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Interview with Ticky Fullerton, Sky Your Money

11 October 2018

Subject: Energy


TICKY FULLERTON: Angus Taylor, you are the Minister for down, down electricity prices, but you announced this week reliability is on your radar. Can you colour that for me?

ANGUS TAYLOR: Well our focus is on getting electricity prices down, but also while we keep the lights on. What we're seeing right now Ticky, is a big investment in intermittent generation - this is typically-


ANGUS TAYLOR: Solar and wind and that needs to be reliable. So we need a mechanism in the electricity market to ensure that that intermittent generation is firmed up, it's made reliable and secure so that consumers, whether you're an aluminium smelter or a household, can know that they can keep the lights on, keep the machine going. This reliability guarantee will put an obligation on retailers to make sure they've got enough capacity to meet the needs of their customers well ahead of time - years ahead of time. This is a crucial initiative - we need the states to sign up to it and we'll be asking them to sign up to this on 26 October.

TICKY FULLERTON: Are you actually going to go into the market and support some of these- this firming up of renewable energy as suggested by the ACCC?

ANGUS TAYLOR: So the ACCC did make a recommendation that there needed to be more competition and supply in the market. That was more focussed on price than reliability, but it can do both. There's no question that we need to back investment in reliable generation in the system. The real risk we've got coming out - it's very quickly now - with withdrawal of some of the coal-fired power stations like Northern and South Australia and Hazelwood in Victoria, is we don't have enough firm, secure, reliable, fair dinkum generation that can actually keep the lights on.

TICKY FULLERTON: And I was really surprised to see that even for some of the operating lives of existing mines, that there's so much renewable energy now coming into the market that there's actually a hollowing out potentially of their models and - business models - and you might find some of these coal power stations shutting earlier.

ANGUS TAYLOR: The great challenge if you are thermal generator - which is traditionally a coal-fired power station or even gas - is that you've got all these intermittent generators coming in, you've got to flex up and down all the time, your utilisation of your generator can drop, and your economics fall away. That's what we saw with Hazelwood and we've seen it with Northern and we're starting to see it with others. So there's real risks here. This reliability guarantee ensures that we're keeping that reliable baseload, dispatchable generation, generation which is there when you need it, and keeps it in the system and that's absolutely crucial at this point.

TICKY FULLERTON: Will that also sort out security because we're got the Chair of the Energy Security Board Kerry Schott, talking about anarchy out there in the market place, you've got this rise in renewable energy, as I say, potentially hollowing out your dispatchables?

ANGUS TAYLOR: She was referring the same thing as me, which is a lot of these intermittent generators coming into the system and the need to make sure that we maintain the security and reliability. That's absolutely what we've got to do, and it's not just for households, this is also for keeping jobs in Australia. So many of our industries, whether you're in cement or aluminium smelting or in light manufacturing, they use lots of energy - panel beaters, use lots of energy.

TICKY FULLERTON: And you're expecting this reliability mechanism to be proved of by the states - all the states, and Federal Labor? I mean, I ask this because if you try to negotiate just the reliability side of the NEG a little while ago, you wouldn't have got the deal, would you?

ANGUS TAYLOR: Labor is showing indications that they support this, but we don't need their support because it's not going through the Federal Parliament, but we do need state government support.

TICKY FULLERTON: Including the states and South Australia?

ANGUS TAYLOR: That's right - but it's very brave state government that signals to their voters that they don't care about reliability, particularly in states where there have been or there are forecast to be challenges to keeping the lights on. We know - the operators told us - that this summer in Victoria we've got a one in three chance or more of blackouts because of the loss of Hazelwood and the loss of that baseload generation. So I would say it's a very brave state government that says they're not going to reliability guarantee.

TICKY FULLERTON: The other challenge the system is facing is that everybody seems to be going off-grid. Audrey Zibelman at AEMO talked about six solar panels going in per minute at the moment. Would you be looking at removing some of the subsidies put in those panels, as recommended by the ACCC faster than is happening at the moment?

ANGUS TAYLOR: Well all the renewable energy subsidies will phase down over the coming years. That's how they're designed and the reason for that is they're becoming competitive in their own right.

TICKY FULLERTON: Should it be faster though?

