generation are intermittent, meaning that for periods of the day when the sun doesn’t shine and the wind doesn’t blow energy generation is non-existent. At these times, we need the dispatchable generation that coal, gas and pumped hydro can provide to keep the lights on.

The problem we face is that investment in new dispatchable generation has been almost non-existent. In fact, no new dispatchable generator has been built in NSW in the last 12 years or Victoria in the last eight.

What makes the situation worse, we are now dealing with the prospect that existing dispatchable generation could leave the market much sooner than expected. Without sufficient like-for-like replacement, the risk this would present to Australian households and businesses would be severe.

We had a glimpse of what such a future would look like following the sudden closure of the Hazelwood power station in 2017, when electricity prices skyrocketed by up to 85 per cent in Victoria, 63 per cent in NSW and 53 per cent in QLD.

Families should not have to choose between using their heater and cutting back on everyday essential items to pay their electricity bills. Nor should they be asked to ration their use of electricity to prevent overloading the grid and causing blackouts.

Recognising these challenges, federal, state and territory energy ministers tasked the Energy Security Board (ESB) to develop a package of reforms to the National Energy Market. After two years of work and extensive consultations, today the ESB’s advice will be released.

Among its many recommendations is the need to create a new financial incentive for dispatchable generation in recognition of the crucial role it plays in providing affordable, reliable power and balancing the rapid growth of renewables.

This incentive will keep existing generation in the market when it is most needed, and provide confidence for new investment. The ESB estimates this reform could benefit consumers to the tune of $1.3 billion.

Also proposed were reforms to better value essential system services, ensure new transmission lines are built only where needed and deliver value for money, and better integrate Australia’s record levels of rooftop solar.

These reforms are a once-in-a-generation opportunity to get Australia’s electricity system ready for the future. In tackling the challenge that is before us, we can ensure costs stay low for households and businesses while the lights stay on.