Labor stands by renewable energy target

Bill Shorten has renewed Labor’s commitment to a 50 per cent renewable energy target after Energy Minister Josh Frydenberg all but ruled out proceeding with the clean energy target proposed by Chief Scientist Alan Finkel.

Speaking at the National Energy Summit in Sydney, the Opposition Leader said Labor had 69 votes in a House of Representatives where the government has a majority of one.

“We are ready to vote for a clean energy target,” he said.

Mr Shorten said he was troubled by reports of anonymous sources saying that because of opposition to renewable energy on the Coalition backbench, Prime Minister Malcolm Turnbull was likely to give up on a clean energy target.

“Walking away is the worst possible option,” he said.

“It would leave investors in the lurch, sentence business to more uncertainty, more chopping and changing.

“It would make Australia’s job harder to reduce emissions. If Turnbull caves in to Tony Abbott and a handful, a rump of conservative backbenchers and walks away from a clean energy target, it will mean continued higher prices for Australian families and Australian industry.

“It is a simple choice that Mr Turnbull faces. Work with Labor to deliver a clean energy target that is meaningful, or lock in higher power bills for businesses and families.”

Mr Shorten also attacked Mr Turnbull over gas prices.

“Back in April, Mr Turnbull promised to halve wholesale gas prices from about $20 a gigajoule to under $10 a gigajoule. Australians will not forget that,” he said.

“Australians do not understand why it has been cheaper to purchase Australian gas in Japan than it has been here in Australia.

“As long as this absurd situation persists, jobs and prosperity are in jeopardy. We need more than a cosy gentlemen’s agreement with the gas exporters that everything will be fine.

“If Labor were in government, we would immediately pull the trigger, activating export controls, with the clear objective of lowering the price of gas.”

Mr Shorten said Mr Frydenberg was right that the price of renewable energy had come down.

“Renewable energy, if not the cheapest form of energy already, is among the cheapest and becoming cheaper every day, so Labor’s commitment to 50% renewables recognises that future, including outlined by the government,” he said.

“Embracing renewable energy is a race for the jobs of the future and Australia has been given a dream barrier draw.

“We are the sunniest continent on Earth, one of the windiest places in the world. We are home to universities and research centres that set global standards for efficiency in solar-cell technology, and we have massive potential to couple renewables with peaking gas, pumped hydro and battery storage.”

Frydenberg set to drop clean energy target

Mr Frydenberg told the summit that emissions in the electricity sector had fallen over the last two quarters as a consequence of the closure of coal-fired power stations and flatlining demand, but said this could not continue if it made power less reliable or affordable.

“As Minister for both Energy and Environment, the first time these responsibilities have been brought together, I am acutely aware of this delicate balance,” Mr Frydenberg said.

“Should reliability and affordability be compromised, public support for tackling climate change will quickly diminish and previous gains will be lost. This is in nobody’s interest.”

Mr Frydenberg said the cost of wind-powered generation had more than halved in seven years, with similar reductions in solar PV technology.

“It is against this backdrop of a declining cost curve for renewables and storage, greater efficiencies that can be found in thermal generation and the need for sufficient dispatchable power in the system that we are considering the Finkel Review’s 50th recommendation to which we’ll respond before the end of the year,” he said, referencing the clean energy target.

“It is important to not lose sight of the fact that we accepted and are now implementing 49 out of the 50 Finkel recommendations through the COAG Energy Council.

“Many of the recommendations will have a profound impact, with new requirements around notice of closure, generator reliability and security being long overdue.”

But Mr Frydenberg said that a premature reliance on wind and solar was making supply and demand harder to predict and increasing prices.

“This is because in an energy only market, large amounts of wind and solar produce low

wholesale prices when they are running, but very high prices when they are not,” he said.

“This volatility creates an uncertain investment climate and makes it more difficult for synchronous generators to recover their fixed costs and remain commercially viable.

