Energy Industry Insights
Over the past month, a lot happened on the political front:
During September 2023, the Australian Government released its Future Gas Strategy consultation paper, which aims to establish a plan for gas production, consumption and substitution as Australia works towards its goal of net zero emissions by 2050. The strategy will provide a medium-term (to 2035) and long-term (to 2050) plan for Australian gas. Two tenets of the plan will be to reduce demand for gas more quickly than supply is reduced (to avoid disruptions and price volatility) and the ongoing development of gas resources, in ways which support Australia’s net zero objectives (e.g. through emissions reduction, capture and offsets).
Commonwealth Minister for Climate Change and Energy, Chris Bowen, announced the $2.0 billion Hydrogen Headstart program is now open for applications.
In early-October 2023, BHP CEO, Mike Henry, spoke at the Australia Japan Business Cooperation Committee 60th Annual Joint Business Conference, and called for policy clarity to ensure ongoing foreign investment in Australia.
On 12 October 2023, the New South Wales Government introduced its landmark Climate Change Bill, to enshrine its emissions reduction targets in law in New South Wales and establish an independent Net Zero Commission. The Climate Change (Net Zero Future) Bill 2023 commits New South Wales to cutting greenhouse gas emissions by at least 50 per cent by 2030 and reaching net zero by 2050. The Net Zero Commission will monitor the state’s progress to net zero and report annually to ensure parliamentary transparency and accountability.
On 11 October 2023, the Joint Standing Committee on Trade and Investment Growth released its report on Australia’s transition to a green energy superpower, which examined how Australia can build on its strengths and opportunities to become a leading destination for trade and investment in the future global green economy. The 16 recommendations made by the committee focus on the role for the Australian Government to accelerate Australia’s opportunities and address challenges.
On the regulatory front…
National Electricity Market – 1 second FCAS market kicked off: The Very Fast Raise and Lower Frequency Control Ancillary Services (FCAS) markets commenced operating on 9 October 2023. These new markets, which join the existing, longer-interval (six second, 60 second, five minute) FCAS markets, will incentivise and compensate participants capable of providing very fast frequency response (e.g. batteries) to help control power system frequency.
Victoria-South Australia Capacity Investment Scheme initiated: On 30 August 2023, the Commonwealth Government announced a tender under the Capacity Investment Scheme targeting 600 MW of dispatchable capacity (with a four-hour equivalent duration) across Victoria and South Australia, to offset the loss of capacity from the scheduled closure of South Australia’s Torrens Island B power station in 2026 and Victoria’s Yallourn power station in 2028. Successful tenderers will be offered long-term revenue underwriting of their projects, providing additional investment certainty. The Victorian-South Australian tender follows a recent partnership between NSW and the Commonwealth to add a 550 MW CIS component to the New South Wales Energy Roadmap’s firming tender.
Australian Climate Service independent review: The Commonwealth Government has commissioned an independent review of the Australian Climate Service to ensure Australia has the systems and information required to prepare for the impacts of climate change. The review will provide advice on the performance, scope and resourcing needed to deliver on Australia’s future climate information needs.
Reliability Panel will apply emission reduction objective to its decision making: Following the introduction of an emission reduction objective into the National Electricity Objective, the AEMC and Reliability Panel will now apply an emissions reduction objective to their duties and deliberations on rule change processes. The emissions reduction component will be considered alongside existing National Electricity Objective criteria that guide the market bodies’ work, such as price, quality, safety, reliability and security.
Submissions to the AEMC’s Integrating Price Responsive Resources in the National Electricity Market Consultation Paper closed on 14 September 2023. AEMO has submitted a rule change request to the AEMC proposing a voluntary “scheduled lite” mechanism to allow non-scheduled price responsive consumer energy resources to participate in scheduling processes in the NEM.
On 20 September 2023, the Commonwealth Department of Climate Change, Energy, the Environment and Water (DCCEEW) released its Australia’s Guarantee of Origin (GO) Scheme Design Paper. Australia’s GO Scheme will underpin the development of clean energy markets and international trade in renewable energy and low emissions products, such as green hydrogen.
