Tim Jordan, Commissioner

Committee for Economic Development Australia, The Energy Security Series

Fullerton Hotel, Sydney

Thank you to CEDA for the chance to speak today.

I’d like to also acknowledge the traditional custodians of the land we’re meeting on and pay my respects to Elders past and present.

When I saw the title of today’s session, I wondered for a moment: why another talk about the energy trilemma? We’ve all been to lots of those.

But security, affordability, and sustainability define the terrain of energy policy.

They are not going away.

These three goals are built right into the national energy objectives that we apply every day in our work at the Commission.

What’s notable about our current moment is the focus on security.

Energy security concerns seem to peak in the wake of energy price shocks. 

Whatever the cause, the fact is: energy security concerns are on the march globally – and Australia and New South Wales face this challenge too.

Today, I’ll talk about how we think about energy security at the Commission – as the rule-maker for Australia’s electricity and gas markets, and adviser to governments.

And I’ll talk about how that’s relevant for us nationally, and for New South Wales.

I’ll highlight two areas that need special attention this year:

• wholesale electricity market reform, to set us up for the next phase of the transition, and
• integrating fast-growing consumer energy resources.

But first I want to touch on a complication, which is the increasing noise around the energy transition. 

It’s very loud out there. When you read the energy news clips, you could be forgiven for thinking black is white, up is down, and all things are equal all at once.

There is a lot of noise.

Why is that? Well, we’re in a period of heightened disruption.

The global energy crisis of the early years of this decade still reverberates. 

Globally, that major disruption, and a period of extraordinarily high prices, shifted the focus to security and affordability.

High global energy prices hit Australian consumers. 

That’s because significant parts of our energy system depend on prices set in global markets, which are turbulent at times. 

What else is causing the noise? Energy is tied up with geopolitics, and it always has been. 

There’s no denying that geopolitical risk and uncertainty are heightened at the moment.

The International Energy Agency has called out how geopolitics is creating risks for energy security and the transition.

And, on top of that, the energy transition is not a smooth, linear replacement of one energy system with another. 

Two systems — the old and the new — are co-existing, and it’s complicated.

There are dead ends, reversals, and setbacks.

These disruptive conditions are ripe for noise.

So, how do we identify the signal amid all this noise?

At the Commission, the way that we find the signal is by taking a balanced, long-term view of the energy landscape.

We focus on the long-term trends, and we avoid putting undue weight on the latest headlines. 

One of the trends we see is that clean energy investment globally is very strong.

Investment in renewables, particularly in solar, is setting new records. Investment in grids is picking up.

Battery investment doubled globally in just one year, between 2022 and 2023, and continues to grow rapidly. EV sales continue to grow, driven by declining costs. 

The global transition to an energy system built on renewables, and the electrification of transport and industry, continues at pace.

This aligns with what we said our recent strategic statement. 

There we talked about change in the global energy system happening on the scale of the Industrial Revolution – but at a faster rate.

The Commission’s role is to deliver long-term outcomes for Australia’s energy consumers. That’s our mission and purpose. 

That means helping consumers benefit from power system that is low-cost, low-emissions, reliable, secure and safe.

Last year we spent some time thinking through the longer-term opportunities and challenges that the energy system faces in Australia.

In an attempt to increase the ratio of signal to noise, our strategic narrative identified eight challenges and opportunities that we think are important for achieving a consumer-focused net-zero energy system.

I’ll run through all eight briefly now.

One, equity. First, we said we need to ensure equitable outcomes across households, empowering them to choose how they participate in energy markets. 

Two, we said energy security and reliability need to be maintained through unprecedented change.

This means having sufficient firming and storage capacity; it means incorporating new technologies; and it means managing the changing mix of assets and actors.

Three, we said energy policy and other policy areas need to be coordinated to enable good outcomes.

We need faster updates to regulatory frameworks, as energy system changes affect the community and the environment, and interact with most areas of economic activity.

Which led to our fourth point – that trust is necessary for change.

Building and maintaining trust allows faster uptake of new technologies.

Our fifth point was that the transition is capital and labour-intensive, and we need to attract those inputs to deliver it.

With the value of construction in the energy sector nearly doubling in the last five years, we are competing globally for capital and labour. We need to remain an attractive sector to invest and work in, and we need to continue to invest in skills.

Six, data needs to be managed and accessible to support the changing energy system.

New technologies across the grid mean our energy system is rich in data – but we need to coordinate and make available that data to ensure an energy system that is cost-effective, resilient, secure and flexible.

Point seven, community and environmental needs must be met alongside the need for new infrastructure.

As the energy sector’s impact on the workforce, on communities and the landscape changes, we must have clear objectives that build support for the energy transition and reduce sources of uncertainty and friction.

