Research
10
min read

Australian Energy Policy Snapshot

Published on
August 19, 2022
Author
William Wright
for GovConnex Research
Before GovConnex Research is published here, it's sent exclusively to GovConnex Platform subscribers.

What you need to know

  • Energy policy was a key election issue, with teal independents and Greens seeing large electoral success on the back of their climate change policies.
  • There was a perception of inaction on climate change from the former Coalition government amongst much of the electorate.
  • Rising energy prices are a hot topic globally as inflationary pressures, the war in Ukraine, supply chain issues, and oil/gas prices see prices soar.
  • Ideological debate is rife surrounding the source of Australia’s power generation. Many expect the Coalition opposition to support nuclear energy ahead of other forms of renewable energy – a move that is unlikely to gain support from the government.
  • Labor has promised $20 billion for upgrades to transmission infrastructure.
  • Energy and Climate Change Minister Chris Bowen has just released a safeguard mechanism reform consultation paper, which proposes how an emissions reduction glidepath between now and 2030 would be applied to some 215 large industrial polluters, but not power generators.

Key Issues

Climate Change Bill

One of the first actions of the new government was to pass the Climate Change Bill. The bill did four key things:

  1. Legislated a 43% reduction in greenhouse gas emissions (on 2005 levels) by 2030. This is important as future governments will be required to abide by it.
  2. Empowers the Climate Change Authority to provide advice on future emissions reductions targets. The Minister is required to request advice for a new target every five years.
  3. The Minister for Climate Change and Energy will be required to report annually to Parliament on the progress of targets.
  4. Government agencies are now required to consider these targets when approving new projects. Examples of these agencies include the Australian Renewable Energy Agency, Clean Energy Finance Corporation, and Infrastructure Australia.

The bill passed the house of representatives in August with the support of the teal independents and is expected to pass the Senate with support from the Greens. This vote is expected to take place following the conclusion of a committee inquiry into the bill at the end of August. The government needs the support of the 12 Greens senators and one independent senator, likely David Pocock or Jacqui Lambie, to pass.

Transmission infrastructure spend

  • Labor has promised $20 billion towards the “Rewiring the Nation” fund.
  • Much of this fund will go towards low-cost loans to develop new transmission infrastructure. Labor estimates this will lead to nearly $58 billion of private co-financing for these projects.
  • Transmission infrastructure simply refers to the “poles and wires” that transport generated electricity to the consumer. Upgrades to this infrastructure are necessary as more renewable power generators come online.
  • These upgrades will be critical to the success of net-zero by 2050 targets.
  • Former Prime Minister Scott Morrison has claimed that doing these upgrades too soon will only further increase power prices.
  • Transmission costs are estimated to make up 50% of consumer energy prices.
  • Labor has gained the support of the Australian Energy Market Commission, with Chair Anna Collyer telling the Australian Financial Review that we are better off wearing the increased costs earlier than later:

“Either the transmission is going to be too early, in which case customers pay earlier, or it’s going to be too late and customers really will pay for that. It’s very hard to get that exactly right within the regulatory regime”

It is unclear when Labor will formally launch the program.

Nuclear power

  • As power prices soar and an alternative to coal/gas power is sought, nuclear energy is becoming the preferred option for some Coalition MPs.
  • Opposition leader Peter Dutton stated in a Courier Mail op-ed on 7 August that “It’s time for an honest and mature debate about nuclear energy in our country.”
  • The Coalition is yet to announce a formal policy on nuclear energy, however this is expected to come at some point during this term.
  • The Greens are ideologically and morally opposed to nuclear energy in Australia.
  • Labor does not support nuclear energy due to the costs associated with its deployment. Minister for Climate Change and Energy Chris Bowen said on August 4 that “The cheapest form of energy is mixed affirm renewables, the most expensive form of energy is nuclear. It is slow to deploy, renewables are fast to deploy.”.
  • Public support for nuclear power is steadily increasing, however it still faces heavy opposition from much of the electorate.
  • Small Medium Reactors are seen as a possible solution due to their size and cost effectiveness.
  • Nationals leader David Littelproud has encouraged Labor to be “open” to SMR technology.
  • Labor has cited the 2021/2022 CSIRO GenCost Report as stating that renewables (solar/wind) are still the cheapest form of new power generation. The report emphasises the heavy costs associated with hydrogen and nuclear technologies. You can read the full report here.

Explainer: What is a Small Modular Reactor (SMR)?

