Keynote address to the AFR Energy and Climate Summit
23 November 2020
ANGUS TAYLOR: Thank you very much for having me here today.
It’s a little different to the last time I spoke to you, but I am very glad that we could still get together for this event.
The AFR summit is one of the key energy events of the year and it is fantastic that Stutch and the team have been able to hold it albeit virtually under the current circumstances.
For the Commonwealth Government it has obviously been an extraordinary year on many fronts.
It has been a year, when we come to energy and emissions reduction policy, that we beat our Kyoto target which finished on 30 June, the Kyoto-era, by 430 million tonnes and we will beat our Paris target. We’ll have more to say about that when we release our annual projections in a short while.
It was a year where we outlined $18 billion investment in our Technology Investment Roadmap that will drive another $50 billion or more into low-emissions technologies across the economy.
A year where we refunded ARENA and submitted the Grid Reliability Fund to the Parliament.
A year where we prioritised a gas-led recovery and following the disruptions in liquid fuel markets we announced a major new fuel security package, including establishing our first ever strategic purchase of crude oil at record low prices.
And it’s a year when we have again seen record investments in solar and wind, particularly rooftop solar.
I was pleased this year that the Commonwealth, states and territories came together to tackle COVID.
There is no doubt that COVID has impacted the energy sector in profound ways.
But we had made outstanding progress before COVID struck.
The gas price had fallen sharply before COVID and continued to drop with the Wallumbilla price hovering at or around $4 for the year.
Of course, the wholesale electricity price is highly correlated with the gas price.
And just like the gas price we saw price falls in electricity before COVID and they have continued well into this year.
We have now had 14 consecutive months of wholesale price reductions in the NEM when compared with the same time in the previous year.
We have had a record 7 consecutive quarters of year-on-year CPI price reductions in electricity retail prices.
But we can’t be complacent. We have to learn the lessons of the past when applying the policies of the future.
Prices rose in the past because of the unintended consequences of policies that rapidly forced intermittent supply into the market, without concern or sufficient concern for attracting and retaining balancing dispatchable capacity.
Energy policy must focus on the primary role of the energy market in Australia.
That is to deliver energy at internationally competitive prices to customers.
Because when Australia can deliver energy at competitive prices it delivers jobs.
Well-paying secure jobs. Export jobs. Jobs that Australians want.
We achieved the recent record price reductions through some simple yet powerful changes.
We have seen more supply coming in, without the disruptive unplanned loss of capacity like we saw with Hazelwood in Victoria and Northern in South Australia.
We have introduced the Retailer Reliability Obligation and other related mechanisms to ensure we have the generation and transmission that can complement intermittent generation.
We are investing in or encouraging projects like Snowy 2.0, MarinusLink and AIE’s Port Kembla project to name only a few.
Projects that will continue to contain and hold down prices, deliver jobs and support the NEM.
We focused on transparency and accountability in energy markets - gas and electricity.
Transparent day ahead pipeline auctions in the gas market have had remarkable impacts in driving down the cost of delivered gas in many East Coast markets.
We delivered the Big Stick.
Now I know that was controversial at the time, but I think the results are clear.
Those 14 months of wholesale prices reductions started after the introduction of the Big Stick.
There was a lot of talk about divestment at that time, but the real power of the Big Stick has been transparency and accountability.
However, the strong gains we have made can evaporate if we fail to act when challenges arise.
The modelling around the exit of Liddell from the New South Wales market shows that clearly.
If Liddell isn't replaced when it leaves the market we will see price rises that would smash industry in New South Wales.
Now once again I know that our response drew comments, but we followed a strong process.
We publicly declared there was a taskforce.
We published our terms of reference.
We invited the New South Wales Government into our taskforce.
We spoke regularly to the major players throughout the work.
And ultimately, we gave the private sector and other governments a clear timeline and target to underpin our response.
We published our modelling.
You may not agree with our policy - that’s fine - but we were transparent, and we engaged in good faith.
Because that is how you develop policy. A policy that will defend well-paying jobs and generate well-paying jobs.
Without that, you lead to policy or you deliver policy that has unintended consequences.
And that is in my opinion the biggest risk for the next decade.
We have established a framework that increases transparency and accountability in the private sector.
The same is needed for public sector policies.
You don’t have to agree with the policies, but we must be transparent, accountable and deliver policies that, in turn, deliver for Australians.
Now I think there are some excellent examples of how to do this right.
I have been encouraged throughout my negotiations on transmission with my state colleagues on MarinusLink, VNI West and Project Energy Connect (PEC).