And finally, our eighth point was that we need a plan for gas. We have a very good plan at a system level for the electricity transition, but no such clarity yet about a system-level plan for gas. 

That lack of clarity makes investing in gas, and regulating the gas system, challenging. 

The risk is that we veer off track and put carbon reduction goals out of reach.

All of the challenges and opportunities we identified in that strategic statement are linked to security, affordability, and sustainability.

Sometimes, energy security and the energy transition are set up as opposing goals.

But to my mind, there’s no choice between energy security and the energy transition. 

We can and must have both. 

In my view, security and affordability favour renewables.

Of course, renewables are variable, so they require a range of backup generation options, and smarter and better-connected grids, to manage this variability.

And we need flexible, diverse clean energy sources – diverse across technologies, across scales and across geographies.

That is the path to an affordable and sustainable energy system that is also secure, and it’s the path laid out in the Integrated System Plan.

We often talk about energy security in the broad sense of maintaining adequate and reliable energy supply.

But ‘security’ has another specific connotation in the electricity context.

We use ‘system security’ to refer to the capacity of the power system to keep a set of very important technical parameters within defined limits.

So, how is the transition going on that front?

There are a few things that make system security a high priority for our work program in the sector.

Firstly, the change in the generation mix. 

Australia is seeing a comparatively large shift from synchronous machines like coal-fired generators to inverter-based resources like wind and solar.

The second factor is the shape of our transmission network. 

Ours is exceptionally long and thin, with limited interconnection. It’s not the meshed network that other countries can rely on.

The topology of our system exacerbates the challenges with system security arising from high levels of inverter-based resources.

And a third factor is the massive uptake of rooftop solar in Australia.

Rooftop solar is brilliant for consumers, let’s be clear. 

But it brings power system security challenges, especially when rooftop output is very high and the residual load on the system is very low.

These three factors create engineering and operational challenges. 

If not addressed, they risk a system that can’t be operated securely within those important technical parameters.

As the transition progresses, we need to build on our strengths to maintain a reliable and secure power system.

The exit of synchronous resources will require investment in synchronous condensers, in grid-forming batteries and other solutions.

The Commission has had over many years an extensive work program on system security. This work, across frequency, system strength and inertia, is essential as the sector changes.

What else do we observe, as the national rule-maker and strategic adviser to governments?

Another trend we notice is direct state and territory policy interventions as they respond to the concerns of their communities.

However, we also note that these interventions are happening at the same time as interconnection is increasing, signalling more cooperation and electricity trading between the states under the national framework.

The NEM is seeing more interconnection, starting with Project Energy Connect between southern states, but over time increasing transfer capacity between all regions.

It’s the Commission’s job to find a way to make policy actions work across jurisdictions and to work with each government to achieve their goals.

There’s a range of security and reliability risks to be managed in our changing electricity system.

Some other recent work we’ve done at the Commission, including through the Reliability Panel, has focused on these risks.

• We’ve looked at the changing nature of reliability risk in a weather-dependent system, and whether the reliability standard should be expressed differently.
• We’ve looked at the physical resilience of network assets to extreme weather, and the role of distribution businesses in investing to resist and recover from extreme weather events.
• And we’ve looked at cybersecurity, and clarity about who is responsible for preparing for cybersecurity incidents and managing the response when they occur.

Having talked about some of our recent work, in the rest of my talk I want to focus on 2025, and two critical areas that need our collective focussed effort to maintain energy security in the transition.

The first is wholesale energy market reform.

In November last year, energy ministers announced an independent review of the NEM’s wholesale market settings.

This review, led by Tim Nelson, is a timely and important piece of work.

In our submission – published on our website last month – we highlighted some challenges that are affecting investment at the moment.

For example, the period of overlap between new generation and storage entering and the old fleet exiting has led investors to expect low prices in a period of oversupply, hampering investment. 

There is no strong in-market signal for generators to exit, which exacerbates that problem. 

We noted that new assets offer different services, and contracts will need to continue to evolve to underwrite investment in those assets. 

We noted a mismatch in contract tenor expectations. New projects need long contracts to satisfy financiers, but many power buyers are only offering short-term deals.

We observed that assets that appear to be a good match for our system needs, such as pumped hydro, are struggling with business cases.

And there are services that we know our system needs that may not be provided in the future without their own value stream. 

