The impacts of the pandemic have been severe, and it is reasonable that Australians look to government for support in the form of unemployment assistance (Newstart/JobSeeker), wage support (JobKeeper), or the range of other measures the government has put in place.
A key challenge is how to transition out such measures once the worst economic impacts of the pandemic (and lockdowns) have passed. This is made particularly difficult given the uneven spread of the pandemic in each state not to mention the disproportionate impact upon already vulnerable groups in society.
We agree with the Reserve Bank Governor’s statements to the Parliament’s Standing Committee on economics on 14 August, that ultimately, stimulus should focus on job-creating investment rather than income support and other cash handouts. Fortunately, there are compelling investments in electricity, transport and other infrastructure that can be made now to stimulate and drive the transformation.
Energy and infrastructure
The main barrier to driving investment in the right types of infrastructure is political. Governments on both sides have prioritised projects with short-term development timelines because this provides quick political wins.
The key to successful infrastructure planning is long-term thinking and consistency of policy.
For instance, there would be no energy crisis if the government had simply committed to a stable energy policy (almost regardless of what that policy was)!
The energy sector is vital in driving the economy post-COVID-19. Energy costs are critical to any business. We will commit to transitioning to a clean energy system domestically and then developing the capacity to export surplus energy to our Asian neighbours. Technological advancements have led to dramatic reductions in the cost of renewable energy resources, so that they are now cost-competitive with fossil fuels. The market will invest in renewables without government subsidies provided the appropriate grid backbone is in place and investors have confidence that the government will be consistent in its energy policy.
We’ve now shifted from wondering whether wind and solar are our cheapest resource to a new set of problems which is: how do we efficiently integrate these resources into the system so that we can take full advantage of the fact that for the first time in this industry we can use free fuel?Audrey Zibelman, CEO Australian Energy Market Operator
The challenge to scaling-up renewable energy is not cost, but addressing the issues related to the intermittency of solar and wind power. This is caused by the fact that the sun is not always shining and the wind is not always blowing. In order to integrate renewable energy into the grid without reliability issues arising (such as those observed recently in South Australia and Victoria), there must be ample energy storage to allow renewable energy to be stored for use at a later time. The capacity of the transmission grid must also be bolstered to manage the reconfigured flows of electricity through the network and allow for more widespread sharing of energy resources..
To store energy for use at times when renewables are not producing, investment in grid-scale storage will be critical.
This can be achieved through investments in pumped hydro storage projects such as Snowy Hydro 2.0 and battery storage.
To incentivise private investment, an overhaul of the electricity design market rules is required to properly compensate energy storage. The ‘energy only’ design of the National Energy Market is an outlier globally. Almost all other deregulated electricity grids around the world have both energy and capacity markets. Under Australia’s energy only market, critical services such as load balancing (the key service that storage provides) and inertia are not compensated in the market.
The government is dragging its feet on energy market reform because it is fearful of upsetting utility owners whose asset values will be affected by regulatory change. While the impact that change will have on investors is important, it is not a reason to maintain the status quo, with “1 in 100 years” bushfires occurring every few years.
As Australia reforms its energy market, we can take lessons from markets such as Denmark and California, who have adapted market design rules to accommodate the scale-up of renewable energy. Once the appropriate market design is in place, the private sector driven by super funds looking for long term reliable returns will provide the funds required to develop green infrastructure. Where enabling investment is required in transmission or generation (including energy storage), financing can be provided through the Clean Energy Finance Corporation.
While grid-scale energy storage will help commercial and industrial energy users to meet their requirements using renewable energy, investment in distributed storage (e.g., batteries) will allow residential and small business customers to use renewable energy at times when the sun isn’t shining and wind isn’t blowing.
In short, our energy & infrastructure platform includes:
Implementing a $30/tonne emitter pays price on carbon. This will provide energy policy certainty, prompting private investment in the electricity grid, creating jobs, and lowering energy prices
Overhauling Australia’s electricity market design to align with international best practice, incorporating a capacity market to compensate load-balancing electricity generation
Underwriting support for our lithium-battery and hydrogen energy industries
Investing in electricity transmission upgrades to ensure a reliable supply of energy (guided by the Australian Energy Market Operator’s Integrated System Plan)
Levying a super profit tax on non-renewable resource projects
Developing a national strategy to address coastal inundation