The redesign of Australia’s energy markets, including ensuring adequate electricity and gas supplies to keep a lid on prices, will be among the issues raised at Wednesday’s state and federal energy ministers meeting.
The gathering by video link, the first since the Albanese government took office two and a half weeks ago, comes amid soaring energy prices that threaten to stoke further inflation and prompt more interest rate rises by the Reserve Bank.
The ministers are expected to hear federal climate and energy minister Chris Bowen list his priorities. The Energy Security Board (ESB) and regulators will also outline progress on a range of changes including the potential for a so-called capacity market in eastern states that would reward generators for setting spare capability to meet sudden gaps.
“We do face an acute crisis that has added to a chronic challenge,” the senior energy policy adviser for the Ai Group, Tennant Reed, said.
Last week, market regulators had to intervene to put a limit on gas prices in Victoria and the Sydney market at $40 a gigajoule, or about four times the standard price.
Russia’s invasion of Ukraine triggered a jump in global energy prices, and the exit of a gas retailer, Weston Energy, in late May sent companies scrambling for supplies, propelling local prices higher. With electricity prices partly set by the cost of gas, wholesale power markets have also risen several times the $87/megawatt-hour average during the March quarter in the eastern states. The lengthy cold weather snap has also elevated demand.
Ahead of the meeting, scheduled for 4pm AEST, Victoria’s energy and environment minister, Lily D’Ambrosio, highlighted the need for changes to federal settings on gas, saying not enough was being reserved for Australian use. Western Australia sets aside 15% of production for domestic use but there are no formal limits for the eastern states.
D’Ambrosio also flagged the need for a potential redesign of the so-called gas “trigger” mechanism, which would force gas companies to supply more of the fossil fuel domestically. Under current rules, the federal government can only activate it from 1 January.
“We know that for too long, we’ve had too much gas exported to other countries,” she said.
“We need to bust a few myths. Some of the myths are that this country is running out of gas. It’s not running out of gas,” D’Ambrosio said.
“The problem is too much of what is being produced, certainly to the north of the country, is being exported overseas.”
Her Queensland counterpart, Mick de Brenni, said help to quicken the take-up of renewables should be a priority.
“Whilst all options are on the table for consideration … Queensland would continue to promote policy responses that supported our record on delivering new, cheaper and cleaner generation into the market,” he said.
“The formula we are following to keep downward pressure on power prices focuses on connecting more renewables and back-up storage to our grid.”
Ai Group’s Reed said the change of federal government should usher in closer coordination across states, territories and the commonwealth.
“The early signs are that there’s a good new set of relationships,” he said. “And that is promising.”
Among potentially contentious issues, though, will be the ESB’s recommendations for post-2025 energy market design, including the proposed development of a capacity mechanism.
Reed said “you could make a case for a capacity mechanism” but it was important that the design not lock in high cost and potentially high emission sources of energy. It would also not provide any near-term benefit to the market and would have to be designed to minimise disruption and avoid scaring off investors.
At a conference last October, Bowen said an Albanese government would set several tests for any proposal to lock in extra capacity and improve grid reliability. These implied it would not support a system which extended the life of coal power plants.
“Firstly, it must be consistent with our emissions reductions ambitions, including net zero by 2050 and a strong roadmap to get there,” he said.
“Secondly, it must encourage investment in renewable energy, rather than chilling it as many fear.
“Third, it must be a bridge to dispatchable technologies like hydrogen, batteries and pumped hydro, not an indefinite subsidy for old technologies,” Bowen said. “And fourth, it must actually ensure that generators dispatch when needed.”
Bowen noted that commonwealth-owned Snowy Hydro had recently refused to dispatch electricity from its Colongra gas plant below the market price cap of $15,000, an act he said was “reprehensible”.
New National party leader, David Littleproud, meanwhile, has renewed his calls for the Albanese government to consider support for nuclear energy and even convene a national energy summit – issues not expected to get much heed at Wednesday’s meeting.
“Small scale modular nuclear power should be included in that conversation as a source of reliable energy and a way of reducing the emissions,” Littleproud said.
“A national energy summit that convened pre-eminent scientists, energy experts, economists as well as political leaders would be a positive contribution for policy development,” he said.
Littleproud said his party was “not advocating large scale nuclear power plants”, rather smaller ones, but wanted “an agnostic debate on all energy sources available to Australia”.