AFR National Energy Summit Overview

Last week, I attended the AFR National Energy Summit which was also sponsored by Energy Action. It was an outstanding conference, and there are a number of key points from the conference that I feel are important to share, particularly in light of the major energy policy announcement from the Government today.

News about energy and the energy industry makes the front page of the news almost daily – rising energy prices, AEMO’s predicted gas shortfall, supply concerns, the closure of ageing coal fired power stations – and those are just the more recent headlines.

Firstly, the energy industry is in great need of policy certainty to shore up the framework for the future of Australia’s energy security. Based on speakers from both sides of politics at a Federal and State level, there is significant differences of opinion in terms of how the future policy uncertainty should be managed.

Since the issues raised at the event last week, there has been a great deal of public discussion around energy policy. The coalition Government today announced the National Energy Guarantee (NEG) scheme, in place of the Clean Energy Target (CET). Under the newly proposed scheme, subsidies for renewable energy will be removed, however an energy intensity component of the program will mean retailers will be required to meet standards mandating both emissions reductions and reliability – in essence to meet Australia’s Paris target.

In addition, the Government believes people will still choose to use clean energy because its costs are falling and the technology keeps improving.

While the policy debate continues with little near term reprieve, the private sector has been moving to increase generation capacity and in the last 12 months over 4,300MW of new renewable generation is in place or planned to come online soon.

Where renewables are concerned, we have also seen some of Australia’s biggest energy users take matters into their own hands, with some of the big retail and commercial property groups, like Stockland, putting in place measures to move towards self-generation.

Despite proactivity from these companies, many market participants agree that not having clear policy settings creates uncertainty for the energy market. Despite the recent scrapping of the proposed CET, and the new ‘national energy guarantee (NEG)’ announced, there is still much more work to be done to ensure a secure energy future for Australia. The Climate Change Authority has said that the emissions intensity of Australian electricity sector needs to come down 69% between 2015 and 2030. That’s obviously a lot more than the 26% reduction under consideration within the NEG.

"Generally the message around the CET is being called from a point of certainty, not a subsidy, that's what people are calling for," Origin Energy Chief Executive Frank Calabria said at the National Energy Summit.”

Andy Vessey from AGL said that agreeing on timings to exit coal generation is important. He said that “the most costly energy is the energy you don’t have and reliability is crucial”. AGL sees its future as being very much driven by renewable generation rather than coal fired.

Ian Learmonth form the Clean Energy Finance Corp (CEFC) spoke about big investment in renewables now and into the future, and also stated that 40% of power would come from behind the meter by 2030. Another comment made at the summit is that there will be 1,000,000 battery systems in the market by that time, so the picture becomes clear that future energy generation mix will be much more renewable, with battery storage featuring more prominently, together with offshore wind, pumped hydro and innovative projects like Concentrated Solar Power. The electricity supply system will look more like the following which is a picture I took at the conference from the CEFC presentation.

Many electricity retailers are also taking the steps to move away from a carbon based, coal fired future, to a renewable future – which actually has a lower cost, is faster to bring online and contains the least risk.

For example, renewables take about one year to enter production, gas about five years and coal about seven. The reality is that we are not going to have new coal fire generation and if we do, it is going to be High Efficiency, Low Emissions (HELE) plant infrastructure and would have to be Government guaranteed as financiers won’t touch a long term coal fired plant without assurances.

The market is very much in a transitional period, with a gradual shift towards renewables – AEMO is confident of electricity supply this summer, however, uncertainty remains over whether demand is going to be met for all consumers and businesses should the summer become hotter than expected. That said, there is no question that moving forward, renewables will be a key part of Australia’s energy future with the industry expecting security of supply to improve and prices to come down.

According to the Finkel review, future renewable power will have to be more like base fired coal with standby power available such as pumped hydro or batteries, to ensure they can be despatched into the market, this means that the generation cost will be higher than their current $60-80MWh range as they will have to take into account the additional cost.

From an Energy Action point of view, it is important that our clients continue to shop around for energy to secure the best short term prices and certainty of supply – which is what we help businesses to do. Businesses also need to look at efficiencies and the demand side of their energy consumption. A good first step is to engage the experts to undertake an energy audit to get a better understanding of your energy usage before taking steps to better manage prices and volume.