Australia’s energy system continues to experience a profound modernisation due to the impacts of new technology, carbon constraints, and the progressive retirement of an ageing and increasingly unreliable legacy fleet of coal power plants. According to all the experts, including public energy market agencies as well as private industry, the future of Australia’s electricity system lies with renewable technologies, energy storage, and network and grid modernisation, including distributed generation and storage and demand management. This modern energy future can best be delivered with clear policy direction provided by the Commonwealth, including with respect to the goals seeking to be attained such as net-zero emissions by 2050.
The Government’s inability to deliver a clear and consistent national energy policy continues to undermine investor confidence and certainty. Labor accepts the legitimate role for greater government support for transmission and energy security and reliability assets. In the first instance, this support should be provided through a modern set of energy market rules that support ancillary services such as frequency control, voltage control and energy storage. In addition, support for these projects through the Clean Energy Finance Corporation (CEFC) can be justified. Indeed, Labor took a $5 billion Energy Security and Modernisation Fund, to be administered by the CEFC to the last election for exactly this purpose, and has recently announced Rewiring the Nation, a $20 billion public corporation that will itself invest in transmission projects.
While Labor supports those parts of the bill that are purely focused on increasing energy security and reliability through network and storage investment, two features of the current bill are sufficiently problematic to warrant amendment in Labor’s view. Put most broadly, as well as encouraging more transmission and security investment, this bill dilutes both the CEFC’s focus on emissions reduction and its financial independence. These two characteristics—a clear commercial investment focus with a clear commitment to financial independence, and a focus on genuine emissions reduction—are the defining characteristics of the CEFC and as both are severely undermined by this bill, Labor Senators cannot support the bill in its current form.
Financial independence
The majority committee report notes at some length significant stakeholder concerns about the impact of the bill on CEFC financial independence and integrity.
In particular, proposed section 4 of the bill, which defines 'investment' for the purposes of the Grid Reliability Fund, allows the Energy and Emissions Reduction Minister to define an investment through legislative instrument, including defining an investment as not being required to deliver a financial return to the CEFC. As the Explanatory Memorandum states:
This enables the Governor-General the ability to define, through regulations, an additional class of activities that would qualify as investments under the CEFC Act, including activities that may not make an investment return.
This issue was raised as a serious concern by almost all stakeholders in written submissions and in personal evidence. It was acknowledged in the majority committee report, only to be dismissed as a genuine concern under the cover of Departmental evidence that the overarching requirement to make a benchmark return will safeguard the CEFC’s independence and integrity.
The former CEO of the CEFC has a starkly different view. In his written submission, Mr Oliver Yates stated:
Senators, your fundamental concern with this Bill is that it will threaten the CEFC’s successful business model by undermining its commerciality, independence, culture, staffing and highly specialised skills. If you allow this Bill to pass, you are threatening the custody of the $10 billion of taxpayers’ funds that the CEFC has under its control.
Labor does not accept the Department’s argument that an overarching requirement for the CEFC to generate a positive benchmark return adequately safeguards the financial integrity and independence of the CEFC with respect to this new power for the Minister to define a CEFC investment that does “not make an investment return”. While the formal independence to make investment decisions will be retained within the CEFC, removing a strict financial lens from investment decisions, especially when coupled with the watering down of the emissions lens to be applied to investments (as discussed below), and when coupled a with a firm direction from the Minister to consider specific investment that need not generate any return for the CEFC, to Labor Senators represents an unacceptable attack on the financial independence and overarching purpose of the CEFC.
Recommendation 1
That the bill be amended to remove the new power of the Energy and Emissions Reduction Minister to define new investments through regulation.
Watering down the emissions focus of the CEFC to allow for gas power generation investments.
The bill replaces the definition of “low emissions technology” with a broader an undefined requirement for investments to be an investment that supports a “low-emissions energy system”.
While this change makes a degree of sense when considering investments in assets that do not directly generate carbon emissions—such as energy storage, reliability/security assets, for example, synchronous condensers, and transmission and system management infrastructure—Labor Senators reject the argument that a strict emissions lens should be removed to allow for investments in gas power generation.
Gas power generation is not a new technology, faces no technological barriers to deployment, and as it is at least half as polluting as coal power, it cannot be considered low emissions. Indeed, under current CEFC low emissions guidelines, gas power generation fails to meet the definition of low emissions generation, and that failure does not take into account upstream emissions from gas production and transport.
The Government has been clear that the expansion of generation investments allowed by the CEFC is largely motivated by a policy decision to allow the CEFC to support Underwriting New Generation Investment (UNGI) gas power projects. The UNGI program has famously suffered from a lack of transparency since its inception.
As a broader point of principle, no adequate reason has been presented by the Government to explain why the definition of low emissions technology investment as it applies to electricity generation should be changed, whether with respect to the original CEFC or the $1 billion new Grid Reliability Fund, as this bill contemplates.
Labor established the CEFC as a renewable-focused corporation, with enough flexibility and independence to play its legislated role as the energy system evolves and adopts new technologies and faces new challenges. The Object of the CEFC Act is to “establish the Clean Energy Finance Corporation in order to facilitate increased flows of finance into the clean energy sector.” Under no commonly accepted definition has gas power generation been accepted as part of the “clean energy sector”.
The definition of low emissions technology as it applies to electricity generation can currently be changed by the CEFC Board at any time should the Board believe such a change is warranted, including to allow the CEFC to support eligibility for a greater set of technologies. This has not occurred since the current relevant guidelines were developed in 2012, as the Board has seen no reason to change it.
The proposal to remove the current definition of low emissions technology as it applies to electricity generation undermines the clean energy focus of the CEFC, and in so doing represents a fundamental and significant threat to the integrity, reputation and purpose of the CEFC, and is therefore not acceptable to Labor Senators.
Recommendation 2
Amend the bill to retain the current definition of low emissions technology for electricity generation assets in both the broader CEFC and the Grid Reliability Fund.
Senator Nita Green
Member
Senator Catryna Bilyk
Member