Like many countries around the world, the electricity system in Australia is undergoing a period of significant transition, driven by the changing mix of electricity generation, the emergence of a range of new technologies, and government policies for emissions reduction. Recent events—including price volatility and load shedding associated with extreme weather events, and the announcement of the closure of a number of baseload power stations—have highlighted the need for this period to be managed effectively.
While there are challenges involved in this transition, modernisation of the electricity system also presents a range of opportunities—from improving the security, reliability, and affordability of the electricity supply, to contributing to Australia’s emissions reduction commitments.
These issues affect households and businesses across the country, and, as such, this is an important area of policy for the Parliament to consider.
In 2016—2017, Australia’s Chief Scientist, Dr Alan Finkel AO, chaired an Expert Panel that conducted an independent review of the national electricity markets.
The review proposed a blueprint to increase energy security and reliability in the future, with four key outcomes: increased security, future reliability, rewarding consumers, and lowering emissions. A key recommendation was the adoption of a clean energy target, which would mandate energy retailers to provide a certain percentage of their electricity from low emissions generators.
At the time of writing the COAG Energy Council, which is chaired by the Commonwealth’s Minister for the Environment and Energy, the Hon. Josh Frydenberg MP, has adopted 49 of the 50 recommendations. The outstanding recommendation related to the Clean Energy Target. The COAG Energy Council referred the Finkel Report to an Energy Security Board, with membership including:
Kerry Schott AO (Independent Chair)
Clare Savage (Deputy chair, Business Council of Australia)
Audrey Zibelman (AEMO CEO)
Paula Conboy (AER, Chair)
On 13 October 2017, in response to a request from the Minister for the Environment and Energy, the Energy Security Board recommended the establishment of a requirement on electricity retailers to meet their load obligations with a portfolio of resources with a minimum amount of flexible, dispatchable capacity and an emissions level consistent with Australia’s international emissions reduction commitments.
In addition to the Finkel Report there is a wide ranging body of contemporary reviews and inquiries into the various aspects of this policy area.
The current inquiry
While the Committee is aware of the range of contemporary reviews and inquiries in this policy area, the Committee’s role as a conduit between the community and the Australian Parliament provided it with a unique opportunity to engage stakeholders at all levels on the issue of the transformation of the electricity system. It also provided an opportunity for this important policy area to be examined by a multi-party group of Parliamentarians.
On 27 February 2017, pursuant to standing order 215(c) the Committee resolved to examine the 2015—16 annual report of the Department of the Environment and Energy, inquiring into and reporting on the adequacy of the current electricity transmission and distribution networks to support Australia’s future needs.
Conduct of the inquiry
The inquiry was advertised on 28 February 2017. Submissions were invited from a range of stakeholders on the issues of the transformation of the electricity system.
The Committee received 58 submissions which are listed in Appendix A. The Committee also received 13 exhibits, which are listed in Appendix B.
To gather information about the expectations and concerns of consumers, the Committee launched an online questionnaire on 28 February 2017. This asked households and businesses to share information about how they currently interact with the electricity grid, and about their expectations for the grid in the future. The Committee received 2,900 responses to the online questionnaire, excerpts of which are included in this report.
The context of the data collected in the questionnaire is important to note. 46 per cent of the respondents indicated that they had installed solar PV. During the inquiry, the Committee heard that one in five Australian households had installed solar PV. The Committee acknowledges that the respondents are not a representative sample, but consider the insights provided by the questionnaire to be both interesting and valuable. The Committee is grateful to everyone who took the time to complete the questionnaire which provided an insight into how consumers are experiencing electricity services in 2017.
As the issues covered by the inquiry affect households and businesses across a large part of the country, the Committee resolved to undertake a program of public hearings and sites inspections in all of the mainland states serviced by the National Electricity Market. These witnesses are listed at Appendix C.
Four members of the Committee travelled to Germany and the United States of America during the inquiry. This allowed the Committee to gain firsthand knowledge of electricity grid modernisation in international jurisdictions.
Box 1.1: Committee visit
Learning from the international experience
As part of the inquiry, the Committee considered it vital to draw on examples of electricity grid modernisation in other countries, and discover lessons that could be applied in the Australian context.
Four members—Andrew Broad MP, Pat Conroy MP, Craig Kelly MP, and Anne Stanley MP—undertook a delegation to visit to parts of Germany and the United States. Their comprehensive program of meetings enabled members to learn more about the current electricity market and policy landscape in each country; opportunities and challenges associated with grid transformation and how these have been responded to in each context; and social and cultural considerations including the changing consumer and labour market landscapes.
Delegates were pleased to have secured very productive and insightful meetings with a wide range of stakeholders in the electricity grid modernisation policy space. Throughout their meetings and site inspections, the delegates heard from electricity generators, network operators, technology companies, a mining company, government and non-government planning bodies, regulators, universities, and research bodies.
The visit enabled the Committee to gain genuine insights into different options for responding to changes in electricity generation and usage. Delegates concluded from their visit that other countries are dealing with similar issues to Australia, particularly with respect to the transition to more distributed sources of electricity. The visit also reinforced that Australia, as an island nation, has particular challenges and opportunities. Some of the common themes addressed throughout the visit included network and market planning structures, ways to encourage increased generation capacity, the role of ancillary services and innovative solutions, the role of batteries and other storage solutions, and the importance of structuring the market to provide the required incentives.
Delegates returned to Australia and shared their newly acquired insights with their committee colleagues. Learnings from the visit have made a very strong contribution to the Committee’s deliberations and to shaping the conclusions and recommendations in this report.
Scope of the inquiry and this report
The Committee had a sense of the scope of the issues facing the grid when it adopted the terms of reference in February 2017. The Committee heard evidence in Brisbane that:
The problems we face have been 10-plus years in the making, and won’t be resolved in one parliamentary term.
Chapter 2 provides an overview of the electricity system within Australia, including the National Electricity Market (NEM), the supply chain components (generation, transmission and distribution, and retail), and the governance of the electricity market. It also notes the current transition that the electricity system is undergoing and the impact this is having on the policy objectives of security, reliability, emissions reduction, and affordability.
Chapter 3 considers the current policy settings for energy policy as those settings relate to the grid and provides recommendations that have been underwritten by the most frequently heard evidence to the Committee: that the market participants require policy certainty with respect to energy.
Chapter 4 reviews how network planning has been managed historically, and considers how future planning should be managed. In addition, this Chapter evaluates the types of investments that may be made in to ensure that the grid meets the energy needs of the future.
Chapter 5 considers the operation of the National Energy Market and proposes some new approaches to existing rules.
Whilst the terms of reference of the Committee made it plain that the Committee was keen to closely consider the issues of transmission and distribution, the Committee heard evidence that to best manage the modernisation of the grid it would also need to come to a good understanding of the generation of electricity as well.
The Committee was also encouraged to give sufficient weight to sustainability and low emissions when looking to the future of the grid.