Energy giants want to thwart reforms that would help renewables and lower power bills

Darren England/AAP

Daniel J Cass, University of Sydney

Australia’s energy market is outdated. It doesn’t encourage competition and that’s holding back the transition to renewable energy. Important reforms to modernise the market are on the way, but big energy companies are seeking to use the cover of COVID-19 to prevent the change.

This is bad for consumers, and for climate action. Reform would help create a modern grid designed around clean energy, pushing coal-fired generators to retire earlier. Over time, it would also bring down power costs for households and business.

Renewable energy is the cheapest form of new electricity. It’s far better for the environment than coal and gas, and can deliver reliable supplies when backed by batteries and other energy storage.

Instead of delaying reform, Australia should be advancing it.

Wind and solar energy is better for the environment, and consumers.
Tim Wimborne/Reuters

What’s this all about?

Regulators and governments recognise the need to modernise the rules governing the National Electricity Market. That market, established in 1998, supplies all Australian jurisdictions except Western Australia and the Northern Territory.

Reliable electricity requires that supply and demand be kept in balance. This balance is primarily provided by a system known as the wholesale spot market. Every five minutes, electricity generators bid into the spot market, specifying how much energy they will provide at a certain price.

An entire redesign of the market rules is scheduled for 2025. This should make the market work efficiently and reliably as coal retires and is replaced by renewable energy.

In the meantime, one important rule change is due to start in July next year, known as “5-minute settlement”.

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Currently, electricity is sold and sent out from generators in 5-minute blocks. But the actual price paid for this electricity in the wholesale market is averaged every 30 minutes. This means there are six dispatch periods, each with their own price, which are then averaged out when the market is settled.

This strange design has enabled big electricity generators to game the market. One method involves placing high bids in the first interval, then placing low or even negative bids in the remaining five intervals. This ensures that electricity from the big generators is purchased, but that they and all other generators receive an artificially high average price for the whole 30-minute period.

In 2017, the Australian Energy Market Commission (AEMC) decided to replace 30-minute settlement with 5-minute settlement.

The commission says the current system was adopted more than 20 years ago due to technological barriers which have since been overcome. It argues moving to 5-minute settlement would better reflect the value to consumers of fast-response technologies, such as batteries storing renewable energy and so-called “demand response” (a concept we’ll explain later).

The rule change would reduce power costs for consumers.
Brendan Esposito/AAP

According to the AEMC, the rule change would lead to lower wholesale costs, cutting electricity prices for consumers.

But on March 19 this year, the Australian Energy Council, which represents most coal-fired power stations and the big three electricity retailers, sought to delay the reform. It wrote to federal energy minister Angus Taylor and his state counterparts, arguing the pandemic means energy companies must focus on “critical supply and reliabilty” issues, rather than implementing the rule change.

But energy consumption has barely changed during the pandemic, the Australia Institute’s national energy emissions audit shows. So delaying the reform to deal with supply and reliability issues appears unjustified.

Despite this, the Australian Energy Market Operator has proposed delaying the change for a year. Our submission, endorsed by energy and technology leaders, opposes the delay.

Moves by regulators to delay another 16 market reforms due to COVID-19 also seem to be afoot.

Change is possible

Last week, one big rule change to the National Electricity Market did proceed as planned. It allows “demand response” energy trading from 2021.

Demand response involves reducing energy consumption during peaks in demand, such as during heatwaves. Basically, the rule means big energy users, such as smelters and manufacturing plants, could power down in these periods, and be paid for doing so.

Technology pioneers such as battery entrepreneur Simon Hackett and Atlassian chief Mike Cannon-Brookes have backed this change.

Australia has successfully used demand response to provide emergency electricity capacity and other benefits. But it’s never been unleashed in the wholesale energy market.

The rule change doesn’t involve smaller users such as households. But it’s a promising start that creates new competition for fossil fuel generators and allows energy users to help make the grid more reliable.

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Political warfare over climate policy has held back Australia, and the electricity market, for more than a decade. But energy reform that encourages greater market competition can readily be supported by political conservatives.

The demand-response rule change is a clear example: it has been championed by Taylor and his predecessors Josh Frydenberg and Greg Hunt.

Newly built renewable electricity is cheaper than new coal-fired power.
Petr Josek/Reuters

Getting future-ready

Once the health crisis is over and economic recovery has begun, Australia will need the economic and social benefits of electricity market reform even more than before.

Such reform “stimulus” would help ready the grid for the inevitable retirement of coal-fired power stations, such as Liddell in 2023.

It would also align with state government investments in renewable energy, and boost private investment in new generation (which has recently slumped) and large-scale batteries.

Electricity remains Australia’s highest-polluting sector. Around the world, electricity markets are planning the transition from high to low emissions.

Delaying reform in Australia would be a major setback on the path to our essential energy transition.

Richie Merzian, Climate & Energy Program Director at The Australia Institute, contributed to this piece.

