The Energy Security Board (ESB) is a member of the alphabet constellation of Australian electricity regulators and managers with their hands on the National Electricity Market (NEM).
The ESB is tasked to report annually to government on the health of the NEM and ‘progress’ against the objectives of the Strategic Energy Plan. The Strategic Energy Plan grew out of the Finkel Review and was adopted in January 2020 by the COAG council of energy ministers. It sets out a vision for the future of the NEM, “framed through six desired outcomes”:
- affordable energy and satisfied customers
- secure gas and electricity system
- reliable and low emissions energy
- effective development of open and competitive markets
- efficient and timely investment in networks
- strong but agile governance
Serious energy wonks can (and should) read the details of the Outcomes and Objectives laid out in Table 1, that supposedly drive the Commonwealth, State, and Territory energy policies and actions.
The ESB released its Health of the National Electricity Market 2022 Report last Thursday, which provides a score card of how the NEM is tracking against the Strategic Energy Plan.
It’s grim reading.
Summary – Health of the NEM
“The health of the NEM is currently facing significant risks arising from the rapid technological and economic transition in the NEM, which have been highlighted by the recent crisis events. Addressing these risks requires massive physical investment and wide-ranging policy reforms. These investments and reforms must be pursued purposefully, urgently, and with an unrelenting focus on cost discipline to meet the affordability, reliability and emissions reduction challenges that are facing the sector.”
The ESB’s “three overarching themes for the most pressing risks”:
Energy affordability is a major concern for consumers
“There are currently more upward than downward pressures on energy prices in an environment where consumers already face higher costs of living.
An orderly energy transition remains the best way to improve energy affordability in the long-term. However, this will take time and the required investments will add to cost-pressures, although they will be lower than the costs of a disorderly transition.”
Energy markets are tightly interconnected
The use of gas-fired generation to support unreliable renewables has jammed the always expensive, now ruinous, domestic gas market firmly into the back end of Australia’s energy economy.
We need urgent and cost-effective investments in transmission, renewable energy and flexible capacity
“Our best strategy to manage the risk of the transition is to build replacement assets quickly, while still maintaining discipline over costs, in advance of thermal generation retirements.”
None of this will come as a surprise to Cats who follow the sinking of Australia’s social economy.
The report then provides a more detailed analysis of the risks attached to the “six desired outcomes”, and a glimpse of the future. There’s a lot; it’s all pretty horrid, but the key points are:
- Electricity prices are out of control – average wholesale prices are currently being set by the most expensive fuel, gas, and the regulated environment has no control over the outcomes;
- The ‘market’ is too complicated for customers to manage their cost exposures;
- Rooftop solar is now a huge technical problem for providing reliable supply. The government is coming to take control of your home batteries.
- System integrity has been seriously compromised by the phase-out of synchronous generation – unleashing an expensive and unreliable new market for FCAS (frequency control and support), which will significantly impact consumer prices and supply security;
- System reliability hits the fan in 2024/25 (closure of Liddell) and accelerates through to 2029/30 as further large coal units are ‘retired’. (FWIW I suspect this is optimistic. Liddell closes in 2022 – and will impact immediately.)
- Gas shortfalls and exciting gas prices loom;
- The broader energy market has failed – domestic gas and coal suppliers with no connection to international markets are (apparently) charging international prices for their products. Alternatively coal and gas generators (mainly Queensland Government-owned) are making huge windfall profits.
- Flexible capacity renewable suppliers are concentrated and gaming the market. Chief amongst them is Snowy Hydro (prop. A Albanese);
- Network investment has fallen in a hole and needs to be urgently kickstarted (despite the complete lack of State-level planning, supply chain risks, in the face of inflation, while being efficient, well-priced, and with an unrelenting focus on cost discipline).
So, the Nation’s energy bureaucrats give a surprisingly clear message to the Commonwealth and State governments (or at least, their Energy Ministers), paraphrased as: ‘We are in dreadful trouble, pressing dreadful trouble; the solution is technological and financial and unimaginably complicated by unrealistic, contradictory, and uncoordinated government policies’.
Luckily government is ahead of the game. On 12 August 2022, Commonwealth, State and Territory Energy Ministers agreed to establish a new National Energy Transformation Partnership.
The Partnership builds on a commitment by Energy Ministers on 8 June 2022 that:
“…in a new era of cooperation and collaboration, the time is right to work together on a new agreement to set the vision for Australia’s energy sector transformation to net zero.
And, in the finest Sir Humphry tradition, the ESB gives government a gentle stroke:
“We are also encouraged that Energy Ministers have agreed to tackle head-on the nexus between energy and climate change policies. The agreement to include an emissions objective in the National Electricity Law (NEL), the National Gas Law (NGL) and the National Energy Retail Law (NERL) is a key enabler of this change. The Partnership will be Australia’s first fully integrated national energy and emissions agreement.”
And the Partnership is straight out of the blocks:
As a first action under the Partnership, governments will work together on
reforms to national energy governance, including…
Integrate emissions in the National Energy Objectives
Fast-track amendments to the three objectives set out in the national energy laws – the National Electricity Objective (NEO), the National Energy Retail Objective (NERO) and the National Gas Objective (NGO).
Progress a co-designed First Nations Clean Energy Strategy
Co-design a new First Nations Clean Energy Strategy, to ensure First Nations people in Australia shape and drive the clean energy transformation
In safe hands.