Australian Energy Week, Melbourne, 20 June 2023

Anna Collyer, Chair AEMC

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Thank you, Daniel. And thanks to all of you for the welcome.

I also acknowledge the traditional owners of Naarm. The Wurundjeri Woi Wurrung people of the Kulin Nation. They have met, shared stories, and built relationships on this land by the river for many thousands of years.

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 power system.

Every jurisdiction in Australia is in some way working to bring indigenous peoples’ unique needs and ideas into the energy transition.

I hope we see this participation grow ever more meaningful in the future – I believe the transformation will only be stronger as a result.

Now, I know what is top of mind for everyone here today are the challenges facing consumers from cost-of-living pressures, including ongoing increases we’re seeing in retail energy prices.

I’m sure this conference will give us an opportunity to talk about immediate actions that can help alleviate those pressures and what more we can do to support all customers, right now. At the same time, these real challenges provide us with an important focus as we transition to a net zero grid.

The conference theme is achieving the transition at least cost, not any cost – something I hear regularly from my friend Andrew Richards at the EUAA. This concept is the basis for my opening remarks today. I want to talk about the enormous and complex challenge of getting Australia to net zero and doing it in a way that minimises costs for energy consumers.

And – if you’ll pardon my pun – I plan to use a puzzle analogy to bring the pieces together.

Like many of you, I have a fond family tradition of jigsaw puzzles. Whether it’s holidays, sick days, or the dreaded lockdown days, most of us can remember working on a jigsaw at least once.

My family’s most recent effort was a picture of that war effort factory icon, Rosie the Riveter, but I’ll get to my gender equity piece later this morning! For now, I’ll apply the universal jigsaw experience to the enormity of the energy transformation in Australia.

Our challenge – while far more serious than any puzzle – does have similarities.

When you begin a jigsaw, you know exactly what you’re making: that’s the picture on the box. In this case, the picture shows Australia at net zero carbon emissions by 2050.

A common start to jigsaws is to place all the edges before getting stuck into the middle. Sometimes, though, edge pieces remain hidden until you make enough progress to reveal them among the unplaced pieces. For a time, you just have to accept the gaps and look for other wins.

Without stretching this analogy too far: in energy terms, there are many unknowns still ahead of us, so we can’t yet detail every single step of the plan between now and 2050. We’re working hard to turn over all the puzzle pieces – but in areas like operational security, for instance, we really must expose more knowledge before we can commit to the next steps.

What we do have joined up, is the bottom edge that is anchoring this energy puzzle. That’s the unprecedented alignment of Australian governments based on our plans to get to net zero. With that baseline edge completed, we can more confidently fill in plans – the outside edges if you will – for all energy stakeholders.

There are other similarities between jigsaws and our work in energy, like:

• being worked on by people who find solutions from different angles, and
• featuring leaps of genius from unexpected players (in my case my 82-year-old mother!) who walk by and instantly spot that one connecting piece you’ve been hunting forever...

The good news for my energy analogy is that – with a puzzle on this scale, and so many connections and discoveries still waiting for us – there are more than enough pieces for everyone to play a part.

So let me move on to some highlights from the AEMC and the ESB – soon to be the Energy Advisory Panel – that connect with the sector. As I do, I hope you’ll identify places that your own puzzle pieces could add to the ever-growing picture.

This year I’m using three themes to help capture the many interrelated activities underway. Those themes – transformation, resilience, and innovation – will shape the rest of my talk today.

Transformation

National energy objectives

To begin with transformation: the introduction of emission reduction objectives to the national energy objectives is one of the most significant changes in the history of our energy markets. In fact, this is the first change of any kind to the objectives in 15 years. We’re expecting the amendments sometime this year.

So, what will this mean?

Well, for clarity: emissions reduction won’t form a separate, additional objective. It will be incorporated into each of the three national objectives – for electricity, for gas, and for energy retail markets.

This brings a new dimension to the Commission’s decision-making. 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.

But – also for clarity – this doesn’t mean emissions reduction trumps the other elements in the objectives. We’ll continue to balance all criteria on a case-by-case basis, and to look for the most efficient and affordable way to achieve our energy objectives, including in relation to emissions reduction.

In the Commission’s most recent strategic reset, we recognised the critical role of emissions reduction as the context in which all our work was being undertaken. This gives us a welcome, additional structure in which to consider emission reduction.

