Budget Review October 2022–23 Index
Stephen McMaugh and Tessa Satherley
The Budget addresses most of the Government’s major election
commitments relating to renewable energy, as outlined in the Australian Labor
Party’s pre-election Powering
Australia plan. It also paves the way for regulatory intervention to
address surging prices in the east coast gas market.
Electricity
Flagship measure: Rewiring the
Nation
The Government has made an overall commitment of $20 billion
under the Powering Australia – Rewiring the Nation (RTN) measure that
will provide concessional loans and equity to invest in transmission
infrastructure projects (Budget
Measures: budget paper no. 2: 2022–23, p. 72). This delivers on its election
commitment and responds to the requirement for construction of around
10,000 km of major transmission lines foreshadowed for
the future operation of the National Electricity Market (NEM) (p. 8).
The Budget papers outline that RTN will be managed by a new
Rewiring the Nation Office (RTNO) within the Department of Climate Change,
Energy the Environment and Water (DCCEEW). The Australian Energy Market
Operator (AEMO) will be the technical advisor and the Clean Energy Finance
Corporation (CEFC) the financing arm.
This approach appears to indicate that the Government no
longer intends to establish a separate Rewiring
the Nation Corporation (Labor’s original plan, as costed by the Parliamentary
Budget Office). This is consistent with the findings of a KPMG survey
of senior executives on transmission investment issues, which found
unanimous support for using existing market bodies in the allocation of funding
to new transmission projects (p. 31).
The Budget is not immediately clear on how many years the
$20 billion for concessional finance and equity investments cover.
However, the CEFC will receive an $8.6 billion capital injection this financial
year (Agency
Resourcing: budget paper no. 4: 2022–23,
p. 125), which the CEFC
has stated is ‘an $8.6 billion capital injection … for RTN-related
investments’.
The CEFC says this funding will be ‘subject to parliamentary
approval’ and ‘will be the first injection of new capital to the CEFC’ beyond
the original amounts set out in the Clean Energy
Finance Corporation Act 2012.
On 19 October, the Prime Minister announced agreements with Tasmania
and Victoria
supporting major transmission projects through the RTN: the Marinus link between Victoria and
Tasmania, and the Victoria–New
South Wales Interconnector (VNI West) Kerang link, respectively.
The Victorian agreement also includes a commitment to
coordinate regulatory processes for the development of offshore wind. The
Budget measure Establishing Offshore Renewables in Australia provides
$0.5 million in 2022–23 to develop an offshore renewable energy industry
growth strategy (Budget
paper no. 2, p. 61). Since the passage of the Offshore
Electricity Infrastructure Act 2021, offshore wind projects announced
in Australia have
reportedly exceeded 50 GW of proposed capacity.
Funding for the Powering Australia – Rewiring the Nation
measure also includes $9.4 million over 4 years to deliver reforms to
transmission regulations. This includes funding for the ‘Regulatory
Investment Test – Transmission’ (RIT-T) and for the designation of
‘Nationally Significant Transmission Projects’. Energy ministers agreed
at their meeting on 12 August 2022 that they will ‘identify and declare transmission
of national significance … to accelerate the timely delivery of these critical
projects and ensure better community consultation’.
During the 2022 election campaign, Labor
committed to improving the RIT-T process – which is widely
regarded as excessively complex and lengthy (pp. 7–8). The Rewiring the
Nation measure also includes $5.8 million over 3 years to conduct
a review of AEMO’s Integrated
System Plan (ISP) framework and consider alternative transmission planning
frameworks from other jurisdictions (Budget
paper no. 2, p. 72).
The federal–state Energy
Ministers forum appears to expect the review to have an impact in time to ‘supercharge’
AEMO’s upcoming 2024 ISP, as well as achieve better integration of electricity
and gas system planning. The Energy Ministers stated that the review ‘will also
work with non-NEM jurisdictions to support more coordinated investment and
delivery’.
