Dr Alex St John
This year marks a turning point in Australian energy policy.
Since the competition reforms of the mid-1990s, Australian governments (both
state and Commonwealth) have increasingly left the development and provision of
energy supply to the private sector, with some regulatory oversight of access
regimes and consumer protection. However, during 2016 and 2017 there were significant
challenges to security, reliability and affordability of electricity and gas
supply, which have widely been labelled a ‘crisis’; these events have led the
Turnbull Government to announce in this year’s Budget interventions that significantly
expand the Commonwealth Government’s active participation in energy markets.
Gas
The Budget provides $86.3 million between 2017–18 and 2020–21
for programs designed to ‘increase gas production and support affordable
electricity’.[1] It includes $19.6
million over four years to implement the COAG (Council of Australian
Governments) Energy Council’s Gas
Market Reform Package as well as $7.6 million for gas market studies,
including studies for potential pipelines linking South Australia to the
Northern Territory and the gas provinces in Western Australia.[2]
These pipelines have been proposed since the 1970s, with several feasibility
studies already completed.[3] It is not clear that
these pipelines would be economically viable on their own; the Northern
Gas Pipeline currently under construction from the Northern Territory to Mt
Isa in Queensland has been scaled back from its original capacity due to a lack
of gas to transport.[4]
Significant funds will also be given to developing new gas
fields, with $30.4 million to undertake scientific assessments of the impacts
of unconventional gas production on water resources in three (unnamed) onshore
gas basins, and $28.4 million over four years to encourage onshore gas
development for the Australian domestic market. The latter amount is to ‘support
positive state-based programs, increase community benefits from gas development
and provide better information to land-holders’.[5] This seems likely to
support exploration incentive programs (like Plan
for Accelerating Exploration (PACE) in South Australia), and programs aimed
at improving social
licence for onshore gas production, which gas companies have historically
struggled with.[6] The measures are also
aimed at encouraging state and territory jurisdictions to lift restrictions on
onshore and unconventional gas development.[7]
These initiatives follow on from the Government’s attempts
in early 2017 to increase gas supply in the domestic market, including the
unprecedented announcement that the Government would intervene to apply export
controls in the event of gas shortages.[8] It is unlikely that the
Budget measures will deliver relief from high gas prices in the short term as
new gas resources usually take several years to be brought onto the market. The
initiatives may help to provide more supply in the future, although whether
they will accelerate development of new reserves compared to normal market
processes is not clear.
Electricity
The Budget also reaffirmed the Government’s commitment to
the so-called ‘Snowy 2.0’ scheme, where pumped hydro energy storage in the
Snowy Hydro scheme would be expanded. A feasibility study is currently being
conducted into the project.[9] The project could cost $2
billion, and no funds have yet been committed to its construction. The
Government has said that it could fund the scheme’s entire cost.[10]
Currently, Snowy Hydro is an unlisted corporation owned by
the New South Wales Government (58%), the Victorian Government (29%) and the
Commonwealth Government (13%).[11] In his speech, the
Treasurer indicated that the Commonwealth would be open to acquiring a larger
portion, through purchasing some or all of the interests of Victoria and New
South Wales.[12] Presumably, this would
allow the Commonwealth to fund the expansion of the Snowy Hydro through an
off-budget equity injection, which is an increasingly used model for federal funding
of infrastructure projects. The Treasurer also indicated that such a sale would
be contingent on the states using their sale proceeds for ‘priority infrastructure
projects’, the expediting of planning and environmental approvals for the
expanded Snowy scheme, and the Snowy Hydro remaining in public ownership.[13]
However, the Victorian Government has already indicated that it will reject
these conditions.[14] Additionally, should
the Commonwealth acquire all of the Snowy Hydro, a future Parliament could
still privatise it in the future.
The Budget also commits $110 million for a proposed
solar-thermal power plant at Port Augusta, South Australia, if required. Port
Augusta, the site of the now-closed Playford and Northern coal-fired power
stations, is already equipped with electricity transmission infrastructure, and
so is considered a promising site. A 50 megawatt plant with storage was the
subject of a feasibility study by Alinta in 2015, which concluded that it would
not be feasible to build at that time, and would cost around $577 million.[15]
However, with the closure of all coal-fired power stations in South Australia
(and the Hazelwood power station in Victoria) leading to a reliance on more
expensive gas generation, the economics of the idea may have improved.
