‘Mind-boggling’ challenge demands deep energy reforms: chief energy adviser

Australia’s chief energy adviser says switching the power grid from coal to clean energy is a “mind-boggling” challenge that demands urgent reforms to drive funds into energy projects like gas, pumped hydro and big batteries to back up renewables and stop blackouts and power bill spikes.

Energy Security Board chief Anna Collyer will brief state and federal ministers at an emergency meeting on Wednesday on a plan to move to a “capacity market”, which would force retailers to pay generators to invest in power projects that can quickly be called on when the wind isn’t blowing and the sun isn’t shining.

Anna Collyer chairs the Energy Security Board and the Australian Energy Market Commission. Credit:Oscar Colman.

Wholesale power and gas prices have been surging across the eastern seaboard amid a burst of cold weather hiking demand for heating, a series of outages at coal-fired power stations forcing gas-fired electricity to fill the gap, and spiking commodity prices because of the war in Ukraine.

Treasurer Jim Chalmers on Monday wrote to the Australian Consumer and Competition Commission to express his “deep concern” about the impact electricity and gas prices were having on households and industry and asked them to advise on any regulatory changes that may be required to “ensure these markets are functioning properly”.

Collyer told The Age and The Sydney Morning Herald it was difficult to explain the scale of the transition required for a grid that presently relied on coal for two-thirds of electricity.

“We need to build eight times as much renewable energy that we have right now … and just in the next 10 years we need $14 billion of investment in the transmission network, which is two-thirds again of the system we have right now,” said Collyer, who also chairs the Australian Energy Market Commission.

“It’s actually mind-boggling when you stop to think about how we’re actually going to do that.”

Labor has pledged to expand renewable power dramatically, taking it from roughly one-third of the energy grid today to 82 per cent by 2030.

In a speech to be delivered to the Australian Energy Week Conference on Tuesday, Australian Energy Market Operator (AEMO) chief Daniel Westerman will say the “very real challenges” of rising energy prices underline the urgent need to decouple the grid’s exposure to the global forces driving up prices of fossil fuels.

By 2050, the east coast power grid will require a doubling of the amount of the total electricity it delivers, according to AEMO forecasts, and a tripling of so-called firming capacity – assets such as batteries and gas plants that can be called on to top up intermittent renewable energy.

The grid currently relies on coal for two-thirds of electricity.Credit:Jessica Shapiro

Westerman will tell the conference one of his biggest worries is that he is not yet seeing enough investment in firming capacity, and the Energy Security Board’s proposal will be vital to create the appropriate market signals to encourage necessary investment.

A capacity market was first proposed during the former Coalition government by the Energy Security Board under the former chair Kerry Schott. State energy ministers agreed to work together on the capacity market and are contributing to further design work but are wary of controversy over fossil fuels.

Sceptics of the proposed market reform fear the capacity market will be designed to favour existing fossil fuel generators, dubbing the proposal “coal keeper”. But Collyer said such criticism was misguided.

“That has always been the criticism of it, but we have in the principles that were given to us by ministers last year, a clear direction for the mechanism to be consistent with emission reduction targets,” she said.

“We really do see this mechanism as not about preserving the current system, but helping with that orderly transition to the new net-zero world.”

Victorian Labor Energy Minister Lily D’Ambrosio said her government remained committed to halve emissions by 2030 and was looking forward to working with her state and federal counterparts.

“We’re happy to now have a federal government that cares about driving down the cost of living and addressing climate change,” D’Ambrosio said.

Renewable power can insulate consumers from the forces of global energy markets. While coal and gas prices have surged around the world the ACT government announced today that tariffs on power bills from government-owned retailer ActewAGL would fall 1.25 per cent, or by $23 on an annual basis.

AEMO last week imposed a rarely used price limit to keep a lid on runaway wholesale gas prices, and issued a warning of dangerously low reserves in Victoria, South Australia and Tasmania.

As business leaders warn of the threat of job losses in manufacturing that needs gas for energy or as a raw material, the Albanese government has convened emergency meetings with the nation’s large gas producers including Shell, Origin Energy and Santos to discuss their capacity to increase supplies of the fossil fuel for local buyers.

Stephen Harty, the head of gas giant Santos’ GLNG liquefied gas joint venture in Queensland, said the venture had committed more than 100 terajoules to the domestic gas market in the past week, and provided pipeline transport solutions for more suppliers to unlock more gas.

“The current electricity crisis is a perfect storm of cold temperatures and power plant outages, and gas will continue to step in to underpin the grid and keep the lights on,” he said.

Santos also warned against calls from manufacturing industry leaders for the federal government to enact the Australian Gas Security Mechanism – a trigger that would boost domestic supply by restricting some gas from being exported.

“The Queensland gas industry has swiftly responded to the elevated domestic gas demand … last week pipeline transportation usage between Queensland and the southern states was near capacity,” Harty said.

“Regulatory intervention at this stage would do little to help the situation in Victoria or NSW, while at the same time causing significant harm to Australia’s reputation as a reliable energy supplier.”

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