Article: Navigating the bumpy road to energy transition

Australia’s energy industry is transforming rapidly. Analysis by Green Energy Markets and the Institute for Energy Economics and Financial Analysis (IEEFA) predicts that five of Australia’s 16 coal plants could close by 2025 as more clean energy is connected to the grid.

As the energy sector advances towards a greener and cleaner future, the complexities and inconsistencies surrounding regulation and policy are becoming increasingly apparent.

Ahead of Australian Energy Week 2021, we spoke with Richard Van Breda (Chief Executive Officer, Stanwell)*, Christine Corbett (Chief Customer Officer, AGL Energy), Anna Collyer (Chair, Australian Energy Market Commission (AEMC)), Eva Hanly (Executive for Strategy, Innovation & Technology, TransGrid), Kerry Schott (Independent Chair, Energy Security Board), Frank Tudor (Managing Director, Jemena), James Harman (Chief Executive Officer, EDL), and Paul Broad (Chief Executive Officer, Snowy Hydro) to hear their thoughts on the deepening divide between federal and state energy policy and the strategies their organisations are adopting to navigate the current regulatory environment.

Why is federal policy a critical concern for Australia’s energy sector?

Investment in renewables has stalled due to concerns over storage and a lack of transmission lines.

“The entire energy sector is in transformation and amazing projects are underway from Snowy 2.0 to unprecedented growth in solar,” explains Paul Broad. “However, there is no point in generating clean, green energy if we don't first build the infrastructure to get it to households and buildings.”

Failure to do so means promising projects are often abandoned for years at a time. In 2018, for example, just one-in-20 of NSW’s proposed renewable energy projects could be accommodated into the state’s weak grids. 

Although every state has committed to a net-zero emissions target by 2050, the federal government’s reluctance to set emissions reduction targets is holding back progress.

“Australians are embracing a lower emissions future and are looking to industry, regulators, and government to ensure a responsible and orderly transition while maintaining reliable, safe, and affordable energy supply,” says Christine Corbett.

Richard Van Breda agrees that energy businesses play a critical role in the push towards de-carbonisation. He observes that thanks to Australia’s world-class wind and solar resources, the National Electricity Market is transitioning from centralised thermal generation to distributed renewable energy and storage. “However, the inconsistent approach to policy settings and planning at federal and state levels continues to create difficulties in deployment.”

Is there a deepening divide between federal and state energy policy?

Consistent policy is key

Anna Collyer acknowledges that governments have the right to implement policies as they see fit given that they are the ones balancing the risks and opportunities. Nevertheless, the AEMC supports clear and consistent policy across the national electricity market.

“There are issues underpinning the transformation of the energy market that involve national frameworks and need a national solution,” she explains. “For example, our program of system security rule changes sit very much alongside the ESB post-2025 work so that there is consistency and stakeholders can have confidence of a smooth, integrated approach.”

James Harman agrees. “It’s been interesting to see the way in which states and corporates have set their own abatement targets,” he says. “We’d ideally like to see the most coordinated approach possible between the states and federal government. There is a role here for the ESB to play to ensure the future market design manages the potentially competing parts.”

Regulatory reforms are confusing

The energy industry is undergoing unprecedented regulatory change with energy businesses impacted by multiple reforms. “The continued rate of Federal and State policy and regulatory change introduces significant pressures on energy businesses to ensure readiness and compliance across multiple rule changes, which may also pose significant financial implementation costs,” Van Breda explains.

“The volume of concurrent rule changes makes it difficult to determine the interactions between the proposed rule changes, their impacts on conflicting and similar goals, and the marginal benefit of each individual rule change.”

Trust between government and the energy industry is diminishing

“Importantly, it appears that governments no longer trust the energy markets to deliver the best outcomes for consumers,” says Van Breda. “This results in interventions which distort the markets further.” He believes it’s important to re-establish trust and credibility in the markets.

Kerry Schott, however, believes the divide is not quite as deep as people think. “All states and territories are united in their goal of net zero by 2050,” she explains. “This applies across all the NEM, though some states are more aspirational in their pathway to get there.”

What strategies are you using to make the current regulatory environment work better for your organisation?

Collaboration and innovation within the private sector

Eva Hanly believes that the sector’s rapid evolution has placed an enormous burden on the existing regulatory framework. As such, she thinks it unreasonable to expect the policy-makers and regulators to both identify and solve all challenges. “The private sector has to collaborate and innovate,” she says.

TransGrid, for example, cannot justify the costs of a high voltage transmission line to a proposed renewable energy zone without significant contracted generator demand being guaranteed. At the same time, renewable generators are reluctant to undertake costly developments in an area without the certainty of a way to get their generated energy to market via a link into the energy grid. “Working alongside the NSW Government, we were able to identify a way to overcome this issue and are now excited to be working on the Central West Orana Renewable Energy Zone.”

Put the customer first

Broad adopts the same strategies that have served him well for decades. For Snowy Hydro, it’s about “making sure we take the time to take customers and the community along the journey and genuinely listen to their concerns. When the public supports a project lots of the other barriers seem to fall away.”

Frank Tudor agrees that customers must inform the decision-making process. “We work closely with them to understand what they want from us as their energy distributor both today and in the future,” he explains. “We use these insights to shape our own business activities and plans, and also reflect them back openly to the regulator.” This approach enables the regulator to easily connect how Jemena’s business plans are responding to what customers saying they want. 

Find cost-efficient solutions to address the challenges facing the energy market

Van Breda describes how Stanwell works with regulators and relevant market bodies to advocate for solutions that address the challenges facing the energy market in the most cost-efficient and effective ways possible. “We advocate for a market design that will deliver safe, secure, and reliable energy supply now and in the future at the least cost to customers.”

One of Stanwell’s top priorities is exploring easier alternatives to the current reform proposal to encourage efficient location of new renewable generators while minimising the need for additional transmission network upgrades.

If the industry is united by anything it is that consistent policy is needed to negotiate the immense changes decarbonisation is bringing to the energy sector and that focussing on long term benefits to the consumer should be the end goal. Transition is happening faster than anticipated. Organisations that keep consumers at the centre of their strategy are best positioned to survive and thrive in the coming decades.

To hear more from this group of industry luminaries, attend Australian Energy Week, taking place 24-27 May 2021.

Australian Energy Week is the annual meeting place for stakeholders of all levels from the entire energy supply chain bringing together over 500 representatives from over 200 organisations each year.

For more information view the agenda

* Please note Richard Van Breda is no longer speaking at the conference.

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