Energy Insiders Transcript: NSW energy minister Matt Kean

 

Transcript from the Energy Insiders podcast interview with NSW energy minister Matt Kean. You can listen to the podcast here.

Giles Parkinson  00:00

New South Wales Energy Minister Matt Keen, thank you very much for joining the Energy Insiders podcast once again.

Matt Kean  00:07

Giles, thanks. Thank you for having me.

Giles Parkinson  00:10

Look, before we get back into the big announcement of last week about New South Wales Renewable Energy Plan, you’re just on your way back from Port Kembla, as we speak, what have you been announcing down there?

Matt Kean  00:24

On the back of our energy roadmap that we announced last week, we’re already seeing the private sector responding to that announcement. And today Bluescope launched a $20 million renewables manufacturing zone in the Illawarra. And that’s not only great for that industry, but it will create about 300 jobs, and help us provide the steel that we’re going to need to build the wind turbines, the solar farms, and effectively the modern power system that we’re hoping to deliver for the people of New South Wales.

Giles Parkinson  00:56

We’ll get into the details of what you announced last week and the Renewable Energy Plan. But we now have state governments acting, we’ve got private capital moving to deal with this, with the opportunities presented by the energy transition. Why has New South Wales effectively had to go it alone on this plan?

Matt Kean  01:16

Well, we know that in the next 15 years four of our existing coal fired power stations will come to the end of their lives. And I need to make sure that we replace that capacity before it closes to avoid price spikes and blackouts. And right now, if we just rely on the wholesale electricity prices to drive that private sector investment, then I’m concerned that the infrastructure is not going to be built in time, or in a coordinated way that’s going to deliver cheaper, reliable electricity to the citizens and businesses of this State. So what we’ve done is provide a very clear roadmap that will give the private sector the confidence they need to replace the existing system before it closes.

David Leitch  02:05

I thought I might jump in there Giles. And if it’s okay I’d like to congratulate you, Minister, on the boldness of the plan, and and its scope and its size, which I think it will take the entire sector a while to get to grips with it’s a lot more, I mean, there are a number of elements. It’s quite a comprehensive plan, both in terms of its size and and also its approach. There are a couple of things about it  that are very interesting, that haven’t received very much publicity as yet. One of them is this idea that having funded something like 12 gigawatts of new renewable energy and two gigawatts of dispatchable power that, that you might resell, the New South Wales Government will essentially own a lot of electricity that it might resell to the retailers. How far along are you with the planning for that? And can you talk a little bit more about it?

Matt Kean  03:06

Look, the focus is on making sure we deliver the cheapest form of reliable energy. That’s exactly what the roadmap sets out to do. And we see that as hugely beneficial for the mums and dads of New South Wales and the businesses that operate here. And we think that by, you know, getting the system upgraded to deliver that outcome, we can set ourselves up to be not only a renewable energy superpower, but an economic superpower at the same time. We know the world is moving to decarbonize. With Joe Biden now in the White House 70% of Australia’s two way trade will be with countries that have signed up to achieve net zero emissions by mid this century. So that’s, that means markets that we underwrite our prosperity are changing. And we need to be positioned, especially by the 2030s, to be able to take advantage of those opportunities. So the choice is very clear, we can put our head in the sand and do nothing. Or we can grab these opportunities and make sure that we continue to be a prosperous, strong and successful nation. And I know which one I’m choosing.

David Leitch  04:14

So I guess, you know, again, I want to congratulate, we at ITK, we think power prices will be lower, and consumers, both big and small, are going to going to benefit from the scheme. So  that’s I suppose the most important point. How have you can you do you want to talk a little bit about the politics of it? It seems to me that the National Party and the Labour Party have both got behind it to a greater or lesser extent. Have you had, can you, do you want to talk about that just a little bit?