“As these generators are pushed out, liquidity in the contract market is reduced, not only because there are fewer participants who can provide firm hedging, but also because new entrants are deterred by the greater volatility risk.

“To take this point to the extreme, the Grattan Institute has pointed out that, for a system with 100 per cent renewables, the wholesale price cap would need to lift more than fivefold to between $60,000 and $80,000 to ensure a sufficient revenue stream.

“No jurisdiction could be expected to embrace such extremes and in many other countries they have not.”

Mr Frydenberg urged state and territory governments to support a national approach.

“It’s high time that the states and territories accepted that by going it alone and frustrating a truly national approach, they are driving prices higher, reliability lower and making the smooth transition to a lower emissions future that much more difficult,” he said.

“By sanctioning the uncompetitive bidding practices of government-owned generators or appeals under the Merits Review process for networks, state governments have prioritised profits over lower energy prices.

“Indeed in Queensland over the last few months, the wholesale electricity prices have gone down by 25 per cent, following a belated state ministerial direction.

“And in the ACT and New South Wales had the Limited Merits Review process been abolished sooner, citizens of those jurisdictions would have had power bill savings of more than $5 billion.”

Mr Frydenberg said states and territories had also increased gas prices through their refusal to lift moratoria on coal seam gas.

He also singled out the Renewable Energy Target as a policy which was “far from perfect”, despite attracting bipartisan support.

“This policy did not anticipate or adequately deal with the situation where there would be a particularly high penetration of renewable in a single region, namely South Australia, where storage and stability services would be at a premium,” he said.

“While renewable energy advocates quickly seek to justify their subsidies by pointing to emissions as a costly externality it is only fair to point out that renewables without storage are also a costly burden,” he said.

“The best illustration is the experience of South Australia, where the spot price increased by 84 per cent between 2015-16 and 2016-17, following the closure of the Northern coal-fired power station last May and the rising cost of gas-fired generation.

“With wind on any given day providing between zero and 100 per cent plus of the state’s needs and only limited and more expensive gas left to balance the variability, the markets quickly priced in this risk.”

Mr Frydenberg also indicated he was concerned about market concentration in the wholesale electricity market, as highlighted in a recent ACCC report.

“In each region of the National Energy Market, the two or three biggest generators between them control more than 70 per cent of capacity and dispatched energy,” he said.

“This has been increasing over time. As an illustration, the big three, AGL, EnergyAustralia and Origin between them in 2009 had 15 per cent of generation capacity in the NEM. Today, it’s nearly 50 per cent.

“This concentration can affect bidding behaviour as the companies know that their market dominance guarantees dispatch regardless of price.

“This is why I have asked the Australian Energy Regulator to investigate bidding practices by generators with a particular focus on New South Wales. I look forward to receiving their initial findings in November.

“While this type of behaviour may technically be within the NEM rules, it is not in the long term interests of consumers. Governments will need to consider what rule changes may be required.”

Mr Frydenberg said the key to guaranteeing lower prices and better reliability was having an effective regulatory framework with a real emphasis on transparency and competition.

He said the declining cost of new technology would play an increasing role in the energy sector.

“Just as the mobile phone disrupted the landline and the digital camera superseded film, the energy market is being shaped by the so-called internet-of-things; behind-the-meter technology such as solar PV and storage; demand-side responses; and increasingly cost effective utility scale renewable generation,” he said.

Chief Scientist Alan Finkel said there was still a need for a long term target, and a mechanism to reach it.

“The focus should be on the end point of the atmospheric emissions,” Dr Finkel told the summit.

“We looked at the Emissions Intensity Scheme, Clean Energy Target, regulated closure.

“For a variety of reasons, we felt the Clean Energy Target was a little bit better than those others but the critical thing is not that it is a Clean Energy Target per se but that there is a mechanism that is a tool that enables the operators to ensure that the atmospheric emissions trajectory is delivered.”