Energy Update Briefing

Hon. Josh Frydenberg MP and Steven Skala AO

1 August 2018

At the Australia-Israel Chamber of Commerce’s Energy Update Briefing on 1 August 2018, the Hon Josh Frydenberg MP and Steven Skala AO discussed the transition in the energy sector as Australia seeks to solve the trilemma of cost, reliability and carbon emission reduction.

This event was sponsored by: Gilbert+Tobin and Nulux Energy Solutions.

The role of the Clean Energy Finance Corporation (CEFC)

Steven Skala AO opened the discussion with an explanation of the role of the Clean Energy Finance Corporation (CEFC). The CEFC was created in 2012 to help de-carbonise the Australian economy and help lower Australia’s carbon emissions by investing in renewable energy, energy efficiency and low emissions technologies. The market was not providing, so the CEFC was a form of economic intervention by the government to address a gap in capital market space in clean energy.

THE CEFC has the uniquely large sum of $10 billion to invest in clean energy projects on behalf of the Australian Government, compared with UK £2.3 billion (just over $AUS4 billion). To date, the CEFC has made cumulative commitments of $6.6 billion to renewable energy projects with a combined value of $19 million.

The CEFC is a world leader in energy investment and accounts for 50% of total energy investment around the world. It plans to get involved in bigger projects in the future – pumped hydro, battery storage and transmission will be increasingly important. The CEFC could be called upon to examine participating in much larger initiatives such as the Snowy 2.0, the Battery of the Nation in Tasmania and in associated transmission.

The Australian energy system is undergoing transformation

Minister Frydenberg said the Australian energy system was undergoing significant transformation.

He quoted Alan Finkel, saying we’re seeing a level of transformation in our energy system today that rivals the War of the Currents between Teslar and Thomas Edison in the 1800s. Minister Frydenberg made reference to Israel, said it’s had to be independent, self-reliant and entrepreneurial as it’s a matter of life or death, and that Australia can learn a lot to learn from its example.

In John Howard’s time, we had the 5th lowest energy prices in the world; we now have the 10th highest and it’s going up. However, the Government has a laser-like focus on reducing people’s power bills and transition is underway. A large number of people no longer rely on the grid; there is a rise in rooftop solar – 20% of Australians have rooftop solar, 30% in QLD; we have the largest number of solar hot water systems and solar panels per capita in the world.

Energy demand that had increased year-on-year has now flatlined. We’ve changed the amount of energy we use – we’ve lost car manufacturers and smelters that are high energy users. The gas market has changed. Historically, it’s been a domestic gas market on the East coast, but in the last five years, we have seen an increase in exports. We’ve linked our domestic gas pricing to international markets so now we have parity, which has meant that gas prices have increased threefold. This is important to know, as gas is used to deal with intermittency from wind and solar.

The change in energy markets has not only been the level of demand and the increase in gas prices, but the addition of an emissions target. Traditionally we’ve been solving for supply and demand, but, in addition to cost and reliability, we now also need to think about emissions reduction over time. Renewable energy target has distorted the price signal, it has had an impact on our domestic market and is now embedded in legislation.

What have we been doing to manage transition?

In the future there will be more reliance on storage, the government is investing in batteries and pumped hydro. Tasmania and Snowy 2.0 will help smooth out volatility as more renewables come in.

We need a clear and simpler offering from retailers to consumers. Retailers’ first obligation is to provide a certain amount of dispatchable power regardless of the weather; this is where storage becomes critical. The second obligation is that, over time, their portfolio of generation assets has a declining emissions profile. We need to integrate energy and climate policy, get the private market involved and line up a consensus in a manner consistent with our international obligations.

The National Energy Guarantee (NEG) is one weapon in an arsenal of reducing power pricing. The NEG will help us meet our international commitments and also provide level of certainty. It should lead to more investment, and households will be better off. Wholesale prices will come down by 20%, which is significant for large energy producers.

We are pleased that energy security board has this plan, it is supported by farmers, irrigators, companies and industry groups who have large energy bills. Wholesale price of power is 25% lower than 6 months ago, NSW, QLD and SA power prices have come down. The worst is behind us, we have turned a corner, and the National Energy Guarantee is an important step in the right direction. Minister Frydenberg was confident we would land on a National Energy Guarantee.

Minister Frydenberg said government intervention with the CEFC is not dissimilar to Israel, which has high government involvement and support in many sectors including energy.

Is the government ill-prepared to manage the transition?

Minister Frydenberg said that according to Bloomberg New Energy Finance, the NEG is an example of world’s best practice and an example to other countries, but it’s about carefully managing the transition. We need to slay the myth of decarbonising overnight – if we do this, the lights will go out. Coal is a critical source of power now and in decades to come. We have to be careful about accelerating demise of fossil fuels, we need to consider the impact on reliability and price. It’s about doing it in a managed way and not repeating mistake of the past.

Every country has different energy needs and profile, and Australia’s energy mix is different from other countries. In France there is nuclear, in Poland there is coal, gas in Russia. Our connector system is longest interconnected system in the world (5,000km) so we have to make allowances for Australia’s circumstances.

Innovation and attracting CleanTech – are we doing enough to become a CleanTech hub?

Minister Frydenberg said we there is innovation in Australia: there’s the Australian Renewable Energy Association (ARENA) grant program; we’re working with 200 dairy farms in the La Trobe valley to enable them to do blockchain peer-to-peer trading; we’ve developed a lot of IP around solar technology particularly through UNSW. According to Bloomberg New Energy Finance, we’re the third most attractive destination on a per capita basis for renewable investment.

Steven Skala AO said Australia is criticised for not giving enough money to the renewables sector, but that no one should walk away from today’s lunch thinking they can’t approach the CEFC for funding. “We’re looking for business, there’s no shortage of money.”

Looking forward – what is the message for next generation?

Minister Frydenberg said the public is becoming more informed about how complex energy is. They have seen bi-partisanship in parliament and prices going up and they just want it fixed. Arguments are being driven by belief systems rather than economics, and its consumers who pay the price. The extreme left and the extreme right are more part of the problem than the solution, we need a practical solution and this means putting hyper-partisanship to one side. Perfection is enemy of the good. As people get more educated, they are more prepared for good outcomes as opposed to perfect outcomes. The public want solutions that are properly managed, if not hugely exciting.