Australian Wind Energy Conference 2023, Melbourne, 25 July 2023

Benn Barr, CE

 

I also acknowledge the traditional owners of Narrm, the Wurundjeri Woi Wurrung people of the Kulin Nation.

I respect the knowledge and care that Elders past and present of all First Nation communities hold for the lands and waters that we now rely on to generate and transmit our energy.

Thank you, Minister D’Ambrosio, for your remarks, which will inform our discussions over the next two days.

It’s a pleasure to address this conference once again and discuss the important role that wind has to play in our transition to net zero.

To give some context about how the Australian Energy Market Commission fits in, we’re an independent authority advising Australian energy and climate change ministers.

In essence, we make the rules that will drive the changes needed for the National Electricity Market to keep the lights on.

Unlike traditional rules, ours are less about prescription and prohibition, and more about mapping and incentives.

We also conduct reviews that set the scene for sector-wide reforms.

In my comments today, I will set the scene from our perspective on where we are on the journey to net zero – what’s going well, what comes next and where we all need to do more if we’re going to get there.

I’ll briefly touch on how wind energy will be critical to the transition – whether it’s onshore or offshore – knowing that you need little convincing on that front.

Lastly, I want to highlight four critical policy and regulatory reforms where we need your help if we’re to get more wind projects into the system and get to net zero. 

Those four reform areas are:

• The inclusion of emission reductions in the national energy objectives
• Transmission regulatory reform and access reforms
• Improving connections; and
• Wholesale investment signals

A doubling of electricity generation;

• A nine-fold increase in grid-scale wind and solar energy, from the current 16GW of capacity to a mind-blowing 141GW; and
• 10,000 kilometres of new transmission to connect this new generation to the system.

It’s a huge step up and it explains why energy projects will go from 20% of the national infrastructure pipeline to 70% in the next five years.

We all have our ways of explaining the scale of the work required.

AEMO calls it a ‘once-in-a-century transformation’.

I’ve likened it to a marriage between a global Manhattan Project and the moonshot.

Earlier this month, when University of Melbourne Professor Robin Batterham released the final Australia Net Zero report, he compared the energy transition to the Marshall plan to rebuild Europe after World War II.

Former Australian Chief Scientist Alan Finkel went further at a recent panel I shared with him, saying the transformation matched the shift from an agrarian to an industrial economy in scale – but in a fraction of the time.

In other words, it’s big.

The good news is that we finally have certainty about where we’re headed.

This consensus is critical to mobilising what’s needed in terms of policy reform, investment, and community engagement.

However, there is room for optimism.

The alignment that has so often eluded the sector, around integrating energy and climate policy, is settled.

We’re amending the national energy laws to include emissions reduction for the first time. A profound change.

While plans will continue to evolve on the journey to net zero, we have reached a turning point where we’re now firmly in the delivery stage for infrastructure.

And we have the collective will to head in the same direction.

We don’t need to shift thinking any more – because it’s already shifted. Now, we need real hard-headed collaboration to get things done.

The last 12 months have also given us a reality check – it’s a very tough environment out there – it’s volatile – there’s a global energy crisis, skills shortages, inflation. And temperatures keep rising.

A lot still needs to happen – a lot needs to go right – for us to achieve our net zero goals.

And the heavy lifting for getting it done rests with us in the energy sector.

So, it’s big – and it’s hard.

As Barack Obama said, in a plaque that sat on his Presidential desk: “Hard things are hard”.  

That might sound glib, but it sums up where we are right now.

Obama understood that hard issues don’t have a perfect answer. Problems are solved in increments.

And there isn’t a magic bullet for the challenge we face. There won’t be one piece of technology or change that makes it all happen.

But, having broadly agreed on the problems that need to be solved, now comes the hard work of collaboration – of listening – to get the solutions. Now is the time for making hard decisions.

That’s my call to you today – we need you. Or, as those World War I enlistment posters said: “Your country needs you”.

For a transformation of this magnitude to succeed in a landscape that is constantly evolving, we need collaboration, adaptation, and innovation.

The good news is that implementation of a large infrastructure build, getting regulatory settings right, and building community acceptance are all things that industry, regulators and governments can work together on to achieve.

Now more than ever we need a nationally coordinated approach to get to net zero.

We need industry to get involved in the reforms we’re proposing.

We need feedback from every quarter – industry, investors, governments, consumers – to solve the implementation challenges we have.

That’s why we canvass so widely across the sector, to capture a range of perspectives, emerging trends, and their likely impact on different stakeholders.

We aren’t always going to agree completely, but from our end, we commit to listening and adapting the solutions as we go.

The role of wind

I know I’m preaching to the converted when I say wind energy has a major role to play in the energy transformation.

It provides much-needed resource diversity, with daily and seasonal profiles that complement solar power.

