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Interview with Tom Connell, Sky News

30 April 2021

Interviewer: 
Tom Connell

Subject: The Energy Security Board's Post-2025 Market Design Options Paper

E&OE

TOM CONNELL: Energy retailers could pay the owners of coal-fired power stations to guarantee future capacity under a new strategy from the Federal Government. Currently, coal and other dispatchable power plants are paid only on energy they actually generate. Energy Minister Angus Taylor has today delivered the Government's response to a shortlist of options from the Energy Security Board to redesign the country's electrical system. Under the proposal, companies would need to buy capacity backed by a physical source to prevent blackouts and brownouts. The Minister, Angus Taylor, joins me live now for more on this. So, this is going to be something that energy retailers have to pay. Is there any specific mechanism, or will there be one, to stop this simply being passed onto consumers, because this is often what companies do?

ANGUS TAYLOR: Well, Tom, the important point is that we have seen dramatic reductions in wholesale and retail electricity prices in recent time. 19 months in a row, wholesale prices have come down. 9 per cent reduction in the CPI in the last 12 months alone. We want to see a continuation of that. But to see a continuation of that while we keep the lights on, we're going to have to make sure there's enough dispatchable supply in the market - that's investment and avoiding losses of major dispatchable generators prematurely - and that means making sure they've got an incentive to invest or stay in the market. Now, this is a continuation of where we've been going. We've put the Retailer Reliability Obligation in place some time back, and it's building from that. So it's a continuation of moving down that path but we do have to have reward for dispatchable generation or we will lose the gains we've been making in the falling prices in the last couple of years.

TOM CONNELL: Right. Just in terms of paying for it, though, it has to either be the retailer or passing it on to the consumer. So you're saying you somehow make the retailer pay and not the consumer?

ANGUS TAYLOR: The important point is this will drive more supply into the market, not less dispatchable supply. And that puts downward pressure on prices or retains downward pressure on prices. That's what we want to see, Tom. We've got to have an energy system, an electricity system that's there when the sun goes down, when the wind is not blowing. We've seen record levels of investment in renewables in recent years, the equivalent of four major coal-fired power stations a year for the last two years alone. We have the highest level of household solar in the world. We have to make sure there's a balance in the grid. This will ensure there's a balance in the grid, but in a way that maintains high levels of supply, puts downward pressure on prices and keeps the light on.

TOM CONNELL: But again, there is a new fee, if you like, that's going to be paid within this new approach. So, who pays for that?

ANGUS TAYLOR: Well, no, Tom, there already is a Retailer Reliability Obligation, where the retailers have to have enough-

TOM CONNELL: But this is enforcing it. This is making it happen.

ANGUS TAYLOR: Yeah, well, we put it in place two years ago, almost two years ago, and we have to make sure that it's working, it's delivering, and there is enough dispatchable generation in the marketplace. Now, most, the majority of electricity markets in the world now have this. And what you see as a result of this is lower energy prices, but a payment for capacity and the overall impact on the consumer is a positive. It's good. It's good for consumers. 

TOM CONNELL: Right. 

ANGUS TAYLOR: It encourages investment, and it ensures that we've got that right balance in our system. Now, that is- 

TOM CONNELL: So retailers are paying it then? If you're saying good for consumers, it must be ultimately picked up by retailers and not passed on?

ANGUS TAYLOR: Well you can speculate about exactly how all of this flows through. The one thing- 

TOM CONNELL: No, I'm asking you.

ANGUS TAYLOR: We know from experience is it makes sure there's enough supply in the market so consumers get a better deal. And that's what we're after in the end of the day, Tom, making sure consumers get a better deal, but partly, that is a result of investors being encouraged to have the right balance of generation in the system between dispatchable generation-

TOM CONNELL: Okay.

ANGUS TAYLOR: And intermittent.

TOM CONNELL: Does this make any source that's not disapatchable, slightly less viable, economically?

ANGUS TAYLOR: Well, there's no problem with enough investment in intermittent renewables, if that's the question you're asking, which I think it is, Tom. In 2019, 6.3 gigawatts. In 2020, 7 gigawatts. That's, as I said, more than four coal-fired power stations a year in investment in intermittent renewables. So that's not been our challenge. 

Right. 

Our challenge is to make sure there's enough balance in the system so that the lights stay on and the prices drive down.

TOM CONNELL: Right. But you accept that the incentives there are tweaked slightly?

ANGUS TAYLOR: Well, there has to be enough encouragement to have balance in the system. Now, to put this in perspective, Tom, this is how the Western Australian market works already. It already has these signals, in a different way to what we're proposing, but it's essentially the same principle.

TOM CONNELL: Okay. 

ANGUS TAYLOR: Which is that you are encouraging investment in dispatchable capacity. WA has been living with this system for a long, long time. It's worked pretty well for them and we're confident it can work well for the Eastern states.

TOM CONNELL: So just in terms of the power plants that would be eligible for this, is there also a reliability that needs to be factored in? We know some coal-fired power plants have been quite unreliable on hot days or hot periods. Would they need to hit a certain reliability to be privy to this? 

ANGUS TAYLOR: Of course. And reliability standards and assessing those is an important part of our Retailer Reliability Obligation, but more importantly, what we're proposing to do with it in the future. So, a recognition of the reliability of different technology types under different conditions, the market operator does that now and it will have to continue to do that and have a very strong focus on that. 

Right. 

That is not a new problem but it's an important problem, Tom. It's a good question to raise. But that is part of any good electricity system and we need to have a strong focus on it right now. 

TOM CONNELL: But if there was, say, a coal-fired power station that qualified for this, for want of a better term - I'm not sure if I'm using the right one there or not - but down the track, it was increasingly unreliable in those peak periods. What happens there? Does it sort of get reviewed? Do you say, sorry, this can't be seen as this reliable dispatchable power anymore?

ANGUS TAYLOR: That's what the retailers are doing now. I mean, they are getting the balance right. They have a good understanding of the reliability of their different generators. They have to manage that and this is going to give them a very strong incentive to manage that very well, to make sure consumers get what they need. But at the end of the day, some will like to pick this apart and make it all about one fuel versus another. A battle between different fuel sources, Tom. That's how some like to characterise all issues in the energy sector. You know, what? I characterise it a different way, which is we as a government just want the outcomes. We want the affordable, reliable energy as our emissions continue to come down. It's the outcome that matters. We'll leave the fuel wars to others. And those outcomes are about making sure we have that right balance in the system. 

TOM CONNELL: Alright. Just finally, the deadline is today for the replacement of Liddell's 1000 megawatt capacity, not to replace it today, but to have plans in place. It's not going to be met, seemingly. Is Kurri Kurri now a lot more likely to be backed?

ANGUS TAYLOR: We'll see what proposals come through. I'm not going to speculate at this point, Tom. I know there's a lot of work that's been going on for a significant period of time to get proposals together. We're looking forward to seeing those. We'll review those. And we realise that time is of the essence here but we're going to make sure we assess those proposals. But ultimately, at the end of the day, we're going to make sure there is a replacement for Liddell, that there is downward pressure on prices, that we have a reliable grid. That, of course, is the objective of the exercise. And our Government is, the Federal Government is prepared to step in as necessary to fill the gap. We've said that from the start and we're serious about it. But let's see how this plays out, Tom. I'm not going to speculate at this point. 

TOM CONNELL: Perhaps next time we talk more might be known. Energy Minister Angus Taylor, thanks for your time.

ANGUS TAYLOR: Thanks Tom.