Wind back to 2012 and publications such as The Economist were hailing Australia’s energy policy through its carbon tax as an example for the world to follow.
Fast forward two years and the same magazine described our policy as ‘confused’ after the carbon tax was repealed and the Coalition government started arguing for a dramatic reduction of the Renewable Energy Target – reaching a bipartisan agreement for a modest reduction in the large-scale portion of the RET from 41,000 gigawatt hours of renewable energy generation by 2020 to 33,000 megawatt hours. This is expected to represent around 23.5 percent of overall electricity generation by that time.
At a state level, Labour governments in places such as the ACT, South Australia and Queensland have targets, 100, 40 and 50 percent renewable generation by 2020, 2025 and 2030 respectively. Federally, former Prime Minister Tony Abbott wants the RET scrapped altogether despite current levels having been agreed to by his own government when he was Prime Minister. Calls for a bipartisan policy approach have gone unheeded. Nor do we have anything near a consistent approach between state and federal governments.
This raises questions about whether or not this confusion and uncertainty is deterring much needed investment as Australia transitions to a low carbon economy. All this is happening as South Australia has faced blackouts, the Australian Energy Market Operator has warned of a looming gas shortage and consumers especially in Victoria face rising prices following the shutdown of the Hazelwood coal fired power station.
According to Dr Iain MacGill, Joint Director (Engineering) of the Centre for Energy and Environmental Markets at the University of New South Wales, the answer is yes. McGill says policy is lacking in several areas.
First, the uncertainty over the carbon price and RET has precipitated a pull-back in investment even as coal capacity is winding back and stations such as Hazelwood (many of which were half a century old) shut down. Whilst renewables have been hit hardest at least in the period before the RET was agreed to, MacGill says investment in other forms of generation have been impacted as investors with long-term horizons incorporate carbon prices into their calculations even if the official price may have been withdrawn for now.
MacGill says it is ironic that the Coalition promised cheaper energy after the carbon price repeal yet now have seen higher prices in recent years and are now likely to see more as plants like Hazelwood shut down. Whilst a number of factors have contributed to the current situation, he says the effect of the uncertainty should not be understated.
“There was a certain irony that the claim was that they wanted to get electricity prices down but it created such policy uncertainty that it killed off a lot of renewable energy investment and impacted investment in gas fired generation and so on,” MacGill said.
“The impact of that has been to actually see prices increase.”
MacGill also says there are challenges in the gas sector, which he says is being impacted by the transformation within east-coast markets from domestic oriented markets to export oriented markets and a lack of effective competition in gas supply as well as poor regulation of gas networks which further restricted competition.
Whilst acknowledging that the reorientation of the market was not necessarily a bad thing, MacGill is disappointed with what he says is a lack of attention as to how its impact should be managed from a regulatory perspective. This is particularly the case given the scale of the transformation, whereby the building of six new LNG trains across three facilities on the central Queensland coast could is seeing two-thirds of what was previously going to domestic markets in the east coast instead being exported.
Equally disappointing, he says, was a failure to put mechanisms in place to deliver an effective-functioning marketplace following the introduction of what he refers to as ‘so-called’ market arrangements for the sector over recent decades.
Add all this up, he says, and we have a dysfunctional gas sector.
Robert Pritchard, Executive Director of the Energy Policy Institute of Australia agrees that there are challenges.
In a paper published in December, Pritchard said uncertainty surrounding energy and climate change policy had created a ‘no-go’ zone for investors within the power generation sector.
According to that paper, Australia has aroud 45,000 MW worth of generating capacity in the National Electricity Market – about 30,000 MW of which is coal fired. Of this, the Australian Energy Market Operator believes around 9,000W worth of coal generation capacity will reach its technical end-of-life generation by the 2030s. As Pritchard points out this does not take into account any earlier redundancies which may result from stricter emission reduction measures.
That, Pritchard says, creates questions surrounding if and how redundant capacity is replaced.
Going forward, Pritchard wants a national vision committed to over the long term by all governments which provides for the needs of both consumers and investors and entices investors back into the generation sector.
MacGill wants greater attention to managing the impact of the export transition upon the gas market as well as arrangements to promote greater gas market competition.
He agrees that Australia needs a clearer vision surrounding climate change and energy policy. Whilst the precise nature of what that looks like remains uncertain, he says policy should facilitate a more significant role for renewables and a transition role for gas.
“Where we need to get to is a coherent and comprehensive policy environment or framework which provides all players about the direction in which we are heading,” McGill said.