This reduces the need for firming and dispatchable resources and eases the volatility associated with a weather-powered energy system.

It’s anticipated that wind and utility-scale solar will have almost equal shares of NEM generation by 2050, but with different trajectories.

Indeed, wind represents approximately 85% of all additional variable renewable energy projects in the Step Change scenario outlined in AEMO’s Integrated System Plan.

Currently there are a record 19 onshore wind projects totalling 5.4GW under construction or financially committed.

But the pipeline is concerning, with no new renewable projects reaching a financial close in the first quarter of this year – at precisely the time we need to accelerate deployment.

Project completion timeframes also need addressing.

An ANU study found it took 39 months to complete a typical wind project between 2016 and 2020.

While this has historically been declining, some barriers remain, particularly in the connections and commissioning processes, and we have work underway to address these issues.

We also shouldn’t overlook the contribution offshore wind can make.

While it’s not currently featured in the ISP, we can’t afford to ignore it – because we need to investigate all options to get to net zero.

It’s encouraging that now we have a framework for offshore infrastructure projects, states and investors are now looking more closely at offshore wind.

Victoria’s offshore wind zone, an Australian first, is set to increase the state’s renewable energy generation by 500%.

This month, Minister Bowen declared an area in the Pacific Ocean off the Hunter coast as suitable for offshore wind development.

We believe there’s an opportunity for the Commission to support jurisdictions to progress their work to facilitate offshore infrastructure projects.

Specifically, we will consider whether the National Energy Rules framework facilitates offshore wind infrastructure and identify any changes required to provide a workable regulatory structure. 

We have started to engage with key stakeholders on this and invite any interested stakeholders to get in touch with us. 

Getting more wind into the system

Turning now to the four reform areas I highlighted earlier that can help us get more wind into the system – emissions, transmission, connections and wholesale market reform.

I’ll start with the landmark decision taken by national energy ministers to introduce an emissions reduction objective into our national energy laws.

One of the most significant changes in the history of our energy markets – and the first change to the national energy objectives in 15 years.

Emissions reduction will be incorporated into each of the three existing national objectives – for electricity, gas, and energy retail markets.

In future, we will balance emissions reduction outcomes in the same way that we currently balance the existing elements: price, quality, safety, reliability, and security.

This brings a new dimension to the Commission’s decision-making, formally integrating climate into our decision-making for the first time.

While we have long recognised the critical role of emissions reduction in our work, this provides a welcome, additional structure in which to consider emissions reduction.

It has the potential to make the decision-making process clearer for industry and consumers, resulting in rules and regulations that fast-track the transition.

Legislation giving effect to the new objective is expected to pass through the South Australian parliament later this year.

In the meantime, we will need your input on the framework to embed emissions targets into our workstreams.

Yesterday, we released our draft emissions guidelines for consultation, outlining how we will balance emissions reduction with the existing objectives.

We want your feedback on our approach. We will then finalise the guide in September and use it to direct our approach to emissions reduction in rule changes and reviews.

We are also preparing a list of government targets for reducing emissions, and other targets such as those related to renewable energy.

All the energy market bodies will refer to this list when applying the new objectives, so we take a consistent approach.

We are consulting with governments on this list, and plan to publish it later this year when the law changes take effect.

In addition, we are undertaking a detailed rule change process to harmonise the energy rules, so they are consistent with the new objective.

This is our first rule change under the new objective and will ensure the rules support the transition to net zero, in line with government ambitions.

It’s the type of detailed work we pride ourselves on at the AEMC – working through the thousands of pages of detailed rules to make sure:

• the incentives are clear and consistent;
• the regulatory burden for industry is as low as possible; and
• the long-term interests of consumers are protected.

Transmission and access reform

Another area of reform that will support more wind energy in the system is the work we’re doing on transmission and access reform.

It will cost an estimated $14 billion to add another 10,000 kilometres of poles and wires to the National Electricity Market to connect new energy to the grid.

Our recently completed transmission review focused on getting those new connections funded and built.

It identified potential obstacles, especially in relation to getting projects financed and securing social licence to get them built.

Our recommendations are designed to manage those obstacles while protecting consumers against large electricity price increases as we transition to net zero.

Our concessional financing reforms, for example, are aimed at easing the hip pocket pressures for consumers.

Explicitly recognising concessional finance in the rules will allow some or all of the benefits of concessional financing arrangements to be passed back to consumers as lower network charges.

We’ve also sought to address financeability challenges which could impact the timely and efficient delivery of major transmission projects.

Specifically, we’ve proposed changing the revenue-setting framework for transmission projects and allowing variations to the depreciation profile of assets.

This will give transmission businesses and investors greater certainty to develop projects sooner, so the system can keep up with the pace of transition.

It will also ensure customers enjoy reliable and secure power at the lowest possible cost.