Matt Kean  04:46

Well, I think everyone sees what the problem is. Everyone sees, or everyone has witnessed what happened after the closure of Hazelwood. What is happening because of the closure of Liddell where government is stepping in to build that dispatchable capacity, because the market has failed. So everyone has seen the problem. And everyone also agrees on the solution. How do we deliver cheaper, reliable electricity? How do we do it in a way that creates jobs and drives investment into this State? This plan will create over 6300 construction jobs over the next decade. It’ll create 2800 ongoing jobs that will see about $58 billion worth of investment coming into New South Wales between now and 2042. So it’s, in addition to that, it will deliver some of the cheapest electricity in the world. I mean, on average, households are saved about $130 per annum. And businesses will save about $430 per annum. And based on the modeling that we have done, we think that we will be in the top 10% of countries when it comes to cheap electricity, in fact, number three in the OECD. So I think cheap electricity, creating jobs and driving investment in the state is something that we should all be agreeing on. And it just astounds me that some of these fringe voices in New South Wales politics, like One Nation, they want to vote against this package, because they don’t want to support jobs. They don’t want to support cheap electricity, and they don’t want to support our nation’s future.

Giles Parkinson  06:18

Have you talked to the Federal Energy minister Angus Taylor about this? Has he sent you a message of congratulations?

Matt Kean  06:25

Yeah, I certainly have, I mean, Angus has been a key supporter in ensuring that New South Wales is able to go in this direction. I mean, we had a $3 billion deal that we did with the Commonwealth  that will start the build of our renewable energy zones and underwrite the construction of the transmission lines that will help bring that energy into the system. One thing Angus has been talking about for a long time is making sure there’s enough dispatchable electricity in the system. And I mean, through his UNGI program, he knows the importance of underwriting. So our strategy aligns with what the federal government have been saying. And, you know, there’s no, there’s no conflict between Angus and I and wanting to say cheap, reliable electricity for the businesses and families of New South Wales.

Giles Parkinson  07:09

Well, I hope that your underwriting programs look more successful than his underwriting program, because his has been going for two years and hasn’t actually delivered anything yet. On your underwriting program, it’s a really interesting approach that you’ve actually gotten there. It seems to me that what you’ve done is that you’ve targeted the cost of capital, and know that that’s the key for assets like wind and solar farms, which is basically all upfront costs and very little operating costs. And that seems to me to be a clever idea. What it seems to me then you’re doing is that you’re encouraging wind and solar developers to have PPAs and contracts and sales contracts, at least for the first five or 10 years. But then this underwriting agreement that you’re providing, is like a long tail that continues towards further into the life of the asset, but then it doesn’t have to be a very high price. But it has to be enough just to sort of make the financiers think, okay, we’re happy,  we see a revenue stream here for a long time, pretty certain, therefore we can bring down the cost of capital, am I summing up correctly?

Matt Kean  08:11

That is, that it you’ve hit the nail on the head. I mean, the biggest cost with these new technologies is the cost of capital. So if we can reduce the discount rates as low as possible, that means you get cheaper electricity prices. And that’s what this whole strategy has been about. Removing risk for those investors, so that they can build the infrastructure, they have a long term guarantee on their investment, and as a result, deliver cheaper electricity into the State. It’s innovative, it targets the big problem. And it takes advantage of the new technology that’s emerging, and doing it in a clever way.

Giles Parkinson  08:52

Who’s going to be running this, this new consumer body that’s going to be kind of like an independent body that’s going to kind of deal with these contracts? Who, what, what sort of people are going to be running this? And what extent will they be an arm’s length from the government?

Matt Kean  09:07

We want to make sure that we’ve got an independent consumer champion, I mean, that that position is going to be key to keeping costs down in our scheme. At this stage, we’ll be considering using AEMO to do that work. But we’re working through the process, we want to get a strong, someone with a strong focus on keeping costs down, it’s going to be consumer champion, that will ensure that we can coordinate the build of that firming, that transmission, that generation and that storage in a responsible way to ensure that it’s delivered before existing infrastructure comes to the end of its life.

David Leitch  09:44

Could I talk a little bit about the process from here? I suppose first of all, the legislation has to be enacted. And then I’m also interested to understand the timing in the sense of I guess when the renewable energy zones, each of them in turn will be sufficiently complete to allow for the, for the wind and solar support, investing process to go ahead.

