Captured by a broken market Thursday, 27 April 2017

Opinion piece by Ian McLeod, Head of Smart Energy & Digital Asset Management for Enzen.

Ian McLeod is the former CEO of Ergon Energy, with over 30 years’ industry experience. Under his leadership, Ergon was recognised with a number of prestigious awards, including the 2015 Edison Electric Institute International Innovation Award, EPRI Technology Transfer Award, Australian Engineering Excellence Award for Innovation, Research and Development, and the 2015 Climate Alliance Business Leadership Awards for Business Innovator of the Year.

On 8 March 2017, Prime Minister Malcolm Turnbull announced an east coast energy crisis. How did we, a country whose wealth was built on a foundation of abundant and low-cost energy, get into this positon?

While a priority now, electricity was not considered a matter of importance to the business of nationhood when our Constitution was formed. It wasn’t until 1991 that the Industry Commission identified opportunities to increase economic performance by splitting the electricity supply chain, creating competition, privatising, and building stronger electrical connections between states. Established in 1998, the National Electricity Market saw energy resources and retailers compete for market share.

Nine years on in 2007/08, climate change, carbon reduction and the Kyoto Protocol became part of our language and central to national debate and policy making. Mandatory targets were set, winners were picked and good market design took a back seat. Supply trumped demand, efficiency and productivity. Subsidies (now $2.95B p.a. according to BAEconomics) and mandatory obligations pushed intermittent solar and wind into the market at the top of their price curves and squeezed some base load generation out. Gas was to be the transition fuel, but international exports and state imposed moratoriums have created scarcity and high prices in the domestic market.

Today, Queensland has the highest penetration of roof top solar in the world, South Australia can run for short periods of time totally on wind (while secured by the grid) and the ramp up of utility scale renewable will see us meet our target. At the same time, grid supplied electricity has almost doubled in price since 2007/08 (including network contribution), is less reliable and as the Prime Minister says, we have a crisis. Large energy intensive businesses are warning about viability, jobs and where they spend their dollar.

Is the National Energy Market broken? Some conflicted parties think not, but I’m sure most consumers would say yes. In Australia, we have one market and if it’s broken, what do we do?

As supply side investments increase to meet mandatory renewable targets, customers are also investing in parallel behind the meter to avoid the associated price increases. Storage is seen as the next investment saviour, but there is no doubt that there are already sufficient energy resources existing now for the market to operate efficiently, securely and at a lower cost. What is needed is appropriate planning, greater visibility of information, a clear set of balanced objectives and a well-designed market. This will deliver us a cleaner, securer and more affordable energy future that can be the foundation for economic growth. It can be done, but not with a market that is ‘half-pregnant’.

Ian McLeod will discuss how Australia is currently experiencing an energy crisis despite the nation's natural energy resource abundance at the Southern Regional Forum. The central theme of the forum is ‘Developing smart cities in South East Queensland’. Engineers and consultants from all sectors, such as land development, planning, government, technology and transport will be attending the forum. The forum will be held on the Sunshine Coast on Thursday 11 May, with optional site tours held on Friday 12 May.

 

Image: Ian McLeod accepting the 2015 Edison Electric Institute Edison International Award for Innovation in New Orleans, USA.