Will the NSW election deliver a change in electricity policy?

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The major parties in NSW have developed policies to address climate and energy, but they don’t talk about them.

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Electricity should be the number one issue in NSW and the state elections this Saturday.  It remains incredible that football stadiums outweigh electricity in the mainstream media by a factor of about 100 to 1, and this note won’t change that.

Eve so, it’s equally incredible that climate change and the environment rated right up the top of a recent poll of issues for voters in NSW and yet the political parties just aren’t emphasising their policies enough. They have policies, they just don’t talk about them.

John Grimes, the CEO of Smart Energy Council summarised the policies as follows:

NSW Labor Party

– The biggest proposed rollout of renewable energy in Australian history;

– 7 gigawatts of large-scale renewables by 2030 – 6GW by reverse auction, 1 GW through a new State-owned corporation with 4GW in first term of government;

– 500,000 new solar homes by 2030, delivered through a $2,200 subsidy;

– $100 million Solar Schools package for solar on more than 350 schools;

– $11 million to train electricians in solar and battery storage;

– 100% renewables for all State Government agencies by 2025;

– At least 50% renewables by 2030.

NSW Liberal Party

– No interest loans for solar and battery storage for 300,000 homes. This includes loans over 10 years of up to $9,000 for a battery system and up to $14,000 for a solar-battery system. This is a good initiative;

– Making it easier for strata committees to approve solar panels and batteries for apartment blocks by lowering the voting threshold from 75% to 50%;

– An extra $20 million to the Emerging Energy Program, encouraging private-sector investment in large-scale electricity and storage projects;

– $10 million for a new recycling fund for solar panels and battery systems.

I’ve omitted The Greens as I don’t take them seriously, particularly in NSW.

On the way, John Grimes put it to my mind the ALP is an order of magnitude better than the Coalition. That said there are areas of ALP policy relating to default pricing and emphasis on State ownership and control that I am strongly opposed to.

For me the dominant narrative is:

NSW is dependent on imports and will become more dependent when Liddell closes;

NSW has limited, 1800 MW right now, within State transmission capacity for new projects;

Transmission from Victoria to NSW has always been heavily constrained and faces years of disruption related to the Snowy 2 build out and other upgrades;

NSW coal generators have much higher fuel costs than those in Queensland and Victoria

NSW coal generators are old and most are scheduled to close over the next 15 years. In our view there are significant risks of early closure;

Not enough new capacity is being built in NSW to manage the risk of early closure or transmission related energy shortfalls in NSW.

On this view of the facts the ALP policy with a focus on getting more capacity built in NSW is superior. However the ALP will still have to focus on getting transmission capacity up.

We’d add that the South Australia/NSW interconnector and Snowy 2.0 should improve NSW reliability risk from about 2022 or more likely 2023, but by then we’ll be up to the next election.

Neither party seems to have a demand response program.

Neither party seems to want to change the current situation re  CSG gas development in NSW.

More supply will mean lower prices

Notwithstanding the need for firming, more rooftop generation, more household batteries, 7GW of new utility-scale variable renewable energy will put significant downward pressure on electricity prices.

The NSW coal generators are very flexible, but they will lose market share under the ALP scenario and this will almost certainly lead to price competition in the dispatchable space.

So consumers, in my view, should prefer ALP policy on that ground.

It can be argued that the market left to its own devices will produce new supply as required, and I agree with this.

However, I’m not convinced that the market will produce the new supply in as timely a fashion or at better prices.

Reverse auctions shift risk from investors to the Government but we argue that the Government in this case is well placed to bear the risk and that the flexible nature of wind and solar investment allows for rapid adjustment to changing circumstances.

We think there is also an argument that more competition in NSW, that Government-funded reverse auctions would imply, could also help shake up the market overall.

We see reverse auctions as far less heavy-handed than direct intervention or regulated default prices. We also see them as encouraging competition similar to a broader market.

Out of interest here’s a chart or two showing one possible evolution of the NSW market.

2019 NSW electricity supply
Figure 1: 2019 NSW electricity supply, average by hour of day. Source: NEM Review.

And here we are advanced to 2025 on ITK’s main forecast

2025 electricity supply in NSW by fuel and time of day
Figure 2: 2025 electricity supply in NSW by fuel and time of day. Source: ITKe

The 2025 chart shows an enormous coal ramp in the afternoon which, although it might be possible, is unlikely. But we expect Snowy 2 or other pumped hydro and some batteries to take the edge off the ramp. Coal is constrained to a minimum of 2000 MW. Otherwise imports would capture even more share.

Editor’s addition:

Just for the record, Grimes observations of The Greens policy include:

Establish a new publicly owned electricity company to generate, distribute and retail renewable energy;

– $1 billion to support local community renewable projects and $1.5 billion a year in large-scale, publicly owned renewables projects;

– Rebates for more than one million households to install solar panels and battery storage.

You never know, they may hold the balance of power. But then, so might the right wing parties.

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