It was fantastic to announce the joint Victorian and Commonwealth support for VNI West over the weekend.
Lily, Dan and Guy have been very open and collegiate with me on their priorities, plans and goals.
We share many of the same objectives. Containing capital costs on transmission projects and relentlessly focusing on community engagement just for a start.
Engaging local communities on these transmission projects is something we must not ignore.
I’m confident that if we maintain that focus, we can deliver projects that will be a positive for the NEM and most importantly positive for customers.
Since I came into this role, I have been concerned about accountability in the energy market. We all need to be accountable to hardworking energy customers.
That is the households, small businesses and industry who rely on affordable energy to make ends meet and in many cases for their livelihoods.
I’m concerned about models and analysis including unrealistic assumptions that don’t translate into the real world.
We saw this with Hazelwood in Victoria, where modelling predicted little impact from the closure, but the outcome was drastically different with very substantial wholesale price hikes.
Personally, I think that assumptions or terms of reference should be public and contestable at the start of a process.
I think that results should be published.
And that modellers should have transparent principles for best practice, which incorporates learnings from past modelling failures.
That modelling should be shared between jurisdictions. Just like in the Liddell taskforce.
And the true cost to customers should be clear.
We shouldn’t see models that assume large coal generators stay in the market despite policy changes that seriously undermine profitability and commercial sustainability.
If policy makers want to force out coal generators prematurely, they should say that upfront.
And that is why the Commonwealth will develop a framework for public sector energy policies, engage with the private sector and jurisdictions and ultimately submit it to the Energy Committee of Cabinet for consideration.
A framework that addresses what I think is the biggest risk to the successful implementation of the 2025 market design work – the triumph of hope over reality and reason must be avoided.
We need to avoid politics trumping policy with reactionary schemes that appease vested interests and ignore the interests of customers, those quiet Australians.
We need to strive for a sensible balance of technologies and fuel sources in our energy markets.
This has been my focus the entire time I have been the Commonwealth energy minister.
There is no shortage of investment our energy markets.
As the Clean Energy Regulator itself has stated we are seeing an ongoing and unprecedented investment boom in variable renewables - solar and wind. $9 billion last year, a similar number expected this year.
The challenge is to balance that investment with investment in dispatchability.
The 2025 market design process led by the ESB is fundamentally important and from my perspective the engagement to date has been terrific.
Perhaps the most important part of this work is managing the closure of major baseload thermal generators - coal and closed cycle gas - as they reach their scheduled closure dates.
We now have RETs, subsidies or underwriting programs in most states and territories aimed at encouraging more variable renewable generation.
But we have seen a consistent lack of complementary investment to make renewables work.
That is, firming and system services.
New South Wales hasn’t had a new reliable generator built in the last 10 years.
In that period, we have seen 2.9 GW of variable large-scale generation built, and 3 GW of small scale installed.
Since quarter 4 of 2010 dispatchable capacity has declined by nearly 1,700 MW in New South Wales.
This will decline by another 1,680 MW if Liddell exits without replacement.
So how do we stimulate investment in the generation and services that we need alongside the investment in solar and wind?
First, we can step in and use the Commonwealth balance sheet where we must. And we currently have $1 billion in the Grid Reliability Fund before the Parliament.
But our preference always is for the private sector to take the lead.
Secondly, we must be clear about expectations of what must be delivered by the private sector.
And that was exactly what we did with the Liddell taskforce.
We worked through the problem and delivered a solution.
In this case the problem was clear - a large generator leaving the market without like for like replacement, with clear risks of upward pressure on prices and loss of reliability.
Like for like replacement doesn’t necessarily mean building another coal generator.
But it does mean new dispatchable capacity that can deliver the affordability and reliability outcomes customers need and rely on.
So, we designed a policy response that gave the private sector a chance to respond in a framework that ultimately protected the consumer.
And many of you will have seen the comments from AGL last week.
AGL was making extremely good progress on its Newcastle gas-peaker plan and likewise Energy Australia with the Tallawarra gas project in the Illawarra, and they’d made very good progress since we announced our Liddell policies.
I’m very confident that we have been on track for a large proportion, if not all, of the 1000MW to be delivered by the private sector.
AGL has said that the New South Wales announcement has impacted their investment plans.
We are currently working through the details of that policy.
The Commonwealth would like to see the modelling behind the policy. And I’m confident that we can work through it. New South Wales has indicated its strong intent to get to a sensible outcome.
Our working relationship with the New South Wales Government is a very good one, and I have no doubt that we can get to the right outcome.
