The sustainability of Australia’s electricity,
gas, carbon and renewables markets
Clare Savage
Executive Manager, Strategy and Corporate Affairs
AIE National Conference
19-20 November 2012
Sustainable markets – what are they, why do they matter?
To be sustainable, Australia’s energy and carbon markets must deliver for customers,
shareholders, the environment and the community.
•
Customers – recent price rises have been unsustainable
•
Shareholders – returns in the competitive sector must be commensurate with risk
•
Environment – industry must reduce emissions, manage waste and bio-diversity
•
Community – social licence to operate and confidence in the market
Sustainable policy settings – good policy must survive but where policies aren’t
delivering what we expected we need the political courage to amend them
Unsustainable energy policy can see things unravel pretty quickly to the detriment of
all stakeholders:
•
UK experience – asking too much of wholesale markets and retail market
breakdown
•
The rise and fall of solar schemes in Australia
2
EnergyAustralia is one of Australia’s leading vertically
integrated and diversified energy companies
A wide footprint across:
- Geographies
- Communities
Legend
Gas assets
Generation assets
- Jurisdictions
- Fuels
QLD Retail
QLD Retail
0.1 million
accounts
63,000
accounts
- Stages of the value chain
- Customer classes
With a portfolio that proxies the east coast
energy market.....
SA Retail
0.2 million accounts
NSW/ACT Retail
1.4 million accounts
Hallett Power
Station
(203MW)
Adelaide
...when the sustainability of the
Australia’s electricity, gas, carbon
or renewables markets are under
pressure somewhere, we feel it
Cathedral Rocks
(66/33MW)
Brisbane
20% interest
in Narrabri
(500PJ)
Delta West
GenTrader
(2,400MW))
Sydney
VIC Retail
1.2 million accounts
Waterloo
(111MW)
Gas Storage
Facility
(22PJ Storage;
500TJ/d
Processing)
Melbourne
Tallawarra Power Station
(420MW)
Yallourn Power
Station and Coal Mine
(1,480MW)
Ecogen Hedge
(up to 966MW)
As at 31 December 2011
3
Wholesale markets
Challenging electricity wholesale conditions
NEM Energy Forecasts
•Supply has responded to wholesale market
conditions with withdrawals
240,000
Tarong
700 MW (Q4 2012)
230,000
Swanbank B
500 MW (July 2011)
220,000
Munmorah
600 MW
210,000
Playford
250 MW
Northern
560 MW (Seasonal)
Yallourn
360 MW (Q3 2012)
200,000
Year
Actual
2012 NEFR (Medium, Scenario 3, Planning)
•Demand down for a number of reasons
•Wholesale prices lower than a decade ago
•NEM energy-only market – generators
incentivised to bid at (or even below) SRMC
•Long-run costs paid through peak demand
5
2021-22
2020-21
2019-20
2018-19
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12…
2010-11
2009-10
2008-09
2007-08
180,000
2006-07
190,000
2005-06
Annual energy (GWh)
250,000
The Renewable Energy Target
The RET is an important policy and must be retained
•
Current design threatens wholesale market sustainability – an effective capacity
market for renewables sits uncomfortably with an energy only NEM
•
Without reform, support for the RET (and renewables) is at risk
A “real 20%” target that flexes with demand is the middle ground solution
for a sustainable energy market AND a sustainable RET
Climate Change Authority preliminary finding is no change to the hard target
•
Savings to consumers outweighed by cost of policy uncertainty (unquantified)
•
Surprising finding given its own analysis
6
Renewables deployment is not a race
Renewables generation, current RET versus a “real 20%”
A “real 20%” achieves...
...more renewables in the
long term...
GWh
80000
70000
...at a more measured rate...
60000
...at lower cost to
consumers...
50000
Current RET
settings
Real 20%
40000
Source: SKM-MMA for the
CCA (2012)
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2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Why wouldn’t you?
30000
2013
...with no net impact on
climate change.
