1.1
Labor senators do not support the chair's report.
1.2
This inquiry presented a unique and timely opportunity to articulate a
clear policy vision for Australia’s energy future. Labor senators are concerned
that the Chair's report fails to fully grasp this opportunity.
1.3
Although we believe it fairly and accurately sets out much of the
evidence received by this committee, Labor senators emphasise different
elements and reach different conclusions.
1.4
We do not consider it productive to document each of the areas of
disagreement with the Chair's report. Instead, this dissenting report will set
out our views on the evidence that has been received by this committee.
Climate change threatens the
resilience of Australia's electricity network
1.5
It is not proposed to exhaustively prove that climate change is real.
That task has already been ably completed by decades of scientific research and
countless government and intergovernmental commissions. The existence of
anthropogenic climate change is uncontroversial in the scientific community. It
should be likewise in our politics. The challenge now is how best to respond.
1.6
The fact of climate change poses two distinct challenges to the
resilience of Australia's energy network.
The challenge of a warming world
1.7
Climate change poses risks to physical infrastructure. As the CSIRO explained,
'[b]oth historical climate observations and climate projections into the future
indicate that the frequency and intensity of many extreme weather events are on
the rise'.[1]
1.8
It is difficult to establish the role of climate change in any
particular weather event. Nonetheless, the weather events that lead to black
outs and load-shedding in the last twelve months illustrate the vulnerability
of electricity infrastructure to the types of events that we can expect more
frequently in a warming world.
1.9
On 8 February 2017, there was a heatwave across much of Australia. The
high summer temperatures translated into high electricity demand in South
Australia. An unexpected drop in wind generation coincided with numerous forced
outages of thermal generators (including two that reduced capacity due to high
ambient temperatures and one that was not allowed to bid into the market). The
shortfall was transferred across South Australia's interconnectors, which
threatened to trip interconnector limits. As a result, AEMO enacted load
shedding.[2]
1.10
On 10 February 2017, the eastern states continued to experience a
heatwave, translating into high electricity demand in New South Wales. At the
same time, technical faults took a number of thermal generators offline. As a
result, AEMO enacted load shedding for a large commercial user in New South
Wales.[3]
1.11
On 28 September 2016, tornadoes damaged a number of transmission lines
in South Australia. The damage to these lines caused them to trip, and set off
a cascade of faults that triggered protective features in a number of wind
turbines as well as the Heywood Interconnector, taking them offline. As a
result, the entire state lost power for several hours.[4]
1.12
These events are not one-offs. Instead, the evidence to the committee
was that network assets would increasingly face these types of physical
challenges.[5]
Despite this, the committee also heard from transmission and distribution
companies that there was limited guidance from the AER about what investment
should be undertaken to protect against climate change risk:
Senator McALLISTER: So no definitive position [from
the AER] about whether or not climate risk ought to be incorporated in your
planning framework?
Mr Vincent: That is correct.[6]
1.13
Labor senators are concerned by this vacuum, and consider the AER has a
key coordinating role (see Recommendation 1 below).
The challenge of a low carbon
future
1.14
As well as physical risks, climate change also poses economic and
regulatory risks to carbon emitting generating assets. Australia will need to transition
away from carbon intensive electricity generation if we are to satisfy our
international commitments and make an effective contribution towards addressing
climate change.
1.15
Coal provided around 63 per cent of Australia’s electricity in 2014-15.[7]
It also produced 88 per cent of the total emissions from electricity
generation.[8]
It is well understood and acknowledged amongst industry that this mix is not
sustainable. AGL and Engie gave evidence to this committee that they were 'moving
out of coal'.[9]
The Clean Energy Finance Corporation explained that 'it would be very difficult
to find a private sector or a commercial investor making a decision to invest
in a coal fired power station in the Australian market today'.[10]
1.16
The committee's hearings took place against a background of public
discussion by the Australian government of public investment or subsidies for
new coal fired power stations. Labor senators believe it would be
inappropriate, uneconomical, and unsustainable for this to occur. Australia's energy
future must rest more heavily on renewable and low carbon energy sources (see Recommendation
2 below).
The need to replace out-of-date
infrastructure gives Australia the opportunity to transition to cleaner energy
sources
1.17
Australia is due for a round of investment in energy infrastructure.
This need arises independently of the demands of climate change — instead it is
a consequence of the age and capabilities of existing plants.
1.18
Many of Australia's generating assets are near or at the end of their
design life. The dirtiest plants are also amongst the oldest. These generators
would have to be replaced irrespective of the need to respond to climate
change.
1.19
Australian's energy consumption patterns are also changing, putting new
demands on the electricity network. Changes in lifestyles and technologies have
transformed the way that electricity is consumed. The uptake in use of air
conditioners has moved periods of peak demand from winter to summer. The uptake
in the use of rooftop solar has meant that there is lessening demand in the
middle of the day. The committee heard that:
The generation mix and market rules in Australia have not
been designed to meet this kind of demand profile, so the resilience of the
electricity infrastructure will continue to deteriorate if measures are not put
in place to address this problem quickly.[11]
1.20
The need to respond to replace aging infrastructure and manage
Australia’s changing demand patterns presents an opportunity to invest in
assets that meet the shared need to reduce carbon. This investment would have
to occur irrespective of climate change — Australia has the chance to
transition to cleaner energy sources at the same time.