But before that begins, we have work ahead of us! And we will need your input on the framework to embed emissions targets into our workstreams. Please, keep an eye out for draft papers later this year.

Another transformative change is how we approach the massive task of expanding transmission with the greatest possible efficiency and effectiveness.

If I return to the puzzle analogy – transmission is less about pieces of the puzzle, and more like the concept of interlocking shapes that hold a jigsaw together. Without those connecting tabs and sockets on each piece, the puzzle would fall apart. I’m sure you’ve all heard the line: there’s no transition without transmission!

The Transmission Planning and Investment Review we have just completed focused on getting those new connections funded and built.

Rule changes to apply those recommendations are underway, with more to come. You’ll also be hearing from Daniel Westerman shortly, about where AEMO is at with its planning process.

Transmission Access Reform

Meanwhile, the ESB’s work on Access Reform is about getting the maximum usage and value from new and existing transmission. Or, to put it colloquially – how do we get the biggest bang for our buck?

The existing transmission network was designed to serve a relatively small number of traditional generators, located close to fuel sources, be that coal, gas, or hydro.

In contrast, our myriad new renewable generators are typically spread over large open areas with high levels of sunshine and wind.

They must be complemented by dispatchable plant – including storage and, potentially, flexible load. And the whole lot must be connected, as efficiently as possible, with at least 10,000 km of new poles and wires.

Another consideration – given the nature of our energy markets – is that those connections should also work across state borders. This has been highlighted recently by the rise of state government Renewable Energy Zones.

We absolutely welcome the contribution and the benefits that jurisdictions bring to their REZ schemes in terms of jobs, growth, and reaching our net zero goals. But we also need these Zones to be part of a wider, coordinated plan that avoids excessive and inefficient construction, funded by consumers in their energy bills and taxes.

Access reform aims to send signals to investors on:

• first, the best place to set generation, storage and dispatchable assets, so we only build essential transmission and other assets
• and second, the best way to bid into the market – so that we get the least cost combination of assets contributing at any point in time.

The reform’s purpose is to have the market support decisions that give better outcomes for everyone when deciding where to build and how to bid.

National access reform would support Renewable Energy Zones in ways such as:

• stronger incentives to invest in these schemes
• confidence that investment cases won’t be undermined by subsequent projects outside a REZ
• and, providing for a mix of assets within REZs, particularly storage, that maximise the value of investment.

We think this can build value in REZs, and, ultimately, get energy to customers as efficiently and affordably as possible. We presented this to Ministers in February, and we’re about to take the next stage of the work back to them.

In terms of our jigsaw puzzle – this is one of those times when there is room for every kind of approach. State-driven renewable energy zones are welcome participants, and this also speaks to the strength and value of our national partnerships.

And that brings me to my next theme today: resilience.

Resilience

Resilience can mean a lot of things to different people. Today I’ll use it in relation to the reliability of our power system.

With winter upon us and 12 months on from the market suspension, in addition to affordability, reliability is also at the top of our minds.

Last year when I spoke at this conference, I said I would always now measure my time in the energy sector in two sections – the time before, and the time after, June 15, 2022. There are people who still wince when you bring up the suspension – I might have just spotted a couple of you in the audience!

The pain was very real – but, so was the response, which was managed incredibly well, particularly by Daniel and our colleagues at AEMO.

I’m not going to be the person who jinxes us by talking up the solutions since that time, but I will say that there are structural changes in place that stand us in good stead if we were to face similar circumstances.

These include:

• the Government’s introduction of coal and gas caps in response to global commodity changes
• the Commission’s changes to emergency price settings so more generators can meet their costs within the administered price cap regime, and
• the ongoing compensation claims process and the significant communication effort around that work.

This all means that, if the same situation arose, we’d expect to see more generators would continue without disruption.

Rethinking reliability

In years to come, the 2022 suspension will show up in uni exams, and give energy veterans that ‘where were you on the 15th of June’ moment at conference dinners. But, looking ahead, we do have a broader suite of actions underway to support the resilience of the system in the short, medium, and longer terms.

Speaking immediately, we’ve extended the application of the interim reliability measure to both the Retailer Reliability Obligation and to AEMO’s ability to enter into long-term reserve contracts. This wasn’t popular with everyone, but it ensures we have some conservative signals in place as we work towards more enduring outcomes.

In the medium term, we have a number of jurisdictional schemes like the NSW Road Map and the Commonwealth Capacity Investment scheme that will do a degree of the heavy lifting on getting replacement assets in place – but not necessarily the whole task.

