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Keynote address - Snowy Region Construction and Development Conference COOMA, NSW

Cooma

14 November 2018

E&OE

ANGUS TAYLOR: The snowy - both the region and the project have a special place in my heart.

I'm a local boy to the region - just up the road in Nimmitabel, where five generations of Taylors have farmed the beautiful but bleak basalt country of the Monaro.

And my grandfather was the chief engineer and commissioner for the original snowy project all those years ago.

It was a project that has defined the region, and was in turn defined by the region.

Innovative, controversial, tough and subsequently the heart of the nation.

A project that defined a post war era and a post war generation who were prepared to sacrifice much to leave the horrors of the past - two wars and a depression - for a vision of a brighter future.

And as I will outline on a moment, I think as we move into a new reality for energy - the snowy region will play an even more important part in supporting our nation in the future.

Now when Prime Minister Scott Morrison appointed me the Minister for Energy, he gave me one clear KPI - to lower power prices while keeping the lights on.

I have learnt over many years that there is great power of clarity – whether in business, government or politics.

If you look over the successful campaigns that have been waged in or against Government there is one unifying characteristic - clarity.

If you think of cutting taxes, stopping the boats or delivering three free trade agreements - the goal was clear, the KPI was clear and it allowed the government, bureaucracy and private sector to engage with confidence.

Now my focus is to reduce energy prices for Australian households and businesses - small, medium and large.

But I am equally focused on keeping the lights on and maintaining system security in the energy sector.

Now today I would like to address aspects of one of our key initiatives - backing affordable generation, firming and storage in the NEM.

To increase competition in the market we intend to implement a program to underwrite new, stable, low-cost generation for commercial and industrial customers.

This program will be technology neutral - as recommended by the ACCC.

Last week our consultation process closed on the program that will allow the Government to deliver additional generation supply.

The program will have a level playing field to enable the best and lowest cost generation options to be supported.

Importantly, this includes consideration of 'greenfield' or 'brownfield' projects, as well as upgrades or life extensions of existing generators.

They must be good projects, that support more affordable reliable electricity.

We cannot continue to have a system where firmness is not considered, transmission costs are not considered and where affordability is not a priority.

We have seen this time and time again, as we recently saw with the recent Victorian reverse auction - it's the consumer that picks up the tab.

The Government is considering a range of conditions that must be met, including:

  • The ability of the project to provide firm electricity supply to put downward pressure on prices
  • That the project will increase competition, to prevent some of the worst behaviour we have seen in recent times
  • That the project can be delivered relatively quickly

In addition to these core components we have included a list of other criteria that will help potential partners.

It could be through any combination of generation, storage and financial contracts packaged through a retailer or other brokerage service provider.

I'm pleased that the response to the consultation has been extremely strong.

Over 70 people attended the two round tables and we had over 45 submissions to the program design phase.

Retailers, generators, C&I customers, consultants, banks, engineering companies and industry groups all attended the event.

We have also had direct approaches around specific projects that cover a range of technologies including; pumped hydro, coal, gas and solar thermal.

Recently I took the reliability obligation to the COAG Energy Council and asked them to work with us to implement this important reform this year.

We are, of course, approaching summer and the peak time of system stress.

Australian Energy Market Operator (AEMO) forecasts that Victoria's supply will be tight over summer 2018–19.

And this is despite the significant additional supply and demand response established for last summer, totaling almost 2000 MW.

It was a close-run thing last year, and it will be critical to prepare well for this summer.

I know Snowy is doing everything it can in this region to make sure we have the supply we need on peak demand days.

In the medium term the energy sector faces reliability challenges without further investment in supply that can respond when it is needed.

We can see those challenges now and they must be dealt with.

In 2017, AEMO was forced to make 25 market interventions to ensure that we keep the lights on.

That is more than double the number of times that AEMO had to intervene in the previous 7 years combined.

That is not a market that is working well - it is evidence of a market that is on life support.

On top of this, state and territory governments continue to unilaterally drive targets for intermittent unreliable generation, without regard for reliability and security.

These targets are driven by political imperatives, because large investments in intermittent generation without concern for firming up that capacity, will end badly on the worst days.

South Australians know this all too well.

The 50 per cent renewable target of the previous Labor government has left them with prices amongst the highest in the world, along with a reliability and security challenge - that's a challenge to keep the lights on - which desperately requires action.

Many of the interventions I referred to previously were in South Australia, where the previous State Labor government gave little thought to reliable and secure supply.