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Daniel J Cass, Research Affiliate, Sydney Business School, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Advertisement

Mr Morrison, you can cut ‘green tape’ without harming nature – but it’ll take money and gumption

Lukas Coch/AAP

Peter Burnett, Australian National University

Prime Minister Scott Morrison this week announced environmental approvals for 15 major infrastructure projects will be fast-tracked to accelerate investment as Australia emerges from the COVID-19 lockdown.

Under the current system, proponents must seek both state and federal approvals for big developments. The new “single touch” approvals process will involve teams of state and federal officials assessing the projects jointly.

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This is by no means the first attempt by governments to streamline environmental approvals. Morrison says the latest push will be informed by a ten-year review of the Environmental Protection and Biodiversity (EPBC) Act, which has also been framed around cutting so-called “green tape” that slows developments. An interim report is due this month.

I was a federal environment official for 13 years, and from 2007 to 2012 was responsible for administering and reforming the Act. There are ways the laws can be streamlined without sacrificing the environment. But isolated from more comprehensive environmental reform, faster approval will bring significant environmental risk.

Faster environemnt approvals brings environmental risk.
WWF Australia

We’ve been here before

The first national agreement to streamline environmental approvals dates back to 1990, and Bob Hawke’s “New Federalism” push to reduce overlap between Commonwealth and state environmental laws.

More recently, the Gillard government in 2012, at the urging of business interests, sought to strike bilateral agreements with the states to reduce duplication in environmental approvals. The push was abandoned when each state demanded different arrangements, making the proposed system too messy and complex.

In 2014 the Abbott government revived this “one-stop shop” approach, but the move was blocked by the Senate.

A risky business

Environment advocates naturally oppose moves to streamline environmental laws and approval processes. They argue the regime already fails to protect threatened species and biodiversity, and the bar should not be lowered further.

It’s true that while governments may claim faster approvals won’t erode environmental standards, there aren’t many hard-and-fast standards to maintain.

Environmentalists argue current laws are already inadequate.
Larine Statham/AAP

Instead, EPBC Act decisions mostly hinge on the minister’s conclusion that assessed environmental impacts are “not unacceptable”, provided certain conditions, such as minimising a project’s physical size, are met. But this is no standard at all, because such decisions are arbitrary and no “bottom line” for a project’s environmental performance is set.

As things stand, the closest thing to an on-ground environmental standard is the environmental offsets policy, which allows environmental damage from a project to be compensated for by environmental improvements elsewhere. But policies are not binding, there is no public register of approved offsets and little evidence of them being monitored and enforced.

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The Act does include mechanisms for setting standards. These include “bioregional plans” intended to inform industry and decision-makers of the environmental values and objectives of a region, and how these should be met.

But since the Act commenced in 2000, just five such plans for marine areas have been developed, and none have been prepared for regions on land.

The Act also provides for recovery plans setting out the actions necessary to support listed threatened species. But as of 2018, fewer than half these species have recovery plans, and where they exist, the plans are often out of date and not specific enough.

Efficient approvals require proper resources

Morrison said his government wants to reduce Commonwealth assessment and approval times for major projects, from an average of 3.5 years to 21 months.
But to do that, his government must stop starving its own regulatory systems of resources.

Between 2013 and 2019, the federal environment department’s budget was cut by 39.7%, according to an assessment by the Australian Conservtaion Foundation. So it’s little wonder approval processes slowed.

In November last year the Morrison government announced A$25 million to reduce unnecessary delays in environmental assessments, including the establishment of a major projects team. In effect, this was merely a reversal of previous funding cuts by this government and some of its predecessors.

What’s more, an efficient approvals process needs good information, yet this can be hard to come by.

The much-needed National Plan for Environmental Information was established in 2010 “to improve the quality and accessibility of Australian environmental information”. It would have reduced the need for fieldwork in environmental assessments. But in my view it was never properly resourced, and it has since been abolished.

An expansion of BHP’s Olympic Dam mine site in Roxby Downs, South Australia, is among the priority infrastructure projects.
David Mariuz/AAP

But streamlining could work

There are ways the Commonwealth and states could cut environmental approval times without cutting corners.

The proposed joint assessment teams would have to be well-resourced. They would also have to be authorised to negotiate procedural or cultural obstacles to meeting both federal and state legal requirements.

When I was in the environment department, it was common for federal and state officials to complain their counterparts were not addressing the assessment and approval requirements of the other jurisdiction.

And if companies behind developments want faster approvals, they will have to provide information to officials in a timely fashion – something that doesn’t always happen now.

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Australia has learnt much during the pandemic – not only about cooperation between the Commonwealth and the states, but also between government and business. Success in this latest streamlining attempt will demand excellence in both.

The larger challenge is to speed up the process without lowering the environmental bar.

The federal government should commission independent monitoring and evaluation of the environmental outcomes of approvals under these new arrangements. In 2009 a Senate committee recommendedmore resources for monitoring and audits, but nothing has improved in the decade since.

Independent evaluation won’t win over the sceptics, but it might assuage their worst fears.

Peter Burnett, Honorary Associate Professor, ANU College of Law, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.