Keynote address at the Energy Network Australia (ENA) 2022 conference and exhibition
ANGUS TAYLOR: I know many of you have been involved in managing the flood recovery operations across Queensland and New South Wales over the past couple of weeks – keeping our electricity supplies safe, with crews working hard around the clock to restore power to affected areas as it becomes safe to do so.
This is critical work, and very much valued by the community.
Events such as these show just how much electricity, gas supply and secure energy networks underpin our way of life.
As we go about our busy daily lives it’s easy to become complacent – to think that the lights will simply always turn on.
As a Government, we are focused on delivering outcomes for consumers.
This has been at the centre of our approach on energy and because of this, prices have dropped to their lowest levels in eight years.
At the same time, we have overseen an unprecedented wave of new renewables entering our grid.
This is excellent news, but it does create challenges – not just in terms of technical challenges but also a more volatile wholesale market
Getting the balance right
The key to all of this is balance.
First, balance in our generation resources – ensuring we can make the most of this record wave of investment in renewables, while at the same time retaining existing and delivering new reliable generation.
On-demand, dispatchable capacity leaving the grid before it is adequately replaced with like-for-like generation is a risk to affordability and reliability, and compromises the ability of our network businesses to securely manage the grid.
This is why the accelerated exit of Eraring is so disappointing – leaving a potential 21 per cent gap in energy generation across NSW.
Keeping existing generation for as long as it is needed, and replacing it when it leaves is vital.
There also must be enough time for the private sector to take action to replace exiting capacity.
This will ensure we have the critical system services to keep our grid secure, as well as the reliable back up generation needed as a complement to intermittent renewables.
This is why the Morrison Government has focused on supporting new dispatchable generation projects such as the Hunter Power Project, Snowy 2.0, the Kidston Pumped Hydro project, the Victorian Big Battery, Tallawarra B and the Port Kembla Gas Generator.
It is also why we have been working to get the market settings right, driving the Energy Security Board’s Post 2025 work on resource adequacy, essential system services, transmission and, of course the effective integration of distributed energy resources and EVs.
What’s particularly important for the broader market are reforms to develop a capacity mechanism to put a value on dispatchable capacity in the National Electricity Market and drive new investment in replacement dispatchable capacity.
The second key part of ensuring balance in the market is to make sure we have balance in our grid infrastructure investments.
The development of interconnectors and transmission is critical to bringing new generation capacity into the energy system, while shoring up reliability and affordability across state borders.
Thousands of kilometres of new transmission is likely to be needed to connect new generation, and deliver reliable and affordable energy across the national market.
This is why it is critical we deliver reforms to the market to ensure this investment can occur efficiently and that our regulatory systems are fit-for-purpose to deliver the new projects Australia needs.
This is also why the Morrison Government has committed more than half-a-billion-dollars to support major priority transmission projects identified in AEMO’s last Integrated System Plan.
This includes support for Project Energy Connect, which has already reached final investment decision, Marinus Link, QNI Minor and VNI West.
It also includes our support for a line upgrade on Project Energy Connect that will save consumers around $600 million in costs from VNI West.
This is about kickstarting necessary projects in our grid.
Ones that the Market Operator considers actionable.
But these significant investments also have to be balanced against efficient costs for consumers.
The focus must be on the end user.
We need to be careful about transmission investments because these are baked into bills for decades.
This combined with distribution and transmission network costs are the largest long-term factor affecting customer’s energy costs.
Recent reporting from the ACCC shows network charges increased by almost 70 per cent between 2007 and 2013 – when Labor was last in government.
Many customers continue to pay for this period of over-investment and will for the remainder of the economic life of the assets, which could be up to 50 years.
This shows that transmission investment, while important, must make economic sense.
Consumers must only pay for what is truly needed to keep our grid reliable and affordable.
Households and businesses cannot afford a repeat of the doubling of electricity costs they saw under Labor driven by the carbon tax and gold-plating of our poles and wires.
And consumers certainly cannot afford investment in projects that do not stack up – whether this be grid investments or policies that add the cost and risk of high priced PPA’s to consumer network charges.
As I have said, this is about balance – and network investment is undoubtedly important, but overinvestment by throwing billions of dollars at unnecessary projects carries severe consequences for the hip pockets of families and businesses for decades to come.
This is why it is critical that judicious transmission investment is complemented with continued investment in large-scale dispatchable capacity – such as gas, pumped hydro and long duration batteries.
This is the balance we have been focused on as a government – a balance between network investment, renewables, and importantly, dispatchable capacity.
Maintaining this balance will deliver reliability and affordability, and ensure network businesses can continue to manage our grid securely.
As you’re currently seeing in the gas supply pressures across Europe, there has been an underinvestment in oil and gas in recent years.
This is something we have continued to raise on a global level with the International Energy Agency – but it also a risk here at home.
Fortunately, our gas prices have remained up to 80 per cent below those seen in Europe.
This is evident in the activism against large basin developments, but also in discouraging new residential gas connections.
These are the policies that some jurisdictions are currently considering.
Along with risking energy security, it can lead to upward pressure on gas prices for consumers.
This will have especially negative consequences for vulnerable customers.
It could also require a surge in new electricity infrastructure investment – potentially putting upward pressure on electricity prices as well as gas prices.
AEMO had analysed that all forms of electrification could contribute as much as 9,000 MW of additional underlying demand in certain time periods in the Victorian winter.
The Australian Energy Regulator has reported that the ACT Labor Government’s decision to phase out gas connections has allowed Evoenergy to shorten the asset lives for its new pipeline assets.
The decision is estimated to increase residential and small business consumer bills by 3.2 per cent and 3.5 per cent respectively over five years due to higher depreciation charges.
There are also implications for the future uptake or commercial viability of low carbon gas if too many gas customers switch off before these new technologies become available.
Without pipeline infrastructure, low carbon gases won’t have the opportunity to become part of the emissions reduction solution, even if they are a low-cost energy option.
That’s why it’s vital we support the decarbonisation of gas networks to enable the continuing use of gas infrastructure, which reduces investment costs and keeps consumer prices low.
That is why last year energy ministers agreed that hydrogen blends, biomethane and other renewable gases should be brought within scope of the national gas regulatory framework.
A draft legislative package is to be presented to ministers for approval by the middle of this year following consultation in the first half of this year.
This will support investment in new low emissions gas projects by providing regulatory certainty to industry, and will safeguard consumer protections.
Australia’s energy markets are clearly undergoing a period of unprecedented change.
Against this backdrop, it’s vital that we make sure they remain fit-for-purpose.
That means being innovative, forward-thinking as well as pragmatic.
We know a combination of various resources, and necessary new investments in our networks will be needed to keep the supply of electricity and gas affordable, reliable and secure.
As I’ve outlined today, we are working with stakeholders across the sector to ensure the system can continue to provide these levels of reliability, affordability, and security of electricity and gas – for all Australian households and businesses.
Thank you again for this opportunity and I wish you all the best for the rest of the conference.