Matt Kean  10:13

Yes, David, I mean, obviously, we need to work through exactly the timetable to bring on each of the renewable energy zones, we’ve already flagged that the Central West Orana Renewable Energy Zone will be the first piece in the jigsaw. That work, we hope that the first sod will be turned in 2022 for that project, and construction, will be able to commence then. But we’ve also got the the New England Renewable Energy Zone. And again, we want to get that process expedited. Essentially, what what we want to see is 12 gigs of renewables installed in the system by 2030, and two gigs of long duration storage, and that could take the form of pumped hydro or batteries. But, you know, we want to make sure that we’re getting the best return for investors, we want to get make sure we’re getting the infrastructure built that’s going to deliver the cheapest form of reliable energy.

David Leitch  11:10

And on top of that, another element of the process that has two sides to it, that the one is that, that New South Wales is going to be developing its own transmission test. And for whatever reason, because that’s part of I suppose of the needs for New South Wales energy security. It has to make sure there’s enough intrastate/ within the state transmission to get it done. Have you got a sense for how , when the legislation for that will go through and when the process will kind of require TransGrid to go ahead with some transmission investment. And indeed, how much in transmission investment might actually be required under this.

Matt Kean  11:54

Yet, we’ll be giving ourselves the powers to deviate or derogate from the process. In this package that we’re putting into the parliament this week, I want to see that transmission process sped up but I want to see it in a way that will still protect consumers. We need to get more, we need to  make sure that we’re driving down the cost, potentially getting more competition into the process, to make sure that the transmission lines that will be built can unlock those cheap reliable energy resources, but not in a way that’s going to push up cost to consumers. So there’s a lot of work to be done here. But we’ll be giving us, looking to give ourselves the power through legislation introduced into the parliament this week.

David Leitch  12:40

Just one quick thing, before I hand back to Giles, again, you’re talking about potentially introducing more competition into the transmission, which I think it’d be a wonderful thing if it could happen. So it will be open to different people to potentially perhaps to bid for some of this transmission work?

Matt Kean  12:57

We’re working through a range of ideas at the moment, but my focus is on making sure that consumers get the benefit of the cheapest build of infrastructure, which means lower household bills. So that’s our focus, we’ll look at a range of strategies to deliver on that outcome. But right now, we want to make sure that we’ve got the systems and processes, the market signals, the regulatory settings in place to coordinate the build of generation, storage, firming, and transmission. And that’s exactly what the Energy Roadmap Package in the Parliament this week is seeking to do.

Giles Parkinson  13:33

Just getting back onto the process about encouraging  new wind and solar developments. I mean, you’re talking about an underwriting scheme,  but it’s mostly focused on the back end of the life of the asset. So you’re kind of relying on these people to come up with some sort of firm contract in the initial stages. Who are they going to be contracting with? Where they’re going to get those PPA’s from?

Matt Kean  13:55

We think there’s big opportunities with government loan, we think there’s big opportunities with big users across the State. We don’t think there’s any shortage of opportunities to to get those PPA’s. But we’re backing that in with our underwriting scheme. And we think, you know, having done a lot of work with KPMG, and Aurora energy, who were our advisors on this project, we think that we’ve got the right policy settings and framework in place to be able to deliver that infrastructure that we need.

Giles Parkinson  14:26

And if you thought about the storage component, because the storage component is not really valued by the market. Now you’re obviously going to have and underwriting component for that. Have you got any idea of what that might look like at this stage?

Matt Kean  14:39

Yeah, well, there’s two pieces of the jigsaw here. We need those two gigawatts of power of long duration storage on top of  Snowy 2.0.  We’ve already announced that we’ll be happy to do a direct grant process to encourage people to do the feasibility work on potential pumped hydro projects. So they’ll be redeemable grants effectively. So what we hope to achieve there is more competition with people putting forward proposals that are shovel ready for long duration storage projects, so think pumped hydro. And then we’ll have a competitive process, think reverse  auctions, to make sure that we get the best and cheapest deal for the consumers. So we’re working through the process. We need this legislation passed through the parliament this week, that will hopefully bring on line that long duration storage that will set us up for the future.