The Budget’s investments through RTN and other measures – discussed here and in the climate
and disasters Budget Review article – have been
welcomed by diverse stakeholders, including state governments, Energy
Networks Australia, the Clean
Energy Council, the Actuaries
Institute, the Business
Council of Australia, the National
Farmers Federation and major environment and climate peak bodies.
Clean Energy Council Chief Executive Kane Thornton
especially welcomed
the RTN:
Tonight’s announcements reveal a breadth and depth of commitment
not seen before when it comes to successfully managing a fast and fair
transition to renewable energy. Funding, like that announced last week under
the Rewiring the Nation program to proceed with Marinus Link and for Clean
Energy Finance Corporation funding for the Victoria-NSW KerangLink
interconnector, enabling more clean, low-cost renewable energy and storage to
power Australian homes and business is what will ultimately ease cost-of-living
pressures.
Other measures
The Government will implement a National Energy
Transformation Partnership through the Support for Energy Security and
Reliability measure, with funding of $157.9 million over 6 years (Budget
paper no. 2, p. 77). This includes:
- developing ‘mechanisms to ensure firming capacity for the
National Electricity Market, manage future generator closures and support large
scale battery projects’
- changes to AEMO’s powers and the National Gas Rules (see below)
- improving energy system planning and performance management by
‘developing analysis of Australia’s regional energy supply and demand’.
The Support for the Australian Energy Regulator to
Implement Regulatory Changes measure also provides $8.5 million over 4
years from 2022–23 (and $1.9 million per year ongoing) to implement the Post-2025 reforms to the
National Electricity Market (Budget
paper no. 2, p. 192). These reforms are intended
to tackle challenges posed by the energy transition, including ensuring reliable and affordable energy,
integration of renewable generation, and providing transmission networks to
meet future needs.
Another election commitment funded in the Budget is the Powering
Australia – Solar Banks measure, with $102.2 million over 4 years
to deploy community-scale solar and clean energy technologies in ‘regional
communities, social housing, apartments, rental accommodation, and households
that are traditionally unable to access rooftop solar’ (Budget
paper no. 2, p. 73). It appears that this will be delivered via
transfers to the states of $101 million over 2 years, but with state
allocations yet to be determined (Federal
Financial Relations: Budget paper no. 3: 2022–23, p. 68).
The related Powering Australia – Community Batteries for
Household Solar measure provides $224.3 million over 4 years (Budget
paper no. 2, p. 69). The Australian Renewable Energy Agency will
administer $188.4 million of this to ‘help
roll out up to 342 community batteries across Australia providing access to
battery storage to households’. The DCCEEW will receive $30.3 million,
of which $29 million is administered funds (Portfolio
Budget Statements: Budget related paper no. 1.3: 2022–23, Table 1.2, p. 23). The ACCC
will also receive $3.3 million under this measure, but its role is
currently unclear.
Other complementary measures in Budget
paper no. 2 include:
- Enabling
a Low Emissions Future and Supporting Green Markets, a Guarantee of Origin
Certificate scheme to verify emissions associated with Australian renewable
electricity, hydrogen and other low emissions commodities (p. 59)
- Energy
Efficiency Grants for Small and Medium Sized Enterprises (p. 60)
- the
First Nations Community Microgrids Program (p. 61)
- New
Energy Apprenticeships and the New Energy Skills Program (p. 101)
- Powering
Australia – Commonwealth Fleet Leases (p. 109)
- National
Reconstruction Fund – establishment, $15 billion for ‘targeted
co-investments’ in priority areas, including renewables and low emission
technologies (p. 153)
- local
energy-related projects under Supporting Australian Industry (p. 155).
Conversely,
the Budget cuts $63.9 million from the
unsuccessful 2018–19 Underwriting
New Generation Investments program, initially established to support new
electricity generation projects, including gas- and coal-fired generation. This
funding has been re-aligned to support dispatchable energy storage technology
such as big batteries (Budget
paper no. 2, p. 77).