These recommendations regarding financeability and concessional financing are now the subject of rule change requests by Minister Bowen, and the Commission is consulting with stakeholders on these changes.

The Minister has also requested a rule change to improve social licence outcomes.

This is emerged as a key element in Australia’s electricity network development, with community concern regarding new transmission projects contributing to major time delays and cost impacts.

It highlights the need for an enhanced regulatory framework that enables community stakeholders to actively participate in the decision-making process.

Under our proposed changes, transmission businesses will be able to complete their planning work earlier, so they can identify potential issues and work through them with affected communities.

This might involve social licence-building activities such as:

• stakeholder engagement;
• land-use mapping;
• social, cultural, environmental and economic risk assessments; and
• engineering design.

We have also proposed that additional guidance is provided to stakeholders about how the costs associated with building social licence should be considered and assessed.

Just as important as getting new transmission built is ensuring we use it efficiently – and that’s where our transmission access reform work comes in.

Access reform has become increasingly urgent with the earlier exit of coal-fired power stations and as states seek to fast-track critical infrastructure through renewable energy zones.

The new energy landscape will feature multiple renewable generators spread over large open areas, complemented by dispatchable plant – and the whole lot has to be connected, as efficiently as possible.

It’s a far cry from the existing transmission network, serving a relatively small number of traditional generators located close to fuel sources.

Access reform aims to avoid underultilised, expensive connections and address increasing congestion in the transmission system.

It will send signals to investors about the best place to locate generation, storage and dispatchable assets, so we only build the transmission we need.

And it indicates the best way to bid into the market, so we get the least cost combination of assets contributing at any point in time.

The hybrid model that’s been proposed addresses congestion issues both in the investment and operational timeframes.

It creates a new spot market – called the Congestion Relief Market – incentivising providers of congestion relief, such as batteries, to locate in congested parts of the network and decrease total congestion.

In addition, generators will be assigned a place in a priority access queue, based on when they connected to the transmission network.

This incentivises new generators to locate in less congested areas and will ensure existing generators are not superseded by new generation.

With financial incentives to encourage generators and storage to locate efficiently in the network, transmission access reform has multiple benefits for the energy transition – and for you as proponents of wind energy.

It avoids wasting solar and wind investments and minimises unnecessary transmission buildout, which consumers ultimately pay for.

It achieves emissions savings by making greater use of existing renewable resources.

It strengthens incentives for investors to participate in REZ schemes, giving them confidence that their investment case won’t be undermined by subsequent projects outside the REZ.

It ensures a mix of assets with the REZ, especially storage, that maximise the value of investment.

And it provides additional revenue streams for storage that locates in congested areas of the grid.

What should give you most comfort is that the proposed solution has come from industry.

While transmission access reform has long been a contested issue, this time around we’ve worked with industry to find a solution.

Both elements of the hybrid model we have put to national energy ministers have come from industry participants – the congestion relief model from Edify, and priority access from the Clean Energy Investor Group. 

In saying this, I realise priority access remains a contested issue in some quarters.

But we need both components of the reform package to address congestion issues in the investment and operational timeframes.

We believe priority access will enable investors to manage congestion risk more effectively, with the priority level assigned upfront factored into a project’s investment and siting decision.

The recent meeting of national energy ministers agreed to proceed with further detailed design of the proposed hybrid model.

The Commission has been tasked with providing final policy recommendations for the ministers to consider at their next meeting in November.

So, we’re at a time-critical stage of this reform.

In summary – this matters because the scheme:

• has been developed by industry
• improves access to recognise the changing nature of the system
• creates new voluntary markets for you to make money
• delivers social licence benefits
• AND has been found by a cost-benefit analysis to deliver net benefits of up to $5.9 billion and reduce emissions by 23 million tonnes over 20 years.

Connections

Solving the issues around connections is another significant reform that would facilitate more wind power generation.

There have long been delays connecting renewables to the grid, due to the volume of connections and the time taken to ensure the system remains secure. 

This presents problems for you as an industry and for market bodies in meeting our climate goals and maintaining reliability in the National Electricity Market. 

We’ve moved to address these issues in several ways.

We evolved the system strength framework from a reactive tool to one that provides a more forward-looking coordinated solution for the supply and demand of system strength in the national electricity market.

While it’s an improvement, we know there are still some issues with the implementation of the framework and the impact this is having on generator connections in costs and timing.

We’re keen to address these issues and are working with the other market bodies, as well as the Clean Energy Council and Energy Networks Australia, to resolve them.

We expect a rule change request from AEMO to this effect and will progress that request as a priority.

Our April reactive current rule is also designed to facilitate more efficient connection of renewable generation and batteries.

The rule change lowers the reactive current capability that inverter-based resources such as batteries, wind and solar need to provide.

This will result in reduced capital expenditure and faster, easier connection negotiations.