Giles Parkinson  15:34

You may have seen Victoria and South Australia competing for the title of the biggest battery in the country. And Victoria, just two weeks ago did a large battery that will essentially upgrade the capacity of the link to New South Wales. And then AGL popped up last weekend with an even bigger battery, and most importantly, one of four hour storage, which is actually the first time we’ve seen such a big battery doing such long storage in Australia. So that suggests to me that that’s taking the place of the gas peaking power stations. Is New South Wales planning to come up with a slam dunk on both States and make a bigger battery?

Matt Kean  16:09

Well, we’ve said that we want two gigawatts of long duration storage. So I think that trumps all of them.

David Leitch  16:21

Can I just, can I ask? Sorry, Giles sorry. One of the things is that there’s always losers out of any process. And we talked about a lot of the winners. And I can’t tell you how supportive I am of such a big bold vision that I think this is what government’s here to do. It’s not here to stuff around with little things, it’s here to get the big jobs done. But nevertheless, there will be some coal stations that are going to close, that were going to close anyway. And there are going to be people affected by that, just as they were in the car industry or farmers that get changed by productivity. But is there any, I mean, does it make it easier if there was a process to smooth everyone through that in terms of  the transition on the labor force. The Labor Party talks about a just transition. I don’t know what “just” really means, but I do think that keeping as many people as happy as possible, is the best way to get things done. I just wondered if you thought about that at all?

Matt Kean  17:17

Oh, yeah, very much so .I mean, this is the reason that dealing with climate change has not been successful in this country, because no one’s come up with a plan to make sure no one’s left behind. That’s exactly what my plan intends to do. We realize that the workers in those power stations, they need to be looked after. We need to make sure that those at the end of their careers are getting redundancies, for example. We need to make sure those at the start of their careers are getting the training and support that they need. There’s an important role for government to play in delivering on those things, just as there’s an important role for industry to play. I think that if we can get this, manage this transition, or make sure that we don’t leave anyone behind, as we move from older technology to new technology  in how we generate electricity. If we can create the right model for this, then we’ll be able to make sure that as other industries see new technology coming in, we’ll be able to manage that process as well. So there’s a lot at stake here, I want to make sure we get it right to deliver cheaper, reliable energy for the families and businesses of New South Wales. But we support those communities and those workers in transitioning to new opportunities, and for those that are at the end of their careers that they are appropriately supported, with appropriate redundancy packages and support. So there’s a lot of work to do. Our package is quite quite comprehensive but there’s a lot more that needs to be done. And we do need a whole of government, whole of community approach to deal with some of these big challenges.

David Leitch  18:55

One other little thing before I hand back to Giles, or maybe not quite so little, and I’m greedy here with my questions, but it’s just that if there is any net cost to the consumers out of this, it’s going to be borne by the distribution companies. And there’s quite an argument that distribution tariffs aren’t fair because for instance, solar households don’t pay as much as as non solar households. When, I just throw it out there that when  you finish getting all this reform done, you might think about reforming New South Wales distribution tariffs as well, but maybe I’ll hand back to Giles. Probably no need to comment on that.

Matt Kean  19:29

Thanks, Dave.

Giles Parkinson  19:32

I’ve got a comment about that. David. Just a couple more questions for me. Thanks, Minister. This is probably the first time we’ve seen a really coherent and strong policy getting multi party, multi lateral support from the conservative sections, from Labour, from the Greens and all the more remarkable for the fact that as it is actually quite an ambitious policy, but one of the most ambitious and the most progressive advance that we’ve actually seen in Australia to date. What’s been the key that has allowed that to actually happen? I mean, no doubt your wonderful political skills. But I’m just wondering if there’s something, you know, is it because there is a general acceptance now that the technology has moved to the point where really, it’s just like, it’s a no brainer to shift to these technologies.

