High drivers for change, low ambition: Australia’s energy reform train crash

The regulatory and policy short-termism that currently rules Australia’s electricity market has again been the target of criticism, with two new reports calling for “big picture thinking” on the inevitable decarbonisation – and democratisation – of the national grid.

The first report, from leading research group Accenture, warns that to remain competitive, Australia’s energy sector must learn from global leaders, who are leapfrogging traditional approaches, defining new visions and establishing ambitious targets to inform the development of new market models.

Accenture’s report – a major contributor to the CSIRO-ENA Electricity Network Transformation Roadmap, released last Tuesday – compares Australia’s progress in energy market transformation to approaches being taken in various other jurisdictions around the globe.

These global leaders – most of which have been touched on by RE and One Step Off The Grid – include the American states of New York, Texas, California and Hawaii, as well as the Netherlands and the UK in Europe.

New York, for example, is pursuing a “highly ambitious program,” according to Accenture; animating the retail market, stimulating investment, and actively encouraging distributed energy uptake through rate and regulatory reform.

The Netherlands, meanwhile, is in the process of implementing a major electricity market reform package based on 12 key principles, including full market visibility for prosumers.

According to Simon Vardy, the report’s author and Accenture utilities strategy lead, one of most interesting aspects to Netherlands reform has been the “experimental room” provided by the regulator, allowing market players to expand and try new things.

“That has been exceedingly effective, from electric vehicle innovation to small start-ups the utilities have been able to spin off,” he told RenewEconomy in an interview.

By comparison, Australia – which Vardy notes was once held up a paragon of energy market reform – has fallen well behind the pace, both in terms of current progress and future vision.

“Australia has very high drivers for change: high prices; a consumer base (of) early adopters, wanting to take up new technologies and try new things.

We’re also doing OK on the technology and capability front, he says: medium-range. Not ahead but not lagging.

“But when it comes to ambition, we’re not on the top.

“Australia needs a visionary program. If I looked at New York, I’d say, ‘Ok I can see what they’re doing’. But if I look at Australia, I see a relatively piecemeal approach.”

Vardy noted that while Australia was good at the “gee whiz factor” when it came to adopting new technology, we weren’t as good at sitting back and saying ‘how does that fit in?’

“We’re quick to latch on to new and innovative business models that come along – like blockchain enabled trading, etc, …but where does it fit in to the broader transformation journey, and how is it going to operate in the bigger picture?

“I think Australia’s been left behind in (this) regard. That’s why it’s really important to take a longer-term view, to ensure we have a reliable and capable electricity model.

“Grid operators and every market participant should be looking around the world at what’s going on and take note of that,” Vardy told RE.

The second report with an “act now or pay the price” message on energy reform comes from the Centre for Policy Development, published on the weekend.

Titled Avoiding Gridlock: Policy Directions for Australia’s Energy System, the report argues that renewable energy, battery storage and smart technology advances can already support a more secure, climate-friendly and customer-centric electricity system – but only if policymakers update the way the electricity system is regulated.

“We must ensure that innovative ‘behind the meter’ services are widely available so households can better track and tailor their own energy use” said the CPD report’s author, Alexander Marks.

“Distribution networks have a mixed record on customer service and innovative services. The flawed roll out of smart meters in Victoria is a prime example.

“Distributors should focus on core business – ensuring the security and the resilience of the grid. Allowing them to crowd out innovation in naturally competitive areas of the electricity system, such as household battery systems, smart metering or load control, would be a mistake,” Marks argues.

Marks also recommends that restrictions on distributors competing in behind-the-meter services should be tightened – and that whole-of-system resilience in the context of increased renewables and a changing climate should be made an explicit objective for networks under a revamped National Electricity Law.

“While technological innovation and price decreases made rooftop solar a possibility for millions of households, the regulatory evolution has been incremental, with the intention of preserving stability for incumbents, while encroaching disruption continued unabated,” he says in the report.

“With immense lobbying power, there is a risk that large incumbent players may occupy what should be competitive spaces and block new entrants, to the detriment of market efficiency and customer outcomes. It has happened before, and it could very well happen again, adding to an already complex and challenging environment for policy makers and regulators.”

And Accenture’s Vardy – a 10-year veteran of the utilities sector – agrees.

“We’re at a critical juncture now, in terms of policy making,” he said, pointing to the COAG energy minister meetings, and last week’s release of the Finkel review.

“We should learn from (the mistakes and successes of global leaders),” he said. “It’s silly not to.

“The whole point around ‘experimental room’ and trying new things is really important, because you iron out … problems in pilots and trials before they become large-scale problems.

“As a general principle and rule, try as many things as you can, give some wriggle room, to iron out as many problems as you can before you take it to a large scale.”

In the end, he says, the goal is to provide the right settings to give value back to consumers in all sorts of different ways, “and you can only do that when the policy settings are right – and that requires a big picture approach.”