That’s the amount of money that electricity networks in southeastern Australia estimate that last spring and summer’s bushfires and severe storms cost them.
The regulator won’t give them all that they’re asking for, but it won’t be far off the amount that consumers will have to pay back on top of their normal electricity bills.
In an industry in which up to $10 billion can be blown on a white elephant like Snowy 2.0 with barely a murmur from the media or consumer groups, granted, it’s not much. But compared to the $20,000 or so in Cartier watches that worked the Prime Minister into a confected outrage recently, it’s quite a lot.
And that $232 million figure doesn’t include the cost of repairing heat-related damage to coal fired power stations or triggering the RERT during heatwaves — costs also ultimately borne by consumers.
It wouldn’t matter so much if it was a one-off, but with accelerating climate change, so-called natural disasters are going to be more and more frequent. For instance, according to a CSIRO study used to inform the 2007 Garnaut Climate Change Review, bushfires could be up to three times more likely by 2050.
Climate change clearly represents a significant threat to the electricity system. You might therefore assume that it is playing a significant role in the Energy Security Board’s deliberations over the optimum design of the future market.
You would be wrong.
There is much useful thinking in the ESB’s Post 2025 Market Design Directions Paper. But in response to stakeholder feedback that in their work to date there was, along with the absence of an explicit carbon abatement mechanism or plan for just energy transition, a “lack of focus on system resilience, particularly in light of the difficult bushfire season in Australia over last summer,” the ESB had this to say:
“The ESB recognises these are areas of considerable community and stakeholder interest, but notes they are outside the terms of reference issued to the ESB by the former COAG Energy Council for this reform program… Where work is occurring on adjacent policy initiatives (e.g. system resilience), the ESB is working closely with relevant market bodies to ensure alignment where appropriate.”
So what were the ESB’s marching orders from the former COAG Energy Council? According to the directions paper, they were “to advise on a long-term, fit-for-purpose market design for the National Electricity Market”. Sounds reasonable. But how could you come up with a fit for purpose market design that does not take into account the biggest existential threat to humanity, and the biggest driver of the energy transition?
Let’s dig a little deeper. The ESB was created in the wake of the 2017 Finkel Review. Dr Finkel’s final report put forward a plan for “an electricity system that can cope with today’s technologies and practices, and adapt resiliently to take advantage of tomorrow’s.” One of its four key proposed outcomes was that “A more secure power system will be resilient to the integration of new technologies and resistant to the threat of natural disasters and cyber security attacks.” And one of his recommendations was to “Develop regular assessments of the resilience of the NEM.”
Fast forward to the Energy Council’s 2019 terms of reference for the Post 2025 Market Design process:
“By the end of 2020, the ESB needs to recommend any changes to the existing market design or recommend an alternative market design to enable the provision of the full range of services to customers necessary to deliver a secure, reliable and lower emissions electricity system at least-cost.”
Unfortunately, climate change and resilience seem to have fallen off the radar. This is hardly surprising, coming from a body run by a federal government still in the thrall of climate change deniers — although jurisdictional energy ministers must also take some share of the responsibility for Energy Council outputs.
Still, there is nothing in the terms of reference that would preclude the ESB from considering climate change and resilience. For instance, they go on to say that
“The most effective market design may require other policies in order to work most effectively… To the extent an alternative design is the project’s final recommendation, the complementary policy requirements will also be included in the recommendations.”
Oddly, the ESB’s 2020 Health of the NEM report, which was released at the same time as the as the Post 2025 directions paper, does recognise the need for greater climate resilience:
“…last summer’s horrific bushfires continue to emphasise the importance of electricity system resilience as extreme weather events become more frequent and intense. This needs serious attention in the years ahead as further extreme events including fire, flood, and high temperatures can be expected.”
What difference would it make, if the ESB practiced what it preached and took climate resilience seriously?
AEMO is doing its level best to ensure that the bulk supply/transmission system is beefed up to cope with more severe weather events. The difference would be felt mostly in relation to how we regard distributed energy resources.
There is a wealth of creativity and innovation just waiting to be unleashed in the DER space that would increase resilience in response to climate risk, but it is being hamstrung by the focus of market bodies on strengthening the bulk supply system at great cost to consumers.
In the absence of strategic direction from above, we are likely to see consumers increasingly vote with their pockets and disengage from the grid as much as they can afford to.
For instance, why go to all the trouble of dealing with aggregators and traders and increasing intrusions by the market operator to take advantage of the potential of a future two-sided market to make a few bucks here and there when you’re more concerned about increasing threat of heatwaves, storms and bushfires cutting you off from that very market?
In an epoch characterised by distrust of institutions, it would be foolhardy to underestimate people’s desire to protect themselves from foreseeable risks as best they can.
To avoid this outcome, a good start would be for the ESB’s demand-side participation workstream to include, in its focus on “how participants can get value for their flexible demand,” how encouraging consumers to reduce demand before, during and after severe weather events can help to reduce the cost of building a more resilient system.
The next step might be to find ways to value resilience services like backup generation, storage and local energy sharing networks.
There is so much more that could be done. But, like an addict at AA, the first step is to recognise that we have a problem.
Mark Byrne is Energy market advocate at the Total Environment Centre