Australia has the technology to
make this transition now
1.21
There is a wealth of existing and emerging technologies that would
enable Australia to meet these needs. These technologies include different
renewable generation and energy storage options. We also draw particular
attention to demand management technologies, which are often forgotten in
discussion about future energy networks.
1.22
It is not proposed to explain these technologies in this dissenting
report, as the descriptive portions of chapter 3 of the chair's report set them
out in considerable detail. We note, however, that these technologies are at
different stages of development and commercialisation. Ongoing government
support is required for them to be integrated fully into the NEM, and deliver
benefits to Australians. This support should be provided (see Recommendation
3 below).
1.23
Labor senators acknowledge that renewable technologies have a different
profile from fossil fuel generators. In particular, there are issues arising
from wind and solar being intermittent and asynchronous sources of power.
1.24
There have been some suggestions by public commentators that these
issues mean that government should act to limit the penetration of renewables.
We do not believe this is a satisfactory response.
1.25
Different generating and storage technologies have their own set of
benefits and liabilities. This is equally as true for older technologies as it
is for the new. As was explained to the committee by way of anecdote:
This term 'baseload' is appropriated and elevated to some
particular level as if it has some intrinsic value. Baseload, per se, is not
useful. In my ceiling in my house, when I changed the insulation some years
ago, I had a look at my old water heater, which is a big, thin-steel container,
exposed to an uninsulated roof, and I inquired as to why this was such a wasteful
device. The answer is that the coal-fired generators in Victoria had a minimum
stable generation level. They were baseload. They could not operate other than
flat-out, and to keep them going they had to soak up their generation at night.
They were inflexible.[12]
1.26
The state electricity markets (and later the NEM) developed market rules
and structures to accommodate the strength and limitations of previous
generating technology. As technology changes, so too must the market. Labor
senators believe that market rules should be adjusted to reward market
participants for providing ancillary services that contribute to the grid
stability and reliability that the public expects (see Recommendation 4
below.) In practice this may mean, for instance, separate markets for storage
to complement renewables and smooth out intermittency, or for the provision of
inertia.
1.27
Labor senators also believe that market rules should be adjusted to
recognise and reward the new types of benefits that emerging technologies are
capable of delivering. The committee heard from a number of witnesses that the
current settlement period for prices of 30 minutes meant that the NEM was
unable to reward the ability of batteries to provide very fast dynamic primary
frequency response.[13]
This, the committee was told, acts as a disincentive to the provision of
batteries.
1.28
Likewise, the committee was told of regulations that may discourage
consumers from purchasing home batteries:
Mr Osbourne: The biggest selling battery in the market
is the Tesla Powerwall. It is a very nice looking thing...If you read some of
the non-binding installation standards that have been published, you are
required to put that in a cage...
Senator URQUHART: So what is the purpose of the cage?
Mr Osborne: It is to stop people touching it.[14]
1.29
Labor senators believe that, where it is safe and appropriate, market
regulators should seek to lower the regulatory barriers to entry to new
technologies and put in place appropriate rules to incentivise investments that
contribute to the security, reliability and affordability of the NEM (see Recommendation
5 below.)
The need for national leadership to
manage the transition to renewables
The path to decarbonisation
1.30
It is rare to conduct an inquiry where almost every witness is in
agreement. This was such an inquiry. The committee heard from witness after
witness that the failure of the Australian government to articulate a plan to
transition to a low carbon future was crippling industry.[15]
1.31
AGL explained that the lifespan of electricity assets required long term
planning:
The market participants need time to plan; there are often
five to 10 years in planning horizon, and we need some sort of predictability
of when to replace assets to avoid the disorderly transition we are currently
experiencing today.[16]
1.32
That long term planning was not possible given the policy uncertainty
that had been created by the government over the last four years. Mr Oliver
Yates of the Clean Energy Finance Corporation explained that:
People do not quite know the direction of government policy.
People do not know the timing of the need to make adjustments in carbon
emissions. People do not know the speed with which that may or may not have to
be made. In that environment it is very hard for the private sector to make
long-term investment decisions, which are necessary if you are going to move
from one type of asset to another type of asset.[17]
1.33
The end result, according to Mr Danny Price of Frontier Economics, has
been an 'investment strike' in new electricity infrastructure.[18]
1.34
Labor senators believe that the government should, as a matter of
urgency, develop a policy that provides stability, certainty and direction to
industry (see Recommendation 6.)
1.35
Labor senators consider that there are clear benefits to energy policy
being bipartisan and having broad industry support.
1.36
We note that the terms of reference for the Finkel Review enable it to
develop a framework for this policy. The Review's report should be made public
when it is received, and responded to as soon as possible (see Recommendation
7.)
