Australia is facing an energy crisis and both energy customers and investors have taken a front row seat to ensure the greatest balancing act in this country – enduring energy policy – finally gets landed. This is a one-time-only opportunity to get it right and, if we fall off the high wire this time, the consequences will be disastrous. The energy policy circus is back in town.
By Clean Energy Council Chief Executive Kane Thornton
Speculation is building ahead of this week’s release of the final report into the future of Australia’s energy system by the Chief Scientist Dr Alan Finkel. Dr Finkel has clearly recognised that the problem has become dire.
More than half of Australia’s coal generation is now beyond its expected operating life. As certain as night follows day, the sun will continue to set on these old coal plants. Gas is in the middle of an affordability crisis, increasingly priced out of an electricity market where the only bright light is the unprecedented level of investment in new renewable energy projects. However, this recent investment boom hasn’t been enough to offset the impact of higher gas prices and overall reduced supply which has seen wholesale power prices double in the last year.
Navigating this tightrope isn’t easy. But it can be done.
The policy stars for new investment have aligned for a rare moment in time. The 2020 Renewable Energy Target (RET), combined with support from state and territory governments, has produced a boom in renewable energy investment worth over $7.5 billion this year, as private investors put the achievement of the 2020 RET comfortably within reach.
This is creating thousands of new jobs and enough new generation capacity to replace Victoria’s decommissioned Hazelwood brown coal power plant twice over. New investment must continue if we are to keep the lights on.
The cost of renewable energy has fallen dramatically over the past three years. We can modernise our energy fleet at a lower cost than ever before. But if we expect private investors to do the heavy lifting, there needs to be clear and stable long-term energy and climate policy that underpins the business case for new projects. Otherwise the risks will be too great for private investors to lay billions of dollars of their own capital on the line.
According to the Centre for International Economics, the price of this uncertainty is between $27 to $40 per megawatt-hour of electricity. This means higher bills for homes and businesses until we can put in place an enduring energy policy that supports investment.
Many policy options exist to manage this transition and provide investment certainty. A carbon tax and an emissions trading scheme have been rejected by the Federal Government, and the idea of an emissions intensity scheme lasted less than 24 hours when it was floated last year. But it’s now anticipated the Chief Scientist will recommend another option: A Low Emissions Target for the electricity sector.
The policy would provide an extra incentive for new low emissions energy generation projects such as wind and solar, as well as gas and coal where they can deliver power with emissions under an agreed level. By bringing on new power supply, energy consumers could expect to see power prices trend back down to more reasonable levels.
Many devils are lurking in the detail. But it is increasingly clear that almost any enduring policy is better than no policy at all.
The failure to deliver long-term energy policy will stall new investment and drive up power prices. It also means state and territory governments who are now on the hook for energy security will be forced to continue with a patchwork of policies to keep the lights on. This is far from ideal, but better than nothing.
Those who oppose any national policy will own these consequences for energy customers and the Australian economy.
With the Chief Scientist’s final report this week we have an opportunity for some forward momentum. If our politicians mess it up again, they really are clowns.