Thank you for the opportunity to address you today.
I intend to update you on the current sorry state of affairs in Canberra, reflect on what it means for your sector and outline Labor’s positive plan for the clean energy revolution.
The state of energy
Your conference comes at a very important time. You only have to look at the results of recent renewable energy reverse auctions here and overseas to see that we are witnessing a tipping point.
We are seeing nothing short of a revolution in the energy sector. A revolution that is slowly but surely overturning the traditional concept of building large thermal power plants close to their fuel resource and then running very large transmission lines to large demand centres such as cities and industry. We are seeing the rise of the two way grid. The rise of empowered consumers demanding a seat at the table.
What is most remarkable is the rise of renewable energy that is already cheaper than new fossil fuel generation and according to Bloomberg New Energy Finance and AGL is cheaper then extending the life of existing coal fired power stations and it is only a question of when, not if, new renewables will be cheaper than the operating costs of existing coal fired power stations. This revolution poses significant challenges to the nation and regions such as mine which have been built on the back of carbon intensive industries.
To illustrate this, thirty percent of the Australia’s coal fired generation, representing twenty percent of total national electricity production, is generated by four Hunter coal fired power stations; all of which are scheduled to close in the next 17 years. We in the Hunter also have the largest aluminium smelter in the nation as well as steel mills.
Whether we choose to react passively and defensively to this revolution or, instead, we try to shape this change, will be significant in determining the future of the nation. We have a great opportunity; a transition to a promising new source of power we’re extremely well endowed with and a technology we lead the world in. But unfortunately the last five years of political failure in Canberra has inflicted significant damage on the sector and has made it much more difficult to seize this opportunity.
I will return to the opportunity presented by the clean energy revolution later in my address, but first I want to reflect on where we stand today and how we came to the current dire state of affairs.
What has happened in the last two months?
We have had nearly 5,000 megawatts of coal fired power stations retire in the last four years, yet we have had only one energy policy setting in place during this period; the Renewable Energy Target.
Other than investment driven by the RET, the policy vacuum on energy policy, specifically emissions policy, has meant that the energy sector has been unable to make investment decisions cognisant of the future treatment of carbon. While at the same time ageing coal fired power stations have been closing. This has seen supply falling and prices rising.
It’s hard to think of a policy arena that has seen more policy change over the last two years than energy. A sector that makes investments with forty year time horizons has seen six energy policies in the last two years.
In fact, there have been four different energy policies since August!
In 2016 we saw the Government briefly contemplate an Emissions Intensity Scheme. Then 2017 was the year of the Finkel Review and the Clean Energy Target. Forty nine recommendations were accepted, but the crucial fiftieth proved too much for the Coalition party room. Which brought us to the National Energy Guarantee; a proposal that dominated discussions in the energy industry and around the COAG table for eight months. Industry was so desperate for an end to the climate wars that many people in this room seconded staff to the Energy Security Board’s working group to develop the details of the NEG.
The NEG was not perfect, in fact it was a long way from that. However, by seeking to integrate an implied carbon price with a reliability mechanism it represented the last, best hope to put in place an energy policy framework that could survive changes of Government. Stakeholders recognised that different political parties could propose emissions reduction targets of varying ambition, but as long as there was confidence in an enduring policy framework, industry would have the certainty needed to invest.
The Government’s own modelling of the NEG found that this certainty would reduce the average consumer’s electricity costs by $1,500 over the 2020s compared to business as usual. The NEG was approved by the Government party room twice and draft legislation was prepared. I am fairly confident it would have achieved bipartisan support and passed Parliament. And yet we never got there. We saw a few dinosaurs in the Liberal Party room reject it. Leading to a revised NEG policy with the emissions ambition set by the executive without reference to Parliament.
This policy survived for three days before the Government folded again and announced a NEG without an emissions mechanism accompanied by picking up some of the ACCC’s recommendations around market power. The third energy policy for August 2018 survived five days before it was repudiated by the new Prime Minister. August energy policy number four was announced on August 30 by the new minister, Angus Taylor in a speech to COSBOA. I will return to this speech in a moment.