Matt Kean  20:19

There’s no doubt that the technology has evolved, the economics have changed. But also, we’re focused on making sure that we leave no one behind. . This is, you know, we’ve got a story to tell our friends in the National Party about the opportunities this will create in the bush. We’ve got a story to ensure that we bring Labour along with us. And I’ve been working closely with the union movement, and also members of the Labour Party who are concerned about the impacts on their communities. I’ve also made sure that we’re talking to conservatives and moderates on the liberal side of politics. So this is not, you know, a small policy, this is a big policy. This is a nation building policy where we’ve tried to bring everyone along on the journey. There are enormous opportunities for New South Wales in Australia in leading the way when it comes to adapting to deal with climate change. Yes, there are threats. And this is a plan that helps to mitigate those threats, but also take advantage of the huge opportunities. So I think this is how a policy should be done. I’m genuinely trying to find a bipartisan way forward here. And I think, hopefully, at the end of this way, you’ll see whether or not that’s been successful. But I haven’t approached this to be, you know, something that, you know, the liberal side of  politics has  done to win the war or, you know, over the labor side of politics. I’ve genuinely tried to find the policy settings that are in the State’s interest and in the nation’s interests. And I think that’s what’s got broad support across the political spectrum.

Giles Parkinson  22:01

Green hydrogen, now a lot of other states are talking about the possibilities, opportunities there.  I’m just wondering about New South Wales. You’re probably gonna be busy enough just replacing your existing black coal generators with enough capacity just to keep the keep the lights on in New South Wales before thinking about that, but what is your long term vision for hydrogen export opportunities or hydrogen just will transform manufacturing within within the state?

Matt Kean  22:27

We know there are going to be huge markets for the replacement of molecules. We think green hydrogen will be the key kind of transition fuel or the key future fuel. And I want to make sure New South Wales gets a big slice of the pie. But in order to do green hydrogen, you’ve got to modernize the grid and have a green electricity effectively, that cheap, renewable energy coming into the system. If we can modernize our grid and upgrade it when those green hydrogen opportunities are emerging, we can set ourselves up to be an energy and economic superpower. So the first step in getting green hydrogen done is upgrading the electricity infrastructure to get clean, cheap, reliable electricity. If you do that, then you’re well placed to win the hydrogen wars. And let me tell you, the race is on. I was over in the UK in November last year, and, you know, I spoke at an energy conference to talk about the opportunity to invest in green hydrogen here in New South Wales. And as soon as I finished speaking, the Minister for energy in Morocco got up and said, you know, don’t bother with Australia, we can do it here. So everyone sees the opportunity which is emerging. We know that South Korea, we know that Japan, see green hydrogen as going to be key to them hitting net zero emissions. There’s no place on the planet better placed to take advantage of those opportunities than right here in New South Wales, and I’m trying to set us on the path to grab those opportunities and run with them and underwrite our prosperity for the future.

David Leitch  23:55

You mentioned all the stakeholders…..sorry, Giles, sorry. You mentioned all the stakeholders  and I think every country wants energy security, whether it’s offshore wind in South Korea, or whatever, but we’ve got some very big energy consumers here in New South Wales, Aluminium’s an obvious one, how do you think they’re going to be thinking  about this policy? Is it going to, you know, help to keep Tamago open? Do you think for instance?

Matt Kean  24:24

Well, absolutely. And I’ve been working very closely with Matt Howell at Tomago, just as I’ve been working with the team down at Bluescope. What they want more than anything is long term certainty over their energy prices. And they need the lowest energy prices that they can get. Right now before COVID they are paying about 88 bucks per megawatt hour on average. You know, if I can get the prices down to between $45 and $52, that’s globally competitive. That’s, you know, that’s top top 10% of OECD nations energy prices. That ensures that they’ve got a competitive advantage when it comes to producing steel, producing aluminium, and also ensures the heavy manufacturing can have a competitive advantage by setting up shop here in New South Wales. That’s my vision for our State. That’s my vision for our country. And that’s exactly why we’re moving in this direction. So it’s not just moms and dads that are going to be benefiting from cheap, reliable energy here. I’m hoping that heavy manufacturing all look to come here because they have a competitive advantage, particularly as we move to a low carbon economy. So this is a nation building policy. We are thinking big, because that’s what’s required here to set Australia up for success in a low carbon world. And I think that we owe nothing less than that to our kids and their kids.

David Leitch  25:45

I can support that.

Giles Parkinson  25:47

I think I think that’s a nice way to wrap up the interview Minister. Congratulations on your plan and good luck with it and  hope it all goes ahead and thank you very much for joining us today and being on the podcast.

Matt Kean  25:59

Giles, David, thanks for all you do. Thanks for having me on.

Get up to 3 quotes from pre-vetted solar (and battery) installers.