ANGUS TAYLOR: Well, the large-scale subsidies will peak in 2020, and the scheme will last until 2030, but the economic impact will fade very quickly after 2020 and smaller-scale - again, is phasing down from now - we're already in that process. There's a good reason for a transition from subsidies moving to a free market, if you like, because they are becoming more competitive. Our challenge now is not the amount of- the need to get more renewables in the system - the challenge is to manage that intermittency and keep the lights on, and keep the system affordable while that's happening.

TICKY FULLERTON: What about fairness? Because I think we're also realising that for those who've put their solar panels in, presuming they can afford to do so, they're actually saving, what, $350 also a year on electricity saving compared to those who haven't.

ANGUS TAYLOR: There's all sorts of reasons why people have put solar panels on their rooves; the point is we've got to make the system work while that is happening.

TICKY FULLERTON: But what do you think of what the Victorian Government is doing by spending $1.2 billion I think it is by buying solar panels funded by the taxpayer to level the affordability issue - won't that, though, skew the system as well?

ANGUS TAYLOR: Well, if you're a state government and you're encouraging intermittency into the system - this is generation that doesn't necessarily come on when you want it, it comes on when the sun shines or the wind blows - and you're not prepared to spend money on firming it up, on making it reliable or secure, then you have created a problem. Now, there's a way through this - sign up to the reliability guarantee, and that's what we expect all state governments to do on 26 October. It would be grossly irresponsible for a state government not to do that.

TICKY FULLERTON: Well let's go to pricing. I know you talk a lot about pricing. The Government is putting in a reference price for customers. Now, my question is if the prices actually don't continue to come down, we don't see better behaviour from the energy companies, what are the chances of that reference price turning into a cap?

ANGUS TAYLOR: Ticky, we're already seeing the beginnings of price reductions. We saw on the 1 July the price changes made in a number of states were reductions. We need to see more. We're seeing some pretty ferocious competition right now for customers who are on standing offers - that's offers where they haven't negotiated a better price, and I encourage every electricity user listening to this - watching this - to ring your electricity provider if you haven't already done it and ask them for a better price and the chances are, if you're on a standing offer, you will get a significantly better price.

TICKY FULLERTON: But you won't rule out a cap?

ANGUS TAYLOR: We need to see those prices come down. I'm confident the electricity retailers are working in the right direction, that we are seeing real competition stating to work. We're going to encourage that through this benchmark and the default price that we're setting up, but we do need to see a reduction in prices, and I look forward to that happening.

TICKY FULLERTON: What do you think of the talks - they're rather vague at the moment - the idea of business coming together and addressing the emissions side of the NEG? In other words, perhaps agreeing on some sort of target in order to help investment certainty?

ANGUS TAYLOR: Well they're unsourced reports, Ticky, and so I haven't seen any detail on any of this, but what I would say is we're going to reach our 26 per cent emissions reduction target in the electricity market. We're going to achieve it in the early 2020s.

TICKY FULLERTON: But you don't think that impacts investment certainty?

ANGUS TAYLOR: Well, if you're going to achieve it, it shouldn't impact anything - you're going to achieve it anyway. That's my simple point - we're going to get there. If Labor wants to increase the target, as they do, up to a 50 per cent renewable energy target and a 45 per cent emissions reduction target, then that will have a very big impact and business should be very concerned and business should try to stop that from happening. I know there are many in the business community that think that would be an extraordinary impost, it would be a wrecking ball in the economy, and I agree with them.

TICKY FULLERTON: Finally, it appears from your talks this week that you're sliding the rule again over Snowy 2.0. Now, this was a pet project of Malcolm Turnbull as prime minister. You yourself have family connections with Snowy. What are the chances that Snowy 2.0 won't actually go ahead at all?

ANGUS TAYLOR: Snowy is a great renewables project. The greatest in Australian history. It has a wonderful history, it has made a major contribution, not just to our electricity grid but to this nation. Now, Snowy 2.0 needs to stack up and the former prime minister and the current Prime Minister both share the view that it needs to stack up. We do need more storage and we need to firm up the intermittency in the system, which hydro is very good at doing.

TICKY FULLERTON: But the private sector may be able to do it easier?

ANGUS TAYLOR: It's got to stack up. It's got to stack up. All investments from government must stack up. I think that's a very simple rule which this Government has been very disciplined about applying across the board and we'll certainly apply it in any part of the electricity market.

TICKY FULLERTON: Angus Taylor, so much going on in energy this week. Thank you so much for sharing a little bit of it with us.

ANGUS TAYLOR: Thanks, Ticky.