Gas
Changes to spending measures
The DCCEEW’s
breakdown of program cuts to
former portfolio programs under the Government Spending Audit notably
includes:
- 2022–23 March Budget measure Energy and Emissions Reduction
(including a saving of $50.3 million over the forward estimates by cutting
‘Accelerating Gas Priority Infrastructure’)
- 2021–22 Budget measure Emissions Reduction and New Investments
under the Technology Investment Roadmap (including $50 million from
cutting ‘CCUS [Carbon Capture, Use and Storage] Hubs and Technologies’ – see
the climate and disasters Budget Review article)
- 2021–22 Budget measure Improving Energy Affordability and
Reliability ($7 million from cutting ‘Hydrogen Ready Gas
Infrastructure’).
Budget
paper no. 2 also indicates the Government is not
proceeding with:
- the ‘Optimise and Discover’ program under the 2021–22 MYEFO
measure Strategic Basin Plans – additional funding (p. 157)
-
the 2019–20 MYEFO measure Grid Reliability Fund –
establishment (p. 80).
Although the Australian
Conservation Foundation commended the
Government for ‘not proceeding with certain environmentally harmful or low
value gas, carbon capture and storage pipeline investments’, it complained that
‘the Fuel Tax Credit scheme continues to cost taxpayers $39.4 billion over
the forward estimates, subsidising the fuel bills of big mining companies’ (see
Budget
paper no. 1, p. 180), and that ‘$1.9 billion is
allocated for the Middle Arm petrochemical precinct at the port of Darwin’
(under the measure Responsible Investment to Grow Our Regions in Budget
paper no. 2, p. 163).
Funding for regulation
The Budget captures the Government’s first salvo in its evolving
response to high
gas prices in eastern Australia – a source of concern to both industry and
households, due to both the direct
costs (especially to industrial gas users) and flow-on impacts on electricity
prices.
Dramatic gas price increases in 2022 have largely been
driven by developments on international markets outside government control (see
the Library’s Briefing
Book article on coal, gas and decarbonisation).
The Budget funds a number of regulatory measures intended to
apply downward pressure on domestic gas prices, including increased monitoring
by the ACCC, new regulatory roles for the Australian Energy Regulator (AER) and
changes to AEMO’s powers.
The Supporting the Supply of Australian Gas measure
in Budget
paper no. 2 (p. 157) provides $65.7 million over 9
years:
This is complemented by the measure Support for the
Australian Energy Regulator to Implement Regulatory Changes (Budget
paper no. 2, p. 192), which includes $14.3 million over 4
years from 2022–23 (and $3.2 million per year ongoing) for the AER to administer
and enforce new gas pipeline regulations and to monitor gas pipeline markets.
This responds to long-standing
concerns about poor transparency in this part of the gas market and
uncompetitive conduct by pipeline owners (pp. 27–28).
The Support for Energy Security and Reliability
measure (Budget
paper no. 2, p. 77) also provides for $23 million over 3
years from 2022–23 to make changes to AEMO’s powers and the National
Gas Rules to increase the security, resilience and reliability of the east
coast gas market – supported
by state energy ministers.
In a recent interview, the Treasurer indicated that the
Government intends to pursue further regulatory action to place downward
pressure on gas prices, with the potential for a mandatory code of conduct to
be enforced for the gas industry:
Supply is part of the problem, and that’s why the heads of
agreement is important … but clearly, we need to go beyond that. There’s a code
of conduct that applies to this industry and we’ve said that we will work to
make that code of conduct mandatory, and we’ll make it more focused on
meaningful offers and that means going beyond supply and considering issues
like price.
Other regulatory channels may be available through further
reform of the (state-based) National Gas Rules and/or National Gas Law in
partnership with the States and Territories. The latest Energy Ministers’
communique indicates that federal
and state energy ministers are currently leaving all options open to
achieve their consensus goal of lowering domestic gas prices.
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