This brings me to our Reliability Panel’s recommendation on the market settings for the period 2025 to 2028.

The Panel proposed a gradual increase in the market price cap over this period.  We see that as – potentially – a complementary measure to the work jurisdictions are doing to promote investment.

We have confidence in the Panel’s analysis and judgment but that doesn’t mean the decision is pre-determined. We’re conscious there were divergent views on the Panel and the Commission needs to test the proposals in a wider context.

We will carefully consider, when balancing reliability and affordability, whether there are net benefits to customers of increasing the market price settings.

And then in the longer term, how are we going to keep incentives flowing for investment in the assets the sector needs?

That’s why the Reliability Panel has now kicked off its next major review – looking at whether we can apply the current standard to make judgments about reliability in this new kind of power system? The hypothesis is: it’s no longer fit for purpose.

A standard for reliability that is based on average outages isn’t very helpful in the new paradigm of an energy sector comprising such an eclectic mix of assets, and increasing variability in the weather caused by climate change.

This review looks toward the end of this decade and asks:

• what form could a new standard take?
• what targets would we attach to the new standard to measure performance?
• and – what tools could the market employ to give that standard effect?

We also assume governments don’t want to keep investing indefinitely. We want to get back to an equilibrium where the market can send the kind of signals that result in the assets it needs.

And of course – you can’t talk about reliability without affordability. The balance of those twin desires will guide the new standard discussions, just as it does all our work in this area. And on that note, I also refer you to AER Chair Clare Savage’s speech this afternoon about protecting consumers.

DIY reliability

And let’s not forget, there’s a quiet kind of ‘DIY reliability’ revolution underway on millions of Australian home and business rooftops. Increasingly, customers are self-funding reliability to some degree.

We are now nudging 3.5 million small solar PV panel systems; a world-leading per capita level of generation. And some solar installers report that recent growth in EV sales is adding even more interest in rooftop PV. Prospective buyers, they say, are adding potential petrol savings to the usual calculations around reducing power bills.

Even more interesting, our AEMC economists have shown the tipping point in domestic battery affordability will land in 2025, much sooner than expected. In fact, we’ve found some battery brands are already priced to deliver payback within eight years, which is the standard we use for affordability.

And there’s more.

Today only 72,000 or so homes and small businesses in Australia have batteries. Our analysis says that if installation only continues at the rate of the past three years – we will see more than 1 million homes with batteries by 2030. That’s about 10% penetration of the domestic market.

This doesn’t include the expected boom in household charging from EVs – which you can also think of as ‘mobile batteries’. Looking to the 2030s, we may see home battery installations slow down, replaced by the convenience of two-way EV charging.

Innovation

And that brings me to my third theme for today. As an optimist, this is my personal favourite: innovation.

Consumer energy resources like rooftop solar, electric vehicles and batteries are a rich field for innovations of both the technical and behavioural variety. We need both kinds to reach our net zero goals.

In jigsaw puzzle terms, consumer energy resources are like those highly detailed sections that you gradually complete and bring together to help join up the whole. You know that moment? Where you suddenly discover there are in fact six different shades of blue that can help you nut out the puzzle! 

Those connections are complicated – but very rewarding, and best completed with many participants. We have significant work to do to make sure those connections are possible.

AEMO’s step change scenario relies on a five-fold increase in contributions from distributed solar resources, much of it from consumer-generated energy. We need tools and incentives that can enable and inspire millions of consumers to choose to share the power they generate in such a way that it supports the overall grid.

If we can do this well, we can save by needing to build fewer large-scale assets. We can share the benefits of consumer assets in a way that reduces – not increases – the energy divide.

I said before, there’s no transition without transmission. I might also add, the consumer is the hero on the road to net zero.

At the Commission we have four key pieces of consumer energy resource work in front of us:

• First, our review of CER technical standards is nearly complete. I’ve said it before – we have an extra 3.5 million tiny generators on our rooftops, but we don’t have 3.5 million tiny engineers up there to service them!
• Secondly, we’re also close to completing our review of smart meters. If knowledge is power, smart meters literally turn power into the knowledge consumers need to decide if, and how, they participate in the new energy markets.

