POLICY CERTAINTY REQUIRED TO DRIVE INVESTMENT
Tsen Wong, Associate Director, Resources, Energy & Infrastructure, ANZ
For decades, much of Australia has enjoyed the benefits of reliable, safe and affordable electricity. The bulk of this electricity has come from coal-fired power stations – the sheer abundance of coal makes it one of the cheapest and most reliable forms of generation.
However, as governments around the world grapple with the challenge of climate change, the high carbon intensity of coal-fired power generation has come under scrutiny.
Australia is in the fortunate position of having the resources for fuel switching to occur and, to date, significant investments have been made in wind and solar energy. The increase in renewables has, in part, been driven by domestic policy settings, including the Renewable Energy Target (RET) scheme.
Since the RET commenced in 2001, the Australian energy market has undergone a period of significant change. Public awareness of climate change, improvements in energy efficiency, a shift away from industrial production to services and the increasing penetration of rooftop solar generation, have coincided with sustained increases in energy prices.
These factors have all lead to a decline in demand. Yet despite this decline, renewable energy generation continues to be added to the National Electricity Market, as both State and Federal Governments strive to reduce greenhouse gas emissions.
The recent price spikes in South Australia, a state which now relies heavily on renewables for its power, were caused by a confluence of events, including the need to rely on gas-fired generation at a time when gas prices were high.
While discussion continues as to who or what was to blame for the price increases, one thing is clear – there is a need for energy policy and climate change policy to better align.
While energy policy is driven by the need for secure and affordable energy (an objective met by coal), climate change policy is driven by the need to deliver emission reductions, and the high cost of renewables is not a primary concern.
On August 19, the COAG Energy Council will meet. According to Josh Frydenberg, Minister for the Environment and Energy, the meeting provides “a timely opportunity to discuss recent developments in South Australia” and “… seek to put in place policies that provide for a lower emissions future while ensuring affordable, accessible and stable energy supply.”
ANZ welcomes regulatory reform which will facilitate investment in the energy sector in an efficient manner, providing appropriate market signals and incentives to drive investment in low carbon and sustainable solutions.
This is vital for capital providers (both debt and equity) who need certainty of their ability to recover and earn an appropriate return over capital employed.
An environment where investment certainty can be achieved is one where risks over the life of the project can be appropriately allocated, absorbed and priced, so as to be commercially successful for all parties involved.
Overarching management of critical issues such as intermittency, matching capacity with demand and the ‘insurance value’ of existing gas generation, is also necessary to ensure the benefits and costs of renewable generation are evenly spread.
A more integrated energy and climate policy represents a sensible step forward in ensuring the transition to renewables occurs in a way that is economically efficient and leads to positive outcomes for consumers.