The loss of dispatchable generation in the system means that if nothing is done to address the investment issue, AEMO must continue to ramp up its interventions in the operation of the electricity market.

Queensland, Victoria and the ACT are all determined to go in the same direction at the expense of affordable reliable, or simply 24/7 electricity for households and businesses.

Indeed, renewables investment this year will reach record levels.

So, we are faced with a falling supply of reliable generation, rising intermittency and massive security and reliability challenges coming at us fast.

At the direction of the COAG Energy Council, the Energy Security Board has been working hard to deliver a mechanism that guarantees the reliable supply of energy for all Australians.

A retailer reliability obligation will encourage investment in dispatchable generation - generation that delivers when you need it - in the right place at the right time to ensure reliability in the National Energy Market (NEM).

I am committed to working with the states and territories, through the COAG Energy Council, to progress the implementation of the retailer reliability obligation.

This is one of the highest priorities for the Commonwealth.

The reliability obligation features a trigger to attract new capacity into the market where gaps are identified in any individual market.

We need to be hard-headed about where such a gap exists, taking account of the realistic contribution of different technologies to peak demand requirements.

Keeping the lights on and keeping prices down is not an option - it's a necessity in increasingly difficult circumstances, and both retailers and state governments need to do their bit.

The good news in all of this is that we are well ahead of plan on emission reductions, not that you would know it from the breathless pronouncements from some commentators.

The 250% increase in solar and wind into the system in the next 3 years will deliver our Paris targets in the National Electricity Market well ahead of time.

Let's put this in perspective - we are about to go from wind and solar making up from around 9% of NEM generation to 33%, based on commitments already made.

No intervention will change this now.

I am not aware of any major country which has achieved this kind of transformation in such a short time.

This is why we can focus on price, reliability and security, and we need to.

Purusing an even more aggressive emissions target when we are already facing a tsunami of intermittency is simply insane.

But it is also an extraordinary opportunity for Snowy, with its unique ability to provide storage and capacity to an increasingly volatile market.

So why, you might ask, are reliability guarantees and programs for backing new investment important for a snowy conference?

Because reliability, firming and making electricity affordable is at the centre of Snowy's future, just as they have been in the past.

Few realise that the blackouts in the 40s and 50s in Sydney and Melbourne was central to the scheme surviving attacks from many doubters.

Of course, the main original goal of the scheme was to support irrigation for agriculture west of the mountains.

However, provision of peak load power from Guthega power station to address blackouts in Sydney and Melbourne was the first real success of the scheme and was central to its growing political momentum at the time.

As we look at how much intermittent generation is coming into our electricity system in the next couple of years, Snowy's early successes and role can be repeated.

Snowy has unrivaled capacity to store power when it is not needed, and generate it when it is needed.

Tumut 3 does this today, with enormous success.

While gas and batteries both have an important role to play, pumped hydro provides relatively low cost storage and can run for extended time frames to match volatile supply with volatile demand.

Put simply, we need to effectively firm that generation, providing solution for when the sun isn't shining and the wind isn't blowing.

And that will matter most when we face solar and wind droughts.

Inevitably, there will be extended periods of time - two, three or four days or more - when there isn't enough sunshine or wind.

In that case we will need accessible long life storage.

Batteries won't do it because they can't store enough power at a sensible cost.

Gas can't store power at all and will struggle to fill the big gaps.

And this is where pumped hydro comes into its own.

Now obviously the snowy 2.0 scheme hasn't reached financial close - and the business case must stack up.

But I am confident that projects like snowy will be a fundamental part of our future energy needs for many generations.

In the early 70s when I was only seven or eight, my family travelled across the entire Snowy Scheme with my grandparents - William and Eileen Hudson.

My mother was determined for each of us to hear this extraordinary story of the Snowy from the man who believed in it as much as anyone.

Through the course of that that trip my grandfather - then in his seventies - passed on his passion for the mountains and the wilderness.

This was a man who grew up in the South Island of New Zealand with mountains and wilderness running through his veins.

A man whose final home was on the Western side of Red Hill in Canberra, looking directly out onto the mountains he loved so much.

But his greatest passion was in describing the extraordinary people who built the scheme, and the extraordinary feats and sacrifices of those people.

The spirit of the Snowy is about recognising that duty, service and making a contribution matter far more than great achievements alone.

The Snowy workers realised and believed that they were part of something greater than themselves, and they were immensely proud of it.

That spirit is alive and well today, as the Snowy Scheme steps up to address another national challenge, just as it did all those years ago.