Fin inkel Review in into the Future Security of the National Ele lectricity Market 1
Electricity prices Australian Electricity Bill Cost Components (2016/17)* Networks 47 31 Wholesale (generation) Retail 14 Green Schemes 8 0 5 10 15 20 25 30 35 40 45 50 Percentage * Based on Australian Energy Market Commission estimates 2
Where are we - prices • National average retail prices have doubled in the past ten years, driven by a range of factors Nominal increase in average retail electricity prices since 2004 160 160 Carbon price repealed Generation 140 140 Percentage increase Carbon price introduced 120 120 100 100 Network pricing 80 80 60 60 40 40 20 20 0 0 3
Wholesale prices at record levels 140 140 Tightening supply and rising gas price Volume-Weighted wholesale electricity spot price 120 120 SA price Carbon price repealed Carbon price introduced spikes 1 July 2014 1 July 2012 July 2016 100 100 $130/ $AU/MWh (nominal) MWh 80 80 $58/MWh $56/MWh 60 60 $35/MWh 40 40 20 20 0 0 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015 June 2016 March 2017 4
How did we get here? • Electricity supply has been tightening as existing, fully depreciated coal fired power stations close • Policy uncertainty holding back new investment • This has resulted in higher-cost, gas-fired generation setting the price more often 5
When will coal power stations close? Historic power station closures NEM coal capacity and closures 25 Liddell (NSW) Energy Brix 1.9 Yallourn (Vic) 189 Gladstone Emissions Intensity (tCO 2 -e/MWh) Hazelwood (Qld) 1.7 20 Coal Capacity (GW) 1.5 1,600 Vales Point (NSW) 15 Bayswater (NSW) Collinsville Anglesea 1.3 Tarong (Qld) Redbank Eraring Munmorah 190 Northern 160 (NSW) 144 240 1.1 520 Playford B 10 Loy Yang A (Vic) 1,400 Loy Yang B (Vic) 480 1,000 0.9 Stanwell (Qld) Swanbank B 5 Wallerawang 0.7 Callide B (Qld) Mt Piper (NSW) 0.5 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2020 2025 2030 2035 2040 2045 2050 Power Stations close at 50 years from last unit black coal brown coal Source: Jacobs Modelling for Finkel Review 2017 6
When coal generators reach 50 years Closure Date by last Owner State Capacity (MW) Generator generating unit Liddell 2022 AGL NSW 1,936 Vales Point 2028 Delta Electricity NSW 1,241 Gladstone 2032 Rio Tinto Queensland 1,579 Yallourn 2032 EnergyAustralia Victoria 1,362 Eraring 2034 Origin NSW 2,707 Tarong 2036 Stanwell Queensland 1,316 Loy Yang A 2036 AGL Victoria 2,088 Bayswater 2038 AGL NSW 2,593 Callide B 2039 CS Energy Queensland 658 Loy Yang B 2044 Engie Victoria 966 Mt Piper 2046 EnergyAustralia NSW 1,260 Stanwell 2046 Stanwell Queensland 1,372 Millmerran Does not close before 2050 Intergen NSW 788 Tarong North Does not close before 2050 Stanwell Queensland 416 Kogan Creek Does not close before 2050 CS Energy Queensland 699 Callide C Does not close before 2050 CS Energy Queensland 761 Source: Capacity figures from Jacobs Modelling for Finkel Review 2017 7
Gas is setting the electricity price more often • In May 2017, across the NEM, gas set the electricity price 24 per cent of the time,compared to 9 per cent in May 2014 compared to 9 per cent in May 2014 Electricity generator offers into the wholesale electricity spot market 120 100 Gas 80 Black coal $/MWh Brown coal 60 Renewables 40 Clearing price 20 0 100 200 300 400 500 600 700 800 900 1000 MW of capacity offered as supply every 5 minutes 8
Gas prices are pushing up electricity prices • Every $1/gigajoule increase in gas prices leads to an increase of around $10/MWh in the cost of gas fired electricity generation Short Term Trading Markets and Victorian Declared Wholesale Gas Market Prices 12 10 $ per gigajoule 8 6 4 2 0 Adelaide STTM Brisbane STTM Sydney STTM Victorian Declared Wholesale Gas Market 9
Where are wholesale electricity prices going? NEM average wholesale price $140 $120 Load-weighted wholesale price ($/MWh) $100 $80 $60 $40 $20 $0 2010 2015 2020 2025 2030 Historical Jacobs modelling - Finkel BAU scenario 10
System security and reliability: How did we get here? Percentage of annual generation from wind and solar by state • Renewables were pushed into 60% 2006-2017 the system without: 50% • a focus on where they were located 40% • a plan to replace inertia and frequency response lost as coal Solar 30% closed Wind • a plan to deal with intermittency 20% • Investment uncertainty outside of renewables 10% • Lack of planning and sufficient 0% notice of major closures NSW VIC QLD SA Tas WA Source: 2009-2016: Office Of the Chief Economist, Australian Energy Statistics, 2006-2008 and 2017: AEMO data through the NEMReview tool 2017 11 Note: this includes large-scale and rooftop solar.