It allows more efficient connection of inverter-based technologies while ensuring the security of the power system. 

In addition, we’re progressing the Clean Energy Council's rule change request on the R1 connections registration stage.

The request seeks to clarify the obligations and timeframes for providing and assessing updated technical models of expected generator performance.

The CEC says this will reduce the uncertainty associated with this stage of the process, speed up the connection of new generation and manage reliability risks.  

It argues lower investment costs and reduced risk premiums will also flow through to lower wholesale prices.

Specifically, the rule change looks to clarify where risks and responsibilities for connections lie, increase transparency and facilitate collaboration between parties.

We anticipate commencing consultation on this rule change next month.

There’s still a lot of work to investigate the right way forward but we will inform the industry with appropriate guidance in the rules. 

Another piece of the connections jigsaw relates to the enhanced information reforms, which will allow developers to more easily access the information they need to locate efficiently in the network. 

The first round of information will be published for the industry next year, followed by consultation on the scope and a further report in 2025. This will allow the information to evolve with stakeholder needs.

These improvements to the connections process and information will empower and allow generators to connect more easily, faster, and in better locations in the network.

It creates a win-win for developers and consumers, putting downward pressure on wholesale prices, while reducing project capital expenditure and connection times. 

The final area of reform that will support wind development relates to wholesale investment signals.

This is an issue that has come into sharp focus with the recent stall in wind projects reaching a financial close.

We know we need market settings that encourage sufficient investment in generation to meet consumer demand for energy.

We’ve seen jurisdictions step in to support the market, through such schemes as the NSW Road Map and the Commonwealth Capacity Investment scheme.

These programs will do a lot of the heavy lifting to get replacement assets in place – but not necessarily the whole task.

Governments understand that their investments need to partner with – rather than crowd out – private sector investment.

The Commission is also conscious that our work in this area needs to integrate with these Commonwealth, state and territory initiatives.

We’re thinking about the longer-term market settings and the investment and operational signals they provide.

Some of the work we’re doing to improve reliability, for example, is also about ensuring investment to improve reliability.

We have three pieces of work in this area.

We’ve recently completed a review of the interim reliability measure, looking at the short-term measures in place to manage reliability risks.

We agreed to extend the measure by three years to 30 June 2028, taking into account the expected scale and pace of the energy transformation over that period.

The application of the measure has been extended to both the Retailer Reliability Obligation and AEMO’s ability to enter into long-term reserve contracts.

This helps AEMO procure services outside the market if the balance between supply and demand is going to be tight.

It also sets boundaries for how the Retailer Reliability Obligation works to eliminate reliability gaps well before they occur.

These measures ensure we have some conservative signals in place as we work towards more enduring outcomes.

In the longer term, we’re looking to increase the market price cap, which has traditionally been the mechanism designed to send long-term investment signals.

We’re progressing a rule change from the Reliability Panel to raise the cap from $15,500/MWh to $21,500/MWh by 1 July 2027.

The aim of this change is to incentivise investment in the National Electricity to meet agreed reliability settings.

In conducting this work, the Reliability Panel recognised that increasing the cap is only the first step in the longer-term solution.

There are legitimate questions about whether the current reliability standard is still fit for purpose in this new kind of power system.

A standard based on average outages isn’t very helpful in an energy sector comprising such an eclectic mix of assets and affected by increasing weather variability.

So, the Panel will now work on what happens after July 2028. This work will look at the form of the reliability standard and market price settings to address the changing reliability risk profile.

It means recognising for the first time that the market may need different investment signals – the market price cap and a signal that recognises the tail risk volatility in the market.

This will ensure we have sufficient investment in generation, particularly in the type and duration of storage we need to manage reliability risk as the market transforms.

As I said at the outset, there's a lot of work to do to get to net zero – and it’s work we need to do together.

The landscape is evolving at pace and we need to make sure the market settings keep up with these changing circumstances.

We can’t afford to wait for the perfect solution – we simply don’t have the time and it likely doesn’t exist.

And we can’t afford to sit on the sidelines as casual observers.

That’s why we want to work with you to give the necessary reforms the greatest chance of success.

Together, we can test and adapt ideas.

We’ve demonstrated with transmission access reform the value of that collaboration.

We’ve shown that industry engagement works and delivers better outcomes than might otherwise be achieved.

We now need your engagement on these additional issues.

Tell us how you think we should incorporate the emissions reduction objective into our rule changes and reviews.

Show us how our system strength and enhanced information reforms can be improved to effect faster, easier connections.

Get involved in the work we’re doing to ensure the reliability standard and other measures provide the best investment signals.

Help us help you get more wind into the system – because it benefits us all.

We may not always agree but I can promise you that we’ll sit down with you with open minds and we’ll listen to your views.

Barack Obama may have said: “Hard things are hard”.

But as he also said: “Humanity has done hard things before”.