In our discussion about the way ahead, we made several points:

• The current market has many strengths that we should leverage, including generally strong signals from the spot market to coordinate operation and investment.
• We said that building on the current market design allows for faster implementation of changes. While no market design is perfect or complete, the essential features of the current NEM are well suited to a future dominated by variable renewables.
• We said solutions should be efficient, effective, and targeted.
• We noted that targeted underwriting mechanisms could directly address specific needs, such as for long-duration storage or peaking capacity.
  • Transparent, competitive tenders could be part of the enduring market design. 
  • Importantly, auction volumes can be ramped up or down based on changing needs. 
  • Auctions can be modified to incorporate insights from earlier rounds. 
  • Ensuring that auctions are competitive is critically important for long-term consumer outcomes.
  • And underwriting contracts should be designed to support healthy secondary markets, which are so important for our system.
• We said that price volatility will remain a feature of the market. Prices drive investment in an efficient mix of resources to meet consumer demand, including investment in storage and firming.
  • Price volatility is an essential feature of our market. It creates powerful signals for risk management, which in turn drives investment.
  • Virtually all consumers are shielded from wholesale price volatility, and that’s exactly how it should be.
  • Market interventions should accept and leverage price volatility in the wholesale market.

The second area of critical work needed to maintain security in our future system is integrating CER.

Australia is at the global frontier of rooftop solar. Solar and batteries mean great opportunities for self-sufficiency and cost savings.

Consumers will reap significant benefits from EVs and efficient heating, cooling and cooking.

But at the scale these assets are growing to, they will significantly challenge our energy system, and things will probably have to change.

Reducing system risks, while getting value out of CER and maintaining the trust of consumers, is a problem Australia is well placed to manage.

Under the National CER Roadmap, there is significant work underway to better regulate CER and develop a two-sided market.

The work covers everything from compliance with technical standards to the ‘solar backstop’ to the accelerated smart meter rollout.

It is imperative that this work is delivered in full and in line with the timeframes in the Roadmap.

CER and distributed energy resources will play a critically important role in Australia’s energy future, helping to reduce overall system costs, improving reliability, and achieving secure, low-emission energy for all.

The transition to electric vehicles is a critical opportunity. We are going to need ubiquitous chargers, so that access to charging is equitable and convenient. 

And we will need to ensure that at least some EV charging load is responsive, so that we don’t have to build out the system at great expense.

If these and other CER resources are integrated well, the power system will operate efficiently and securely, and consumers and industry will enjoy the benefits of lower bills.

At the AEMC, we are contributing by driving CER reforms in the national rules.

Our recent final rule on Integrating Price-Responsive Resources in the NEM allows aggregated CER, DER and price-responsive load to be scheduled and dispatchable.

This enables even more low-cost renewables to compete in the market, resulting in lower electricity and ancillary service costs, lower emissions and ultimately lower prices for consumers.

All these points highlight the need for a period of coordinated policy development in 2025 to deliver what the energy system needs.

I believe that New South Wales, at the heart of the NEM, will play a leading role in the next phase of the transition.

Indeed, I have to praise New South Wales for the approach it has taken to the transition, which has been stable, comprehensive and bipartisan.

This state has a nation-leading framework in place that adds to the resilience of the transition overall by providing predictability for investment.

• New South Wales has put in place a contracting framework for new generation and storage which has been largely mirrored in the Federal Government’s Capacity Investment Scheme. 
• It has set up an independent consumer trustee to safeguard New South Wales consumers. 
• Its Electricity Infrastructure Roadmap aligns with AEMO’s Integrated System Plan. 
• Its roadmap is designed to deliver projects in the state’s Renewable Energy Zones in a timely way that minimises the impact on communities.

Rightly, there are still tweaks to be made to the framework, particularly to get transmission right.

The state government is reviewing transmission planning to avoid duplication and reduce complexity. That is welcome.

We recently compared state-level REZ frameworks, and found they vary widely across the country. We will be publishing a report on that shortly.

A lot of transmission investment is underway, but there is a vast investment task still ahead. 

Consumers will bear the cost if it is not done efficiently and in a timely way. 

This is something that the actors in the transformation of our networks — transmission companies, investors, regulators, governments, and us as the rulemaker — must all keep front-of-mind.

But there are many reasons to be positive about the ability of New South Wales to respond to this challenge, and remain a national leader in the energy transition.

I’ve covered a lot of ground but it’s very timely for us to focus on energy security at this stage of the energy transition.

It is a challenging environment, no doubt.

But there is much we can do.

It’s critical that we make a concerted push on reforms to the wholesale market, and on integrating consumer resources.

The challenge for all of us is to take a long-term view, focusing on the signal and not getting distracted by the noise.

I wanted to end with a quote from a French energy historian, Jean-Baptiste Fressoz, who has a new book out called More and More and More. 

Fressoz says that we have never in history done an energy transition, in the sense of replacing one fuel with another. 

He says that each major new energy source feeds off the others, as we add another fuel to the stack. He documents this extensively.

He concludes that if we are to transform our energy system in the way that we must, while still meeting our energy needs, it will be an unprecedented transformation through sheer force of will.

We should recognise the scale of the challenge we’re taking on.

But I think we are making progress towards the transformation here. 

May it continue.