Where are we - emissions Historic NEM Emissions (Mt CO 2 -e) 200 200 190 190 Emissions (Mt CO 2 -e) 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Department of Environment and Energy – National Greenhouse Gas Inventory June 2016 12
Breakdown of emissions Australia's emissions by sector 2015-16 Percentage of NEM 2016 emissions by fuel type Waste 2% Agriculture 13% NEM 6% Direct 30% manufacturing emissions 6% Fugitive Black Coal Emissions 37% 8% Brown Coal 56% Electricity Gas (excluding NEM) 5% Transport 18% On-site industrial energy combustion Source: NGGI June 2016, 18% Source: NGERs 2016 National emissions excluding LULUCF, unadjusted 13
Where are emissions going? • Finkel modelling shows emissions decline NEM BAU Emissions 2020-2030 160 155 150 Annual Emissions (Mt) 145 140 Mt: 21 % below 2005 Levels 140 135 130 125 127 Mt: 28 % below 2005 levels 120 115 110 105 100 2020 2025 2030 Source: Jacobs Modelling for the Finkel Review 2017 14
Finkel Review • Commissioned on 7 October 2016, through the COAG Energy Council, after the state-wide blackout in South Australia • 392 submissions • 50 recommendations covering • Increased security • Future reliability • More affordable power • Greater gas supply • Stronger governance with new Energy Security Board 15
Stakeholder views “ Australia hasn’t a moment to lose now that we have a comprehensive, independent blueprint to restore the security, reliability and affordability of our electricity system” Business Council of Australia 16
Stakeholder views “ This is not a plan to make our power sector cleaner or our climate safer. It’s a short term political fix to deal with the fact that the people who are apparently responsible for running the country have an ideological attachment to dirty fuels.” Australian Conservation Foundation and GetUp! 17
Finkel package – Increased security & reliability • Generator Security Obligation • All new generators will be required to contribute fast frequency response and system strength • Generator Reliability Obligation • All new intermittent generator will be required to put in place storage and backup, at a level to be determined by AEMO and AEMC. • Three Years Notice • All major generators will be required to give three years notice of closure. 18
Finkel package – Generator reliability obligation • Wind generates around 40% of the time and solar generates 20-30% of the time • Finkel recommends mandatory storage and backup for new intermittent renewables • This levels the playing field – renewables now required to pay for intermittency $160 $140 $120 $108 $107 $92 $91 $100 $80 Range Average $60 $40 $20 $- Solar PV Solar PV with Wind Wind with storage* storage* * Illustrative: Storage costs are based on 4 hour storage at 25% capacity. 19
Finkel package - Three year notice period • The last five closures were Hazelwood, Northern, Anglesea, Redbank and Energy Brix. They provided an average of five months notice before closing • Finkel recommends all large generators (coal, gas, wind, solar, hydro) be required to provide three years notice ahead of closure, which could be written into the National Electricity Rules as part of their licence to operate. 20
Clean Energy Target - First proposed by John Howard • Howard Government proposed a Clean Energy Target in the 2007 election campaign: • required 30,000 GWh each year from low emissions sources by 2020 • low emission sources were technologies emitting less than 200kg CO 2 e/MWh i.e. renewables and fossil fuels with carbon capture and storage • intended to replace existing and proposed state and territory schemes with a single national scheme 21
Finkel package - Clean Energy Target • Why Finkel concludes an investment mechanism needed? • Investment freeze outside of renewables as energy market is operating with a risk premium for policy uncertainty • Market needs certainty to invest in fossil fuel generation (existing and new) • Investment uncertainty is affecting system reliability and security and causing higher prices • Current mechanism (RET) is not technology neutral 22
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