Reaction: Emissions the unspoken ‘elephant in the room’ in ESB reform package

The Energy Security Board delivered a series of options for redesigning the national electricity market on Friday, but many energy industry players say the package has left some significant gaps in its proposed reforms, including addressing the sector’s greenhouse gas emissions.

Of particular concern is a proposal to pay coal and gas power stations to remain operational in an effort to avoid their potential early closure.

“What should have been a pathway to steer the energy market towards net zero emissions is underwhelming in its vision. Instead, it proposes not only significant changes that delay the transition, but more importantly, recommendations that result in higher energy prices for consumers,” Stephanie Bashir from Nexa Advisory told RenewEconomy.

“The ESB’s Physical Retailer Reliability Obligation recommendations, if approved by the States, would require retailers to buy and surrender certificates from firm generators, effectively creating new revenue streams for coal and gas-fired generators.”

Chief executive of the Clean Energy Council, Kane Thornton, said measures designed to manage the exit of coal generators needed to focus on supporting renewable energy projects to ensure the market, rather than focusing on how to keep coal generators in the market for longer.

“As Australia’s energy system transitions to one that operates on clean, reliable and low-cost power, it is critical that any exit mechanisms support communities through an orderly exit, focus on bringing in new sources of energy generation such as batteries and pumped hydro, rather than extending the life of coal-fired power generators,” Thornton said.

Director of analysis at Green Energy Markets, Tristan Edis, described the lack of consideration of the need to transition coal plants out of the market left it as the unspoken ‘elephant in the room’

“The elephant in the room which the ESB couldn’t properly grapple with is that the coal power plants have to go if Australia is to honour its international climate commitments. The market design process should be all about how we facilitate replacement of the coal power plants, not retention of these existing plants or delay of their exit,” Edis said.

ESB chair Kerry Schott recognised that the rate of change within the energy market was outpacing a transformational scenario modelled by the Australian Energy Market Operator – a ‘fast change’ scenario that predicts renewable energy penetration could reach 94 per cent by 2040.

However, The reform package does not include measures directly intended to drive accelerated investments in renewables but rather addresses a number of teething challenges and investment priority decisions, emerging as the uptake of wind and solar grows.

CEO of the Clean Energy Investor Group (CEIG), Simon Corbell, which represents some of Australia’s largest renewable energy developers, said concerns remained about the approaches proposed by the ESB on managing the costs of new network infrastructure and the way in which new grid connections will be prioritised.

The CEIG has previously warned that measures that leave new renewable energy projects carrying the financial risks relating to network investment represented a substantial impediment to new cost efficient investment in new wind and solar projects.

“Without a clear focus on the cost of capital implications of its proposed grid access reforms the ESB will fail to address the key issues of concern to investors and Australia’s electricity market will continue to face significant investment uncertainty”, Corbell said.

“In particular the ESB’s continued preference for Locational Marginal Pricing (LMP’s) and Financial Transmission Rights (FTR’s) will only push up the cost of capital for clean energy projects, making the energy transition more expensive for consumers and governments.

“In addition the ESB’s proposals for potential intervention to keep thermal coal plants operating for longer in certain circumstances risks further distorting investment signals in an already unpredictable investment landscape.”

Energy Consumers Australia said the ESB’s package of reform proposals provided a much-needed roadmap for the transformation of Australia’s energy system, however, it added that the market shakeup fell short of what was necessary to properly empower consumers.

“We acknowledge that there are real security challenges and that emergency backstop may in some circumstances be necessary,” Energy Consumers Australia Chief Executive Officer Lynne Gallagher said.

“But the starting point needs to be engaging with consumers and earning a social licence. That comes from establishing trust and designing options that provide Australians with ways of managing their use and generation that help their neighbours, their community and the system but also reduce their energy bills.”

Federal Labor’s shadow minister for climate change and energy, Chris Bowen, said the opposition would give serious consideration to the reform proposals put forward by the ESB.

“It’s a very serious report, we’ll engage very constructively with it. It does, again, underline the size of the task to transfer Australia to renewable economy, the size of the task that is before the country to ensure our electricity supply is reliable, and renewable,” Bowen said.

“The draft Energy Security Board report I think highlights the opportunities and the need for clear, consistent and stable energy policy in this country, which we need so much of.”

The Energy Security Board will continue a process of consultation on the proposed reforms before delivering final recommendations to energy ministers in June.

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