In the meantime can we contemplate for one moment the fact that a country with the thirteenth largest economy; a nation of twenty five million people; a nation that has prided itself upon stability; was subjected to four national energy policies in one month. In fact it was four different policies in 14 days! Little wonder there is a significant risk premium in the energy market at the moment. Little wonder that in private, energy business leaders’ despair that Australia has become an international investor laughing stock, being unfavourably compared to developing countries when it comes to coherent, sensible policy and political certainty.
This investor concern has led to some very significant increases in energy prices. For example, since the Government abandoned the NEG on 20 August 2018, wholesale electricity prices have increased by over 122 per cent, with the NEM average price increasing from $60.76 in 20 August, to $134.91 on 25 September. Future contract electricity prices have risen steadily since early June 2018, with the 2019 Australian Power Index futures contract rising in price from $68.50 MWh in early June to around $83 MWh currently; a rise in prices of over 20 percent.
Make no mistake this policy chaos is leading to higher power prices and it must stop. Unfortunately the new minister has given the sector little cause for hope.
Minister Taylor’s main message was that he said that he would not “even try” to end the investor uncertainty which lies at the heart of the country’s energy crisis. He said:
“Frankly, I think there is some naivety in the idea that governments can largely eliminate uncertainty, or should even try.”
To paraphrase Paul Keating, if you went into your local pet store over the past five years you would find the galah talking about the need to provide energy policy certainty.
For example AEC Chief Executive Sarah McNamara has stated that:
“a lack of robust or bipartisan energy policy means there is a lack of investment confidence, which means there is more risk to be managed, and this in turn leads to higher prices.”
And S&P Global have stated that:
“Australia's continued energy policy vacuum risks delaying planned investment in new dispatchable generation capacity across the NEM, affecting wholesale power market competition and further reducing investor confidence.”
Minister Taylor has compounded this irrational approach by stating in Parliament a fortnight ago that
“the (RET) target reaches a peak in 2020 and we will not be replacing that with anything.”
There can now be no doubt that in the ultimate commitment to putting the politics of ongoing climate wars above the policy needs of the Australian community, this Government has completely broken with the efforts of the last 12 years to establish a bipartisan emissions reduction policy to provide certainty to the energy sector. Labor has constructively engaged with the Government on the EIS, CET and NEG. We have said that we will work with the Government and look towards a bipartisan settlement. We won’t sign a blank cheque but we have compromised significantly on our preferred policy. We’ve tried to be constructive because we want these challenges solved; the longer we delay the harder the task gets.
Now we are confronted with a Government that says that we shouldn’t even try to establish an enduring energy policy framework.
This has forced Labor, like many other stakeholders, to rethink our approach.
Need for a plan
What is clear is that the industry and the general public are crying out for a vision for our energy sector. They are crying out for a plan that can realistically claim to reduce power prices, maintain reliability as well as reducing the 185 million tonnes of carbon dioxide equivalent that is emitted from the sector annually.
The Lowy Institute found 84 per cent of people want the Government to focus on renewables even if it means more infrastructure is needed to make the system more reliable. This is a rise of 3 percentage points compared to 2017.
The National Electricity Market (NEM) is the ultimate incarnation of the 1980s and 90s obsession with neo-liberal, micro-economic reform. But it has failed when confronted with the double whammy of massive technological change and the last five years of energy policy chaos in Canberra.
More must be done. That is why so many people grasped hold of the Australian Energy Market Operators Integrated System Plan when it was released. While some people have concerns with particular aspects of the ISP, it was the first systematic attempt in some time to put forward a plan for how the NEM should look and operate over the next few decades.
Labor is closely examining the ISP and other planning exercises and you can be assured these efforts at systemic, long term planning of the energy transition are informing our thinking. We took to the last election the most detailed climate change and energy policy any Opposition has ever produced. It outlined how we would deliver on our commitments. We are currently going through the process of updating this policy in light of the NