Reliable energy supply requires investment

Australia has reliable energy systems but we must pay for that reliability, Origin Energy, Managing Director, Grant King has told a CEDA audience in Sydney.

Australia has reliable energy systems but we must pay for that reliability, Origin Energy, Managing Director, Grant King has told a CEDA audience in Sydney.

"Getting that balance right between the investment we make in ensuring that our transmission and distribution systems are up to the task and have sufficient capacity to cope with disruptions is an important issue," he said.

"We have to pay for that to occur, and quite often, because the perception is that our power systems in Australia are so reliable, we don't value that investment.

"In respect of that part of reliability that derives from our transmission and distribution networks…that's essentially a matter for the regulator.

"The other aspect of reliability comes from our energy production facilities."

Over the last 10 years, around 13,000 megawatts of new generation has been added to the NEM, he said.

"By far the greater part of that investment has been made by the private sector and we clearly have both sufficient in total and timely investment in generation that ensures that we have reliability of power supply," he said.

On pricing Mr King said: "The NEM has produced both a remarkably consistent and an extremely competitive price of electricity before carbon of somewhere around $40 a megawatt hour."

"It is delivering reliability at a competitive price.

"So by far the most compelling reason why regulators should not be involved or pricing authorities should not be involved in retail pricing is they're increasingly regulating generation and interfering with the investment signals in demonstrably the most competitive and effective part of the market."

On green policies and carbon abatement, Mr King said the current policy settings mean Australia will need extraordinary amounts of investment and building activity to meet the 2020 Renewable Energy Target.

"We believe that the current policy setting will really drive up the cost of this part of the scheme relative to past costs," he said.

Mr King said the RET is adding supply side volatility into the system, which affects reliability of supply and prices.

"We are increasingly, through the operation of the RET scheme, injecting more and more supply site volatility into the system," he said.

"We need to actually invest more and more in managing the increasing level of volatility or interruptability that has been introduced into these systems."

Additionally, there has been no fundamental change in Australia's energy generating mix since 2002, he said.

Fossil fuels still contribute 90 per cent and renewables 10 per cent, with the majority coming from past investments in Hydro - not the more recent investments in solar and wind, he said.

"What's happening is that renewable schemes are effectively displacing gas at a much lower carbon intensity and therefore, the truer cost of abatement under those schemes is more like $100 a tonne, he said.

"So our view is that these costs are seriously understated."

We believe the next Climate Change Authority review (scheduled for 2014) should focus their efforts on telling the community what these schemes are actually costing on a fully-costed basis, he said.

"I think on the factual evidence we are entitled to ask whether we've got the right selection of policies and whether we are truly telling the community and our customers what the cost of these policies really are and how it's affecting their energy bills," he said.

Australian Energy Regulator (AER), Chief Executive Officer, Michelle Groves said the AER is making changes to improve the regulation of electricity network businesses and to facilitate better consumer participation and engagement.

The complexity of the energy market and the regulatory processes has made it difficult for consumers and their representatives to participate meaningfully, she said.

"I believe that this had led to consumers having reduced confidence in the energy market, its regulations and the outcomes it has delivered," she said.

"In essence, the initiatives under way are intended to promote an interactive process in which consumers, the AER and the network businesses are all involved in ensuring the services that are valued by consumers are the ones that are provided by the businesses.

"The challenge, which I think the new rules have met, is to balance the needs of uncertainty for investors with being adaptive to changing circumstances and responsive to consumer needs."

On efficient investment, Ms Groves said: "The previous rules for electricity transmission and distribution were developed at a time when there were major concerns about investment certainty and meeting reliability."

"While much of this investment was necessary…weaknesses in the regulatory framework have led to price increases beyond what has been necessary for a safe and reliable supply."

In 2012 the AEMC "delivered a new set of rules that give the AER the tools to reign in unnecessary investment in energy networks and refocus investment in the long term interest of consumers," she said.