1.37
Labor senators note that senior government ministers have already ruled
out adopting an emissions intensity scheme. We consider that an emissions
intensity scheme is an appropriate and effective mechanism for transitioning
Australia's energy sector to a low carbon future. Industry agrees.
1.38
At the time of writing, notable supporters of an emissions intensity
scheme included Snowy Hydro, the Business Council of Australia, BHP, AGL,
EnergyAustralia, the National Farmers Federation, Origin Energy, the Australian
Energy Markets Commission, the CSIRO, Energy Networks Australia, the Chief
Scientist, the Climate Change Authority, the Clean Energy Finance Corporation,
as well as numerous state and territory governments.
1.39
Professor Ross Garnaut told the committee that:
...an emissions intensity scheme would serve the purpose of
providing appropriate incentives for investment in lower emissions
technologies. In fact, as far as the climate change objectives, the emissions
reduction objectives, and also the energy investment efficiency objectives are
concerned, the emissions intensity scheme is very similar in its merits to
carbon pricing.[19]
An orderly exit for aging plant and
a just transition for workers
1.40
AGL spoke of the need for 'a market rule that suitably telegraphs the
phase-out of legacy power plants'. In their view:
This will enable market participants to plan and invest in
the necessary generation and associated infrastructure. It will also minimise
the impacts of short-notice periods for closure on wholesale electricity
supplies, such as those experienced with the impending closure of the Hazelwood
power station and the recent closures of the Northern and Playford coal power
stations in South Australia.[20]
1.41
Labor senators believe this is sensible. The regulators of the NEM have
a role in coordinating an orderly exit of aging plant, in particular the suite
of old coal fired power plants (see Recommendation 8.)
1.42
There is a significant informational asymmetry between the owners of
aging generators on the one hand, and those who depend on it on the other hand.
Adequate notice that an asset is to be retired would help smooth out the 'lumpiness'
of investment in infrastructure by providing potential investors with notice of
a gap in the market.
1.43
More notice of exit would also provide governments with a better
opportunity to protect plant workers, and their communities. The committee was
fortunate to hear from Mr Rowbottom, who had worked at the Port Augusta power
stations as a mechanical technical officer for 17 years, and subsequently was
able to find a role with solar thermal company Repower Port Augusta.[21]
Not all workers are able to find a similar path.
1.44
The AMWU in their evidence reminded the committee that 'The Paris
Agreement includes a requirement that governments take immediate and specific
action to "create decent work and quality jobs for workers that are
affected by adaptation to climate change"'.[22]
The AMWU and the ETU pointed in particular to the success of the Victorian
Government's Latrobe Valley Worker Transfer Scheme.[23]
1.45
The transition from fossil fuels to a cleaner energy future promises
benefits to Australia. We should promise a just transition to those adversely
affected by it (see Recommendation 9.)
Recommendations
Recommendation 1
1.46
The AER and AEMC consider reviewing existing policies to ensure
transmission and distribution asset owners have clear guidance as to what
constitutes prudent investment to protect networks against climate change risk.
Recommendation 2
1.47
The Government does not provide public financing for new coal
fired power plants, noting such public support would not represent value for
taxpayer money, violate notions of competitive neutrality and would not be
consistent with meeting international emission reduction objectives.
Recommendation 3
1.48
The Australian government provide ongoing support for emerging
energy technologies to overcome technical and regulatory hurdles to entering
the market, including continuing to fund the development and commercialisation
of these technologies through ARENA and the CEFC.
Recommendation 4
1.49
The AER and AEMC consider making reforms to the NEM that reward
the provision of ancillary services, including services associated with
reliability and stability.
Recommendation 5
1.50
The AER and AEMC consider making reforms to the NEM (where safe)
to reduce the technical barriers of entry for new energy technologies, and
recognise and reward the new services they are able to offer to the grid.
Recommendation 6
1.51
The Australian government end the uncertainty about national
energy policy, and develop a stable and consistent policy (such as an emissions
intensity scheme) that can support investment in new energy infrastructure
whilst meeting Australia's international climate change obligations.
Recommendation 7
1.52
The Australian government commit to making public the report
issued by the Chief Scientist (the Finkel Review), and responding to the
recommendations as soon as possible.
Recommendation 8
1.53
In order to avoid chaotic, unplanned closures and their
significant impacts on the NEM and affected workers and communities, the
Australian Government work with stakeholders, including the AEMC, on a
framework to provide for the orderly exit of ageing generators, including
options such as requiring market participants to provide adequate notice of
their intention to exit.
Recommendation 9
1.54
The Federal Government establish mechanisms to support a just
transition for workers and communities resulting from the retirement of aging
power generators, including a national framework for worker redeployment schemes
modelled on the Victorian Government’s Latrobe Valley Worker Transfer Scheme.
Senator Jenny
McAllister
Deputy Chair
Senator Alex Gallacher
Senator Anne Urquhart
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