And then I want to touch on two more:

• One is underway. It aims to unlock the benefits of consumer energy resources through flexible trading. This opens up new management options for householders and businesses.
• The next one will commence soon. It’s called the Scheduled Lite Mechanism, which just describes a low-cost, light-touch way to participate in the markets.

Seen together, these reforms present a platform to allow customer assets into the system, at a time and in a way that they can have the most impact. From both a large and small consumer’s perspective – we need to understand which incentives and safeguards would encourage participation.

And for the aggregators and other businesses that will be instrumental in this platform, we’ll work out what are the clearest signals that they can follow to know what the market needs and to create the best outcomes for their clients and the system.

The groundwork for a two-way market has already been laid, of course, with many pilots underway. Just a few examples you might want to look up are:

• a joint venture VPP project between Vicinity and EnelX
• an ARENA-funded flexible load project led by Shell Energy Hub, enlisting supermarkets and others
• and both AEMO’s Project EDGE and Ausgrid and Reposit’s Project Edith – for which I have a soft spot as it’s named for a pioneering female electrical engineer.

Trials like these are great opportunities for us to learn by doing. At their best, they also help pinpoint regulatory, operational, and commercial barriers so we can refine the market design solutions we need.

There are many innovative projects out there right now. There will not be one single way to solve a puzzle of this scale, we need every good lead we can get.

Conclusion

Diversity and inclusion

Which brings me back to Rosie the Riveter, in a roundabout, puzzle-solving way.

An exciting thing for me personally this year was to be appointed one of Australia’s first Global Energy Equality Ambassadors. Energy – you may be shocked to learn – has one of Australia’s lowest female representations of any industry. The only lower sectors are construction, and mining.

One of the scheme’s objectives is to reach gender equality in this sector by 2030 – the Equal by 30 initiative. Currently, many government and renewable energy organisations are close to that mark, but sadly it’s more like 20% for the rest of the sector and far worse than that in the trades and senior leadership.

This is a cause very dear to me. There are some practical solutions that I’ll happily speak to at length another time. But for now, something else about gender diversity struck me early in my ambassadorial tenure.

I was listening to Canadian diplomat Isabelle Hudon speaking of the enormous task ahead of us in the energy transformation. Isabelle says:

• ‘we must harness all possible talent to discover the breakthrough solutions that will transform energy and the world’

It was the ‘all’ that struck me. ALL – possible – talent. Not only including women. To finish this tremendous puzzle in front of us and match the net zero pictured on the box, we have to seek the broadest possible range of skills, ideas, and actions.

We have a lot of very complex problems to solve. If you’ve heard me speak before, you know how strongly I believe in bringing together and really listening to different perspectives.

That means diversity. Diversity and inclusion, because without inclusiveness, diversity alone can form a very lonely path.

Whether it’s gender, culture, age, ethnicity, education or life experience, countless studies show we get better solutions when we embrace a wider range of perspectives in our work.

I can think of several times since I started with the Commission that a dissenting stakeholder view led us to a much better solution than we’d have found without being challenged in our thinking.

It’s part of our strength. We are continuing to work on ways to improve our inclusiveness both with staff and stakeholders, and I’d like to see that approach embraced more widely in the energy sector. 

So, before I say goodbye to Rosie the Riveter, let me just say to those expressing fears about workforce shortages blocking the energy transformation’s construction rollout – perhaps this is one case where we can learn from lessons of the past

Millions of women around the world proved themselves capable of reskilling and operating in a vast range of electrical, mechanical, scientific, and industrial roles during both World Wars.

We have another massive national and global effort ahead of us, and it might be time to think differently about what staffing an energy workplace looks and feels like. I really hope we’re not leaving up to 50% of our potential workforce on the sidelines for the sake of:

• setting meaningful recruitment targets
• guaranteeing safe work environments
• and – at the very least – when we do actually hire women in the field, getting some female portaloos out there too!

And so, like a jigsaw puzzle, the energy transformation will keep challenging us to fill in problematic blanks by uncovering:

• new ways of thinking
• new ways of looking at our sector
• and new ways of collaborating and drawing in fresh talent.

As in a jigsaw, sometimes we make huge headway in one sitting, other times a single small piece fitted in place is an almighty achievement. The key is – we all have pieces to contribute.

One day, you’ll look back at the completed energy puzzle, in all its vast complexity. You’ll each know the satisfaction of pointing to the pieces you placed. And you’ll see how you helped to match the picture on the box, which shows we reached net zero by 2050.

Thank you, and enjoy your conference!