"The electricity market renovations developed by the Energy Security Board include many strong ideas that will deliver better results for energy users as the system rapidly transitions. But there are risks from some over-ambitious extensions; the looming disappearance of the architect; and the lack of clarity and coordination from the governments who will decide on the final plans," Innes Willox, Chief Executive of national employer association Ai Group, said today.
"Australia's existing coal generation fleet is clearly going to retire much faster than once expected, thanks to unfavourable economics and ageing equipment more than emissions goals. Managing that exit without disaster, and redesigning our system to function well with the very high levels of renewables that are bound to follow, are essential if industry and households are to prosper.
"Industry will assess the ESB's emerging blueprint in greater depth over the coming month, but at first sight it is helpful overall and most elements will be uncontroversial.
"The most evident worry is the option of a Physical Retailer Reliability Obligation (P-RRO). The current Financial RRO is a break-glass-in-case-of-emergency backstop; a P-RRO would overturn the existing market. Governments are always tempted to mandate more reliability than energy users are actually willing to pay for; a P-RRO risks piling on gold plate with the costs landing on electricity bills.
"By contrast the ESB has much better suggestions for an agreed process for assessing the impact of very rapid exits, and model agreements that can be used if necessary to keep assets available until they are no longer essential. Any such agreements need to protect energy users and taxpayers against paying for services that aren't competitive with other assets.
"On transmission, pushing back the controversial COGATI proposals in favour of a near-term focus on arrangements for Renewable Energy Zones is the right call. If future rounds of development on COGATI can't answer stakeholders' concerns, it should go no further.
"Activating demand-side participation offers great potential to cut electrcity system costs for everyone, but getting there is complex and multifaceted. ESB propose a strong model for coordinating and iterating the many actions needed and including all stakeholders. The big question is who will run that process, with the ESB itself set to vanish on 1 July this year?
"Finally, the ESB raises the prospect of coordinating governments' investment schemes. This is a good idea, highlighted by reports that the Commonwealth will build a new gas generator in New South Wales. The need for and impact of such an asset would be much easier to assess with shared clarity on key policy settings. Most obviously, the Commonwealth could simplify a raft of planning and regulatory processes by replicating the States' commitments to net zero emissions by 2050.
"The Energy Security Board has played a unique and constructive role in drawing together the threads of Australia's energy reform debate following the Finkel Review. Even if only the uncontroversial elements of their proposed redesign are ultimately agreed, they will have left a substantial legacy of change for the better," Mr Willox said.