An SMR is about a third of the size of a typical nuclear reactor with an output of upto 300 MW(e). A large conventional reactor has an output of over 700 MW(e).

SMRs are modular, meaning they can be pre-fabricated and assembled at a site, as opposed to conventional reactors which require large and expensive construction on site. This modularity would significantly reduce the cost of an investment into Nuclear energy in Australia.

SMR technology is in its infancy with only one in operation globally, the “Akademik Lomonosov,” located off Russia’s arctic coast on a barge powers a town of 100,000 people.

AGL demerger

  • AGL had planned to split its energy production and retail arms in two. A new brand, Accel Energy, would’ve taken control of energy production,and AGL Australia would have taken control of the retail brand.
  • Billionaire Mike Cannon-Brookes (the largest investor in AGL) was strongly opposed to the demerger, fearing it would slow the company's transition away from fossil-fuel generation.
  • The demerger was abandoned on May 30 due to pressure from Cannon-Brookes.
  • Cannon-Brookes and Canadian asset manager Brookfiled made a $8 billion takeover bid for AGL in May, which was rejected, however the market believes Cannon-Brookes may make further bids, hopeful that AGL under his control can lead Australia’s transition to renewables.

National retention policy

  • Western Australia has a gas reservation policy mandating 15% of local gas produced is supplied to the local market and not exported internationally.
  • As gas prices soar globally, local gas producers have continued to export the majority of their production, seeing local prices soar.
  • There has been pressure on the government to implement a similar retention policy nationally to keep gas prices down.
  • Resources Minister Madeleine King has resisted these calls, saying it’s not a “long term solution”.

National Energy Market vs Retail Energy Market

  • In June, the Australian Energy Market Operator (AEMO) suspended the wholesale energy market to ensure supply of energy into the retail market. Due to high gas costs, some energy generators had stopped producing electricity due to price caps making it unaffordable to sell power to the retail market.
  • By suspending the market, the AEMO was able to order generators to supply energy, ensuring there were no blackouts.
  • This was the first time such a move had been taken by the AEMO. Should prices remain high, it will likely not be the last.

Explainer: What is the difference between the wholesale and retail energy markets?

The wholesale energy market is where electricity generators (coal power plants, solar farms etc…) sell electricity to energy retailers or large industrial customers. The retail market is then where electricity is sold to households and businesses by those retailers.

The biggest three energy retailers in Australia are Origin, AGL, and EnergyAustralia, their market share as of April 2022 was:

  • Origin: 27.2%
  • AGL: 22.4%
  • EnergyAustralia: 15.3%

In Australia the wholesale energy market is referred to as the National Energy Market (NEM). The NEM includes New South Wales, Victoria, Queensland, South Australia, Tasmania, and the ACT, but does not include Western Australia or the Northern Territory, which operate their own markets.

Australia’s energy mix

Largest energy consumers:

  • Transport (26.5%)
  • Household/business electricity (25.5%)
  • Manufacturing (17.1%) 
  • Mining (14.1%)

Energy supply:

  • Fossil fired generation (77.4%)
  • Renewables (22.6%), out of which solar supplied 7.9% and wind contributed 7.7%.

Source: CSIRO GenCost Report 2019-20

Key stakeholders

  • Chris Bowen - Minister for Climate Change and Energy
  • Ted O’Brien - Shadow Minister for Climate Change and Energy
  • Matt Kean - New South Wales Energy Minister
  • Lily D'Ambrosio - Victorian Energy Minister
  • Mick De Brenni - Queensland Energy Minister
  • Bill Johnston - Western Australian Energy Minister
  • Tom Koutsantonis - South Australian Energy Minister
  • Mike Cannon-Brookes - AGL Energy’s largest shareholder
  • Climate 200 and Simon Holmes à Court - Activist group founded by Simon Holmes à Court.
  • The Teals (Allegra Spender, Sophie Scamps, Kate Chaney, Monique Ryan, Kylea Tink, Zali Steggall, Helen Haines, David Pocock, Zoe Daniel)
  • Andrew “Twiggy” Forrest - Fortescue Future Industries Chairman
  • Meg O’Neill - Woodside Energy CEO
  • Frank Calabria - Origin Energy CEO
  • Graeme Hunt - AGL Energy CEO
  • Mark Collette - EnergyAustralia Managing Director
  • Climate Change Authority
  • AEMC - Australian Energy Market Commission
  • AEMO - Australian Energy Market Operator
  • AER - Australian Energy Regulator
  • ESB - Energy Security Board

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