Energy incumbents query AEMO governance in move to clip its wings | RenewEconomy

Energy incumbents query AEMO governance in move to clip its wings

The peak bodies representing the major fossil fuel generators and networks question governance of AEMO, but may be more about clipping its wings and its transition plan.

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Let the games begin. The two major energy industry bodies representing the incumbent fossil fuel industry have taken aim at the Australian Energy Market Operator over its “governance” issues, but the move is more likely to be viewed as an attempt to clip the wings of the only institutional body bold enough to lay out a clear path to a clean energy transition.

The Australian Energy Council, largely representing big generation companies with massive sunk investments in coal and gas, along with Energy Networks Australia, which acts as its delivery people, released a report on Thursday from UK-based Cambridge Energy Policy Associates that questions the governance arrangements of AEMO and its level of consultation..

The chief concerns raised by the AEC and the ENA appear to be over money spent by AEMO on transition studies and planning, the pace of change proposed by AEMO and its embrace of new technologies such as virtual power plants and new market mechanisms, and what the incumbents lament is a lack of consultation.

They propose alternate governance models that would either insert the incumbent energy industry into AEMO’s decision making and budget framing processes or, worse, make AEMO answerable to the Australian Enegy Regulator, a move that would inevitably ensure that any moves to respond to the transition at speed would be stuck in the regulatory mud. (See table below).

It is an extraordinary play by the incumbent industry, and highlights the depth of the tensions in the sector, and the attempt by the industry to regain the “regulatory capture” it thought it had over key institutions, at least until AEMO started to consider a future that did not conform with their business models and sunk investments.

The AEC is headed by Sarah McNamara, who was the senior energy policy advisor to then prime minister Tony Abbott when he scrapped the carbon price, and then tried to destroy the renewable energy target (succeeding only in clipping it and creating a three year investment drought), and also sought to dismantle the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.

Before Abbott, McNamara did “government affairs” work for AGL, now the biggest coal generator and polluter in the country, and after Abbott  she went on to manage the office for the notoriously anti-renewables Industry minister Ian Macfarlane, now the head of Queensland’s main coal lobby.

AEMO has ruffled the feathers of the incumbent energy industry by producing a widely admired 20-year blueprint – known as the Integrated System Plan – that maps out a pathway to a near complete shift to renewable energy within 20 years.

AEMO notes that Australia – thanks to its fleet of ageing and increasingly unreliable coal generators – is faced with the fastest energy transition in the world, and unless this transition is deliberately slowed down by industry or government policy, then the country is destined for a renewable energy share of between 70 an 94 per cent by 2040. It’s the smartest and cheapest option, but it needs a plan.

It’s not a message that the fossil fuel industry wants to hear, and they are leaning heavily on the federal government to bail it out, protect sunk investments and provide yet more tax-payer subsidies for new gas infrastructure and other fossil fuel protection schemes.

Energy minister Angus Taylor, a long time opponent of the RET, has given the ISP a lukewarm reception, and has focused all his policy initiatives on attempts to support and subsidise the gas industry and give new life to coal plants.

State governments, both Liberal and Labor, have embraced the ISP, largely because many of their own targets go further than AEMO’s scenarios, and they are starting to see the consequences of not having a long term plan.

The ENA has been more responsive to AEMO’s ISP, with some members confident of the future and eyeing an opportunity for more transmission infrastructure, but there is tension over the treatment of distributed energy resources – rooftop solar, battery storage and EVs – and the fear that the networks will find themselves pushed to the side by that transition unless they control the regulatory narrative.

It should be noted, however, that AEMO has also upset many within the clean energy industry, particularly in Victoria where it is also responsible for grid connections, and where many projects have been delayed or curtailed over what some claim as an overly cautious approach and abrupt changes to connection agreements.

The clean energy industry is generally supportive of AEMO’s long term vision, but some are deeply frustrated by the short term delays, even if they recognise it is also the product of the long term failure of Australia’s regulatory bodies to adapt, and AEMO’s recognition that any mis-step in terms of reliability will be a major set-back to the transition to a renewables grid.

The attack on AEMO’s governance is a new angle – subtle, but quite deliberate. One of the issues raised in the report is the question of budgets. AEMO has been seeking to spend more money – mostly on projects like the ISP and research on technical reports and developing new market mechanisms that will favour new technologies.

In 2020/21, AEMO proposes a budget of $248.1 million, and a 12 per cent rise in fees, a result it says in its consultation process of the significant transformation occurring in the energy industry.

“The volume of rule changes in the NEM, as a result of this transformation, has tripled in the past three years and virtually all these rule changes directly impact AEMO,” it says.

“This means either new compliance functions or implementation of rule and market changes, all of which have associated expenses. Obligations and technology investments have increased in the areas of system planning, cyber security protections, connections analysis and commissioning and market and operations consultation.

“The recent bush fires and current COVID-19 pandemic have provided harsh reminders of the additional need to build resilience and invest in our systems to enhance our rapid response capability.”

The AEC and the ENA were not happy. They complained at the time about the short period of consultation, which may have led to this study by Cambridge.

The Queensland Energy Users Network, noting that AEMO’s total costs amounted to the grand total of eight cents a week (eight cents a week) to the average consumer, said the pace of the transition to a renewable energy future should not be “at the expense of the economy, jobs or reasonable living standards.” For an extra one cent a week? Yep, some “consumer bodies” actually write this sort of tripe.

What is clear is that they’d rather AEMO do what it used to do, keep its head down and stick to its knitting, make sure the lights are kept on and more or less shut up about any big plans for the future. The study draws comparisons to AEMO’s peers in other countries, such as Exelon in the US.

“”Exelon is expressly prohibited from undertaking activities that are not provided for in the BSC, allowing less room for debate over the appropriate scope of its role,” the report says.

“In the case of the MOSPs in New Zealand, there appear to be no specific requirements for regular strategic plans to be developed. However, their responsibilities are tightly specified in the Service Provider Agreements with the Electricity Authority.” That’s the sort control the Australian industry would like to enforce over AEMO.

The Cambridge report noted that the Vertigan Review in 2015 had concluded “that AEMO should be focused on operating the market and system, while contributing to policy development/ market design through the AEMC’s strategic process.”

That arrangement suited the industry well. The AEMC – the Australian Energy Market Commission – is the rule-maker and the body almost singularly responsible for failing to acknowledge the changing technologies and making sure that the rules and regulations were kept up to date and fit-for-purpose.

Under its recently departed leadership, the AEMC appeared to have no strategy apart from protecting the status quo, largely because it had little engineering expertise, and was largely captured by energy and market ideology and by the incumbents, much like the federal Coalition government.

AEMO has been battling with it for years, at least since it decided that it should look to the future rather than past. The incumbents believe that past arrangements were much more comfortable, and are pining for its return.

 

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