But the Commonwealth remains committed. If the private sector doesn’t step up, then we will – the consumer is too important.
If I put my old McKinsey management consulting hat back on, I think that the economic case for these gas generators is more compelling, not less, following the New South Wales announcement.
But it is also true that any gas generator now built in New South Wales risks being the last generator built where the company takes on merchant risk.
That’s a serious issue.
Of course, gas is one of the most flexible and attractive firming options as more renewables pour into the market.
The Chief Scientist Alan Finkel has pointed out that gas is the perfect complement to solar and wind.
A gas-fired recovery is a key part of the Government’s JobMaker plan and central to a strong Australia as we recover from the coronavirus pandemic.
Our competitive advantage has always been based on affordable energy, and access to affordable reliable gas drives affordable energy.
Gas plays an important role in Australia’s manufacturing sector, which employs over 850,000 Australians and is an essential input in the production of plastics for PPE and fertiliser for food production.
The role of gas in manufacturing is far broader than is typically acknowledged – it provides direct heat, it is a chemical feedstock, and it plays a pivotal role in the price of electricity.
Affordable reliable gas can make a remarkable difference across all three of these areas, whilst at the same time bringing down emissions.
To demonise gas – as many seek to do – is both irresponsible and intellectually dishonest.
The Commonwealth Government is committed to Australia remaining as one of the top liquefied natural gas – LNG – exporters in the world.
The Government will invest to unlock supply, strengthen gas infrastructure planning and deliver market reform to lower the price of gas, particularly contract prices for manufacturers and households.
As I said earlier, we have seen great progress on domestic spot gas prices coming into line with lower international prices we’ve seen in recent times.
We want to see long-term domestic gas contracts to be internationally competitive to support our manufacturing sector, and ensure there is sufficient new gas generation to complement our growing renewable capacity.
The national gas infrastructure plan development process will be fundamentally important to this.
We want, as always, a transparent open process where the government can engage with the industry on the gaps and to discuss how government can help industry to plug those gaps.
This isn't an attack on the upstream players, this isn't a subsidy for the users.
This is about making sure that we have the settings right, the infrastructure right and the investment settings right to keep Australia as a global player in gas and in crucial downstream energy intensive manufacturing sectors.
There can be no doubt that we are in the midst of extraordinary technology change in energy, on a scale that we haven’t seen since the electrification of developed economies.
Emerging technologies offer the prospect of ample affordable reliable energy and low-cost emissions reduction, across the five priority areas in our Technology Investment Roadmap.
Hydrogen, stored energy, low emission steel and aluminium, soil carbon, and carbon capture and storage.
There is limitless opportunity for Australia in a world with such change going on.
But we shouldn’t kid ourselves that these are off-the-shelf technologies ready to replace incumbent technologies at little or no cost.
There is an enormous amount of work necessary for these technologies to deliver their potential without imposing economic burdens on consumers, whether in Australia or our customers overseas.
So we must be deliberate, we must be prepared, and we must make well targeted investments in emerging energy and emissions reduction technologies.
Technologies offer the greatest potential for Australia and the world to reduce emissions whilst strengthening our economy, not weakening it.
I think that our geographical, demographic and renewable strengths will see us strengthen our position as an energy supplier of choice throughout our region.
I see us exporting hydrogen, potentially as ammonia, to many of our customers.
That is why this Federal Government has money to develop our first hydrogen hub.
Guidelines for the hub will be released over the coming months.
But the region within Australia that wins this funding needs to be well organised with a strong plan, a clear customer base and the right resources – both human and industrial.
The hydrogen hub is only one example of how we will drive and continue to drive our technology agenda.
But I think it is a strong example that follows our principles.
Principles that will deliver the technology change Australia needs in a way that minimises costs to consumers.
We’ve announced an additional $1.9 billion investment package in future technologies to lower emissions, fast-track our recovery with job creation, cut costs for households and improve the reliability of our energy supply.
At its heart this is a policy that will drive down emissions, avoiding burdensome interventions wherever possible, and protecting customers.
The energy industry is going through great change in Australia and around the world.
The Commonwealth Government has delivered and is delivering a substantial agenda.
And we have outlined an ambitious pathway forward for this nation that will deliver the change that is required.
A change that is ultimately necessary, a change that has enormous potential but one that should be and must be managed carefully.
We must invest in the technologies of the future in a way that does not punish the consumers of today.
And that means we must see the triumph of reason over blind hope, of consumers over vested interests, and triumph of transparency over expediency.