Australian governments have agreed to set up a new gas storage reserve, proceed with plans to build up spare electricity capacity, and develop a national transition plan to reduce greenhouse gases.
The changes were among 11 agreements reached during the first meeting of energy ministers since the election of the Albanese federal government.
The gathering of state, territory and commonwealth ministers on Wednesday came about a week after a gas shortage in several states prompted the market operator to cap prices. A deep cold snap also helped send wholesale electricity prices soaring in the National Electricity Market.
The video-linked meeting was described by participants as “very collegiate”, and “very different” from previous meetings held during the Morrison government.
Among the priorities was an agreement to order the Australian Energy Market Operator to be begin work on buying and storing gas “for situations exactly like the ones we faced last week”, federal climate and energy minister Chris Bowen said.
“Australians might be surprised to learn that that power did not exist, that [Aemo] could not procure some gas and keep it in reserve to be released for urgent and crisis situations,” Bowen said, adding it was technically possible with storage facilities “around the country”.
No timetable was given, but Aemo had the power to act “expeditiously”. It won’t be immediate “but it will give us the capacity and the tools necessary to manage this crisis going forward, and to avoid crises like this into the future”, Bowen said.
The Energy Security Board along with the Australian Energy Markets Commission were also asked to develop a brief “at pace” on plans for a so-called capacity market for the electricity supply in the eastern states. Western Australia has operated a similar back-up reserve of power generation capacity since 2006.
“From opposition, I said that we supported the principle of a capacity mechanism provided it was consistent with net zero and encouraged new technology,” Bowen said, adding ministers had “endorsed effectively” that approach, a draft of which should be produced by regulators “within coming days”.
In a nod to the new government’s emphasis of climate change, the ministers also agreed to work on a National Transition Plan on how the economy would be weaned off fossil fuels. They would prepare more work on this scheme in time for their next meeting planned for July.
The new agreement “could reframe and reset existing priorities, frameworks and governance to ensure the sector can chart the course out of the current challenges, and set the sector up for a stable transformation towards decarbonisation,” the meeting’s communique said.
Interesting charts assembled by Hugh Saddler and his colleagues for their ANU report on emissions. Here's how renewables' share of the National Electricity Market has been tracking. #Auspol pic.twitter.com/CMveXRlJpY
— Peter Hannam (@p_hannam) June 8, 2022
Another agreement involved enhancing the powers of the regulators to ensure they have full transparency, particularly in the gas market, and to ensure that all behaviour is in the best interest of the market and consumers, Bowen said.
There were, however, “no silver bullet, no magic answers” to lowering energy prices, he said, adding a lack of planning in the past had led to the crisis facing the sector.
“We need more transmission, we need more renewables, we need more storage,” Bowen said. Coal-fired power plant reliability was also an issue discussed at the meeting, with ministers agreeing to work with rail authorities to secure black coal supplies “and with power station operators to get generation back online as quickly as possible”.
And here's how coal-fired power plant availability is tracking across the states. (Source: ANU/Saddler) pic.twitter.com/ynLNV47AmR
— Peter Hannam (@p_hannam) June 8, 2022
Prior to the meeting, senior energy policy adviser for the Ai Group, Tennant Reed, said Australia was facing an “acute crisis”.
Last week, market regulators had to intervene to put a limit on gas prices in Victoria and the Sydney market at $40 a gigajoule, or about four times the standard price.
Russia’s invasion of Ukraine triggered a jump in global energy prices, and the exit of a gas retailer, Weston Energy, in late May sent companies scrambling for supplies, propelling local prices higher.
With electricity prices partly set by the cost of gas, wholesale power markets have also risen several times the $87/megawatt-hour average during the March quarter in the eastern states. The lengthy cold weather snap has also elevated demand.
A report by energy expert Hugh Saddler and published by the ANU Institute for Climate, Energy & Disaster Solutions on Wednesday showed average wholesale power prices had been steady until March 2021 but had taken off since.
“[O]ver the 12 months from May 2021 to May 2022, monthly median spot wholesale prices increased by over five times in Victoria and South Australia, six times in Tasmania and New South Wales, and seven times in Queensland,” the report said.
Meanwhile, here's how spot wholesale prices for electricity in the NEM have changed since 2019. #auspol pic.twitter.com/fAVUYHm56B
— Peter Hannam (@p_hannam) June 8, 2022
Ahead of the meeting, scheduled for 4pm AEST, Victoria’s energy and environment minister, Lily D’Ambrosio, highlighted the need for changes to federal settings on gas, saying not enough was being reserved for Australian use. Western Australia sets aside 15% of production for domestic use but there are no formal limits for the eastern states.
Discussions of gas reserves, however, were a national responsibility, Bowen said, indicating the subject was not subject to energy ministers’ approval.
“Energy ministers agreed governments must be ready to act to implement further measures should they be deemed consistent with both our domestic and international commitments,” according to the communique from the meeting.
Ai Group’s Reed said the change of federal government should usher in closer coordination across states, territories and the commonwealth.
“The early signs are that there’s a good new set of relationships,” he said. “And that is promising.”
The coordination will also extend to senior officers working together and reporting back to ministers “on the potential for the aggregation of renewable energy and storage projects across the nation”. “
This would help identify significant supply chain and onshoring opportunities for manufacturing, minerals processing, and to manage global equipment supply and cost issues,” the communique said.
The ESB had already begun work on post-2025 energy market design, including the proposed development of a capacity mechanism.
According to the communique, advancing work on a capacity mechanism was “a priority to bring on renewables and storage to support stability for the national energy market”, with no mention of coal or gas.
In a nod to energy retailers who are struggling to stay in business as they are caught between rising gas and electricity costs and fixed contracts with consumers, the Australian Energy Market Commission was asked to prepare an urgent review by July of the Retailer of Last Resort scheme. The aim is “to improve resilience in the system and better manage retailer failures”.
Reed said “you could make a case for a capacity mechanism” but it was important that the design not lock in high cost and potentially high emission sources of energy.
It would also not provide any near-term benefit to the market and would have to be designed to minimise disruption and avoid scaring off investors.
Bowen’s comments on Wednesday echo those he made at a conference last October, where he said an Albanese government would set several tests for any proposal to lock in extra capacity and improve grid reliability. These implied it would not support a system which extended the life of coal power plants.
“Firstly, it must be consistent with our emissions reductions ambitions, including net zero by 2050 and a strong roadmap to get there,” he said.
“Secondly, it must encourage investment in renewable energy, rather than chilling it as many fear.
“Third, it must be a bridge to dispatchable technologies like hydrogen, batteries and pumped hydro, not an indefinite subsidy for old technologies,” Bowen said. “And fourth, it must actually ensure that generators dispatch when needed.”
Bowen noted that commonwealth-owned Snowy Hydro had recently refused to dispatch electricity from its Colongra gas plant below the market price cap of $15,000, an act he said was “reprehensible”.
New National party leader, David Littleproud, meanwhile, earlier renewed his calls for the Albanese government to consider support for nuclear energy and even convene a national energy summit – issues not expected to get much heed at Wednesday’s meeting.
“Small scale modular nuclear power should be included in that conversation as a source of reliable energy and a way of reducing the emissions,” Littleproud said.
“A national energy summit that convened pre-eminent scientists, energy experts, economists as well as political leaders would be a positive contribution for policy development,” he said.
Littleproud said his party was “not advocating large scale nuclear power plants”, rather smaller ones, but wanted “an agnostic debate on all energy sources available to Australia”.
