Frontier Economics, one of the most prominent and influential energy consultancies in the country, has launched an extraordinary attack against the Australian Energy Market Operator, accusing it of being a “danger” to investors and calling for it to be abolished.
In a speech in Melbourne last week, and since posted on his web-site, Frontier founder and boss Danny Price accuses AEMO and its “chairwoman” (presumably CEO Audrey Zibelman) of a “power grab” and over-reaching on emissions reduction targets.
“There are other changes that are necessary. The Australian Energy Market Operator poses a clear and present danger for investors. Recently, the Chair of AEMO boasted that she could achieve bigger reductions in emissions than either the government or the opposition policies contemplate.
“While this boast delighted the Greens, given it was made in the context of AEMO complaining about the restrictions of the National Electricity Rules on their power, it ought to alarm any right thinking policy makers that may be left in government about what is happening to a key NEM institution.
“Aside from the cancerous effect lack of public accountability has on policy making generally, the fact that one of the key NEM organisations feels it appropriate to make such an audacious, public grab for power is nothing short of alarming for investors. In freeing AEMO of accountability all Australians will be enslaved to their goals.”
Price’s attack on AEMO lays bare the thinly disguised but massive schisms within Australia’s energy institutions over the governance of Australia’s energy markets, and how they should be reformed, and on the integration of new technologies.
In his speech, Price also attacks the federal government’s proposed Snowy 2.0 (leave it to the markets, he says), and urges the states to ignore the Commonwealth and replace the NEM with their own market that factors in a carbon price.
Few will disagree with Price’s assertion that the NEM is broken. Most, however, accuse the main rule-maker, the Australian Energy Markets Commission, for its slow response to new technologies and its perceived favouring of incumbents.
The attack from Frontier, which has been AEMC’s preferred consultant on many key policy areas, including its efforts to kill the renewable energy target, is seen as an effort to switch the focus of attack on to AEMO.
Zibelman, the US energy expert brought in to reform AEMO last year, has been the subject of unpleasant but sadly predictable attacks by right wing commentators, as have many of her initiatives such as on demand response.
(You can listen to our interview with Zibelman last December in this Energy Insiders podcast)
There is no doubt that she has rattled the cage, and appears to hold diametrically opposite views in some key areas to AEMC’s boss John Pierce, including over AEMO interventions and market signals, but most particularly over the future of the grid.
AEMO has even upset some in the renewables industry, mostly over its conservative handling of “power security” in South Australia, which has resulted in curtailments, and strict new conditions on new solar plants.
Price’s attack highlights the extraordinary divide and the high stakes over energy policy in Australia at this crucial juncture, with solar and wind technologies falling in cost, battery storage emerging, growing interest in pumped hydro, and a lack of clarity over federal policy.
Price’s criticism of AEMO’s apparent over-reach on emission targets refers to AEMO’s draft Integrated System Plan that was published before Christmas.
RenewEconomy reported on it here last December – AEMO plans for future (clean) grid, with no mention of base-load – but the biggest controversy was AEMO’s decision to model Australia’s commitment to the Paris climate treaty.
Price is outraged that AEMO’s modelling should go beyond any of the “mainstream parties” – it is double the Coalition’s, and slightly above Labor’s – but AEMO made clear it was merely using the bottom end of CSIRO’s estimates of what needed to be done to meet that treaty.
When Fairfax published what it described as an “exclusive” on the publicly available document, “Radical blueprint to slash emissions”, Zibelman responded in a tweeted statement, saying AEMO was not making any comments about policy, just preparing for possible scenarios.
“The analysis is part of a consultative process in our role as the independent system and market operator in working with stakeholders to identify the needs to operate the power system reliably and securely into the future,” she wrote.
Price, however, accuses AEMO of using the lack of any policy leadership to grab more political power.
“More political power for AEMO means greater costs for consumers. AEMO is trying to take us back to the dark old days of the 70s and 80s when the centralised power authorities told people what they could or could not invest in,” he said
“In NEM 2.0 the industry participant run AEMO needs to be abolished and replaced with a statutory authority the government has proper control over.” (AEMO’s members are made up of Australian governments (60%) and industry participants (40%).
“The focus of this statutory authority should be on operating the power system in a secure state and not allowing them to have unfettered right to expand their role and create further investor risks.”
Ironically, it is this policy vacuum that others accuse the AEMC, and the utilities’ lobby, of seeking to fill with the controversial National Energy Guarantee, a mechanism that – if unchanged – could cement the hold of industry incumbents and slow the energy transition.
As one industry analyst noted: “Just a subtle change of the arguments and suddenly it’s the AEMO that’s the problem and not the AEMC.”
Price’s position is further complicated by his close workings with the South Australia government.
He designed Labor’s aborted Energy Security Target – a market scheme similar to Pierce’s favoured NEG, that was suspended in the face of searing criticism from battery storage developers, in particular, because it favoured the incumbent generators, and after intervention by AEMO.
On the other hand, Price has played a key role in devising the innovative power purchase agreement that would give life to the proposed 150MW solar tower and molten storage plant in Australia, and in endorsing the Tesla big battery and the newly announced virtual power plant.
Price finished his speech with a withering attack on Turnbull’s proposed Snowy 2.0, and his handling of the electricity market.
“The States should abandon support for Snowy 2.0. If it is economic then let a real investor make that decision. Australia simply cannot afford another NBN,” he said.
“If NEM 2.0 is not pursued as a matter of urgency the country will suffer an ever- deteriorating electricity system that will be increasingly characterised by inefficient Balkanised State based power systems. The States cannot afford to dither on energy policy like the Turnbull government. They must act now.”