Sustainable wind build = sustainable RET
Average wind build in Australia
is ~300MW/year
Current RET target requires
~900MW/year to 2020
Historic and projected annual increases in wind capacity
under current RET settings
MW
2500
2000
1500
Even a “real 20%” target needs
an increase to ~475MW/year to
2020
1000
500
Status quo risks mounting
opposition, hitting the penalty
price, knee jerk reactions and
the scheme itself
8
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
We are approaching community
acceptance “speed limits” e.g.
Planning regimes and decisions
Annual increase
2005-2012 historical average
2013-2020 projected average
2021-2031 projected average
Source: AEMO and others for history, SKMMMA for projections
How can the RET be improved and supported?
• A well-designed RET is a key platform
for increasing the share of renewables
• However, to ensure the target is
delivered at least-cost to customers
while protecting the sustainability of
the NEM policy makers must:
• Recalibrate the target in line with
demand forecasts.
• Provide three years of fixed targets
to enable investor confidence to plan
and build (wind) projects.
• Provide a gateway of possible targets
that flexes with demand – ensuring
20% renewable energy is delivered
• Increase near term targets to clear
the bank of renewable certificates and
prevent an immediate crash in LGC
prices
9
Gas markets
•A step change in the volume of gas on the
east coast is coming
East Coast Projected Demand and
Existing Contracts
•Increased competition for gas
2500
•Environmental and community impacts to
deal with as unconventional gas comes on
2000
•Domestic benefits of gas boom to Australia
are huge...but community needs to see
them
PJ/a
1500
1000
•Persistent (and increasing) calls for gas
reservation
500
•Is the market ready?
East Coast Existing Gas Supply Contracts
Gladstone LNG Contracts
Projected East Coast Domestic Gas Demand (incl GPG)
Projected East Coast Gas Demand (incl LNG Exports)
10
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
0
•Energy White Paper calls for more
transparency in gas markets
Carbon market
• If the community feels Australia is “getting ahead” of global action on climate
change then the political sustainability of the carbon market may be at risk
• A clear opportunity exists to expand Australia’s access to a broader range and
greater volume of international emission reduction certificates to ensure Australia’s
cost of carbon keeps pace with global action.
• Recent changes to the Clean Energy Future will provide access to deeper and
more liquid carbon markets however it ties Australia firmly to Europe and prevents
Australia from acccessing least-cost emission abatement.
11
Title of presentation
Internal/ Classified
Retail markets
Regulating the margins and competition out of
retail
•
High prices (largely network and green scheme driven) have made retail energy
prices more political than ever
•
Regulators are chasing suppressed wholesale prices down in Queensland, South
Australia and (to some extent) New South Wales
•
As sub-economic prices are locked in, retail market also becomes unsustainable
•
Other policy/political responses squeeze competition: Exit fees, door knocking
Will competitive retail markets be prevented from delivering their benefits
to consumers?
13
Opportunity in crisis
...slash electricity bills by $150 a year...incentives
to shift power use away from peak time
•There are glimmers of hope – intense
spotlight on energy has raised the
level of understanding problems and
their solutions
•There is a window of opportunity to
convert political attention into reform
for long term interest of consumers
•Trust is an issue, but if the community
is prepared is to give
industry/governments the benefit of
the doubt, solutions will work
•But if regulatory response stifles
competition, community faith in ability
of markets to deliver at risk
14
..."time of use" pricing to discourage people from
using electricity in peak periods, which creates a
heavy burden on suppliers for what amounts to a
few hours of power use a year...
Conclusion
•
Energy’s social, economic and environmental importance means sustainable
electricity, gas, carbon and renewables markets are a shared responsibility for
governments, community and industry
•
The NEM is not broken...yet
•
Recalibrate the RET to a real 20% before its too late
o
Deliver the original policy intent, more renewables in the long term at lower
cost and same impact on climate
o
Without changes to the RET we at risk of the tail wagging the dog and the
operation of the NEM may need to be considered
•
Make sure the east coast is ready to seize the benefits of gas boom
•
Take the politics out of retail regulation and convert current political attention on
energy into sustainable wins for customers and industry alike
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