The Budget also includes $13.4 million over four years for
the completion of a new Energy Use Data Model, to improve energy market
forecasting and research. Improved predictions may aid in energy network
planning, which is important as the energy markets shift from large centralised
energy providers to networks of smaller energy sources.
Reception
The proposed gas market reforms have received mixed
reactions. The Australian Petroleum Production and Exploration Association
enthusiastically welcomed the budget measures.[16] The Australian Pipelines
and Gas Association also welcomed the Budget, but expressed some caution about
investment in new gas pipelines without new gas supply to fill them.[17]
The Australian Industry Group, which represents manufacturers and other
business, generally welcomed the measures but expressed some disappointment
that the Government did not introduce more ‘immediate cost-relief measures’.[18]
Commentators generally regarded the budget measures as a relatively minor suite
of actions, but noted the increasing shift away from laissez-faire
energy policy, and that there would be further opportunities for reform after
the conclusion of the Finkel Review of energy security.[19]
[1].
The budget figures in this brief have been taken from the following
document unless otherwise sourced: Australian Government, Budget
measures: budget paper no. 2: 2017–18, 2017.
[2].
Council of Australian Governments Energy Council (COAG Energy
Council), ‘COAG
Energy Council Gas Market Reform Package’, COAG Energy Council website.
[3].
For example, see Snowy Mountains Engineering Corporation, Australian
Natural Gas Utilisation and Transportation Study, The Pipeline Authority
(Cth.), October 1976.
[4].
‘Northern
Gas Pipeline: Lack of producers cited as diameter of Tennant Creek-Mt Isa
pipeline reduced’, ABC News, 4 April 2016; Jemena, ‘Northern
Gas Pipeline’, Jemena website.
[5].
Australian Government, Portfolio
budget statements 2017–18: budget related paper no. 1.12: Industry, Innovation
and Science Portfolio, p. 14.
[6].
South Australia, Department of the Premier and Cabinet, ‘PACE
Gas’, Department of the Premier and Cabinet website; Department of
Industry, Innovation and Science (DIIS), ‘Land
Access and Social Licence to Operate’, DIIS website; N Paragreen and A
Woodley, ‘Social
licence to operate and the coal seam gas industry: What can be learnt from
already established mining operations?’, Rural Society, 23(1),
October 2013, pp. 46–59.
[7].
M Canavan (Minister for Resources), $28.6
million investment in east coast gas security, media release, 9
May 2017; S Maher, ‘Cash
injection to fire up investment in gas supply and prune power bills’, The
Australian, 10 May 2017, p. 6
[8].
L Yaxley, ‘Government
to impose export restrictions on gas companies to shore up domestic supply’,
ABC News, 27 April 2017.
[9].
Snowy Hydro, ‘Expanding
pumped hydro storage’, Snowy Hydro website.
[10].
S Anderson, ‘Malcolm
Turnbull 'happy' to fund Snowy Mountains hydro expansion without state help’,
ABC News, 16 March 2017.
[11].
Snowy Hydro, ‘Who we are’,
Snowy Hydro website.
[12].
S Morrison (Treasurer), Budget
speech 2017–18.
[13].
Ibid.
[14].
J Gordon and R Willingham, ‘Victoria
set for Snowy storm’, The Age, 11 May 2017, p. 1.
[15].
Alinta Energy, Port
Augusta solar thermal generation feasibility study, July 2015, p.
11.
[16].
Australian Petroleum Production and Exploration Association, Budget
to help deliver new gas supply, media release, 9 May 2017.
[17].
Australian Pipelines and Gas Association, Budget
gas measures welcome, media release, 10 May 2017.
[18].
I Willox (CEO, Australian Industry Group), Budget
2017: Clearing the decks for new tilt at growth, media release, 9 May
2017.
[19].
H Saddler, A Pears, R Dargaville and T Wood, ‘Budget
2017: government goes hard on gas and hydro in bid for energy security’, The
Conversation, 9 May 2017; R Harris, ‘Gas
policy shows worth of the long-term view’, The West Australian, 10
May 2017, p. 24.
All online articles accessed May 2017.
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