Review reaction

It depends where you stand.

An Australian Associated Press report declares the International Energy Agency review of Australia, released in Canberra last week, is a criticism of this country’s lack of a long-term climate policy and a call for “a swift embrace of electricity market reform.” This echoes Labor’s Mark Butler, who says the agency’s 244-page paper highlights the federal government’s energy and climate policies’ failures.

Environment & Energy Minister Josh Frydenberg, however, sees the report as aligning with the reforms the Turnbull government has under way. He also told the House of Representatives, in a week the body politic was deeply distracted by the Barnaby Joyce affair and coverage of the energy report was minimal, the IEA supported his view that “the States should lift their mindless bans and moratoriums on gas development.”

The Greens, you won’t be surprised to know, believe the IEA “has made it clear that the overwhelming majority of pollution cuts will come from renewables and energy efficiency and this is where the federal government should be spending its money.”

The Energy Efficiency Council also heralds a focus on the need for the government “to ramp up its ambition on energy efficiency across all economic sectors including building, industry and transport.” It adds: “The global experts have run the ruler over Australia’s policy settings and found that our current effort on energy efficiency is not up to snuff.”

The Minerals Council welcomes acknowledgement by the agency that Australia is a “cornerstone” of global energy markets and sees the review as consistent with its stance that technology neutrality should underpin national energy policy.

According to The Australian newspaper, which stole a march on its peers through a day-before interview with IEA executive director Fatih Birol, the agency sees the “national energy guarantee” as “a promising opportunity to integrate reliability, affordability and climate policies” in electricity supply.

As for the IEA itself, the agency media statement on its paper diplomatically has praise for the way the federal government is emphasizing the need for energy security and resilience in its policy approach. (PV Magazine, reporting on the review, accuses the agency of being “adept at framing its analyses in terms that are palatable to political interests and incumbent energy market players.”)

You probably need to go to page 191 of the report to gain a straightforward insight in to what the IEA really thinks. But, en route there, it is worth alighting briefly on an earlier sentence that is no less true because it is a statement of the bleeding obvious: “Energy policy governance in Australia is very complex and fragmented; it suffers from frequent changes of policy and institutions at (a national) level.” In this assessment summary, the IEA opines that current national policies, with respect to the power sector, are unlikely to help achieve the carbon abatement goals to which the federal government committed in the Paris agreement. It goes on: “While the current trends point in the right direction, the sector is not sustainable in terms of affordability and security.”

The IEA says: “Policy uncertainty drives the fast retirement of coal capacity and equally undermines future investment in any low carbon technology. Emissions reduction policy in Australia has been marked by fast and frequent U-turns and uncertainty, notably around carbon pricing. Many attribute the high electricity prices in Australia to this uncertainty and it is clear that the closure of old coal plants can lead to higher prices and windfall profits for remaining plants.”

It also asserts that “an emissions reduction goal for the power sector and a related mechanism are critical” and it believes that “such a mechanism should provide clarity for the exit of capacity but that it could be combined with low-carbon capacity auctions and demand response to encourage the entry of new capacity on the basis of locational signals in the NEM.”

Then the agency adds: “The NEG can be an effective market-based mechanism if the government can ensure more competition, better interconnections among the NEM regions and stringent rules for the integration of renewable energy capacity in to the system. The NEG cannot solve all issues and it could create new barriers and windfall profits if those elements are not considered.”

Importantly, if rather lost in the argy-bargy of reactions, the IEA points out that, to accommodate higher shares of variable renewables in the NEM, governments overseeing the market must prioritize measures to safeguard system stability, enhance grid infrastructure, including interconnections and regularly upgrade technical standards

The agency also asserts what we all know to be true but locally mostly despair of its achievement: joint CoAG leadership is required to achieve the integration of energy and climate/environment policies both nationally and in the NEM. In the absence of a federal political consensus on how to address these issues, it says, “policies at the levels of the States/Territories are evolving in an unco-ordinated manner leading to fragmented markets and sub-optimal outcomes.”

Specifically, the IEA recommends that a “national, stable and integrated energy and climate policy framework” should be designed for 2030 via collaboration between the nine governments with integrated policy packages for energy efficiency and renewable energy. It also calls for work to “ensure that low-emission technology support is market-based and guided by energy system-wide network planning and locational signals.”

Elsewhere in the document, it comments that “a more flexible (market) system with new system services, updated technical standards and grid codes and appropriate network investments, including new interconnectors, remains critical to ensuring stability.” There is nothing here, however, about the fact that we can’t have this on the cheap.

Meanwhile Mark Butler apparently can’t see the irony in Labor’s continuing obfuscation about its RET plans and the comment in his media statement highlighting the IEA pointing out “there is a lack of visibility for business, consumers and policymakers alike with regard to the pace and magnitude” of the energy transformation. Nor does he highlight the agency observation that “markets can most effectively deliver desired investments and outcomes when investors have visibility” of what politicians really intend to do and all the implications – which isn’t surprising, I suppose, given the carry-on by the left of politics about undoing utility privisatization.

Frydenberg,for his part, ignores in his media statement the warning that the NEG “is not a silver bullet and could create new (market) barriers and windfall profits.”

There are two other points from this review that that I think should be underscored – and both have been completely ignored by the media to date.

First, the IEA comments: “Australian States and Territories have large subsidy schemes for households to support their energy bills, notably vulnerable consumers. However, such subsidies are often not well targeted and can fail to encourage consumers to save energy. Government aid programs should be reformed to support consumers’ action on energy efficiency (including renovation or fuel switching as well as flexible tariffs and metering).”

Second, it observes: “Tariffs for grid use will need to evolve. Payments should not only be based on how many kilowatt hours are drawn from the grid. Rather, these should reflect the costs that consumers cause to the grid. For example, consuming electricity during times of peak demand in distribution grids should be more costly than during times when there is much spare capacity. Such an approach will also help limiting financial transfers between customers with and without residential PV systems. Under current arrangements, there is a risk that the cost of the grid has to be allocated to less and less energy, in turn increasing grid charges and further encouraging customers to displace grid consumption.”

Why are these not news?

FOOTNOTE: For the statistically minded, it is interesting to see in the IEA report’s data a comparison between 1990 and 2016 in terms of electricity generation shares. With output going up from 154.3 terawatt hours to 257.5 TWh (this is national, not just the NEM), coal plants’ share has fallen from 78.7 per cent to 63.4, oil is unchanged at 2.3 per cent, natural gas more than doubled (9.3 per cent to 19.6), hydro is well down – from 9.2 per cent to 5.9 – and wind power up from zero to 4.7 per cent with solar PV up from zero to 2.7 per cent. What will it be in 2025, let alone 2030? This period (1990 to 2016), by the way, is when Australia’s population rose from 17.17 million to 24.37 million and GDP, says the IEA, rose from $US673 billion in constant value dollars to $US1,521 billion.

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