In the energy market and the broader economy…
In its latest State of the energy market 2023 report, published in early-October 2023, the AER highlighted a range of vulnerabilities to the reliability of energy supply as coal generation exits the market. In particular, it highlighted the sensitivity of the market to outages among ageing plant, lack of coordination of consumer energy resources (e.g. rooftop PVs and household batteries) with the rest of the market, a shortfall in committed new energy projects (partly as a result of ongoing supply chain issues) and the risk of a disorderly withdrawal of coal.
In early October 2023, the Clean Energy Council released its Power Playbook, which contains 45 recommendations to the Federal Government, designed to ensure Australia gets back on track for 82 per cent renewables by 2030 and in a position to seize global opportunities in renewable energy. The submission sets out a structure for the creation of a formalised national masterplan.
The Central West Orana REZ (in New South Wales) has lodged an Environmental Impact Statement for a transmission project that will connect the REZ to the grid, making it the first REZ in Australia to reach this stage of development.
Ahead of COP28, the International Climate and Energy Summit in Madrid sought to build a broad coalition behind efforts to keep the Paris Agreement goal of limiting global warming to 1.5oC within reach. At the summit, which was co-hosted by the Government of Spain (which currently holds the EU Presidency) and the International Energy Agency, Ministers from close to 40 countries around the world called for the pace of energy efficiency improvements to be doubled, the ramping up of electrification and the reduction of methane emissions, and a tripling of renewable capacity, all by 2030.
Soaring demand for metals and minerals crucial for global emission reduction, combined with low commodity prices driving investors and mining firms to cut spending, are expected to lead to significant shortages of key elements needed for the energy transition, according to a new analysis from McKinsey.
In early-October 2023, The Australian Financial Review released a new intelligence report commissioned by Westpac which highlights that the pace at which Australia’s hydrogen industry is currently being developed risks impacting its competitive advantage. The report draws on experts including former chief scientist, Dr Alan Finkel; Wood Mackenzie hydrogen expert, Flor Lucia de la Cruz; Australian Hydrogen Council CEO, Dr Fiona Simon; and Organisation for Economic Cooperation and Development industry program lead, Deger Saygin.
The ACCC issued a draft determination to deny authorisation for AEMO and electricity industry NEM participants to coordinate the scheduling of repairs, maintenance, renewals, upgrades and new connections and associated information sharing. This follows the ACCC authorising broader coordination arrangements in 2020, and then again in 2022, for AEMO and industry participants to respond to issues arising, firstly from the impact of COVID-19 and subsequently from the energy crisis.
From a social, customer and partner perspective…
During September 2023, Climate Action 100+, a worldwide coalition of 700 investors responsible for $US68 trillion ($107 trillion) in assets under management, released its assessments of Australian companies, revealing that many are falling behind in their climate ambitions. The annual benchmark of 14 of the country’s biggest ASX listed companies, found most companies’ actions remain well short of the Paris Agreement goal of keeping global warming to 1.5 degrees.
During the month, Jobs and Skills Australia released a Commonwealth Government-commissioned analysis of opportunities, risks and required reforms associated with the transformation of Australia’s workforce to enable the energy transition. The report highlights a potential shortfall in trade qualified workers, emerging skills gaps in regional Australia and participation barriers for women, First Nations people and migrants. It also discusses the opportunity which it says exists for a fit for purpose tertiary skills, training and qualifications system, and proposes a worker-centred approach to support communities transitioning to low emissions economies.
KPMG published a study of sustainability maturity across companies in a range of countries, industries and revenue sizes. The study showed that just one in four companies are in advanced stages of preparation to obtain independent assurance on the sustainability information they report, despite 66 per cent of surveyed companies being required to disclose sustainability data either currently or in the near future. The study indicated that 56 per cent of companies are publicly reporting sustainability data, and while 93 per cent of these are providing some level of external assurance, only 14 per cent are obtaining reasonable assurance, and 16 per cent limited assurance. The survey acts as a timely reminder of the need to coordinate assurance services early, as there seems likely to be a shortfall in available resources as the deadlines for the implementation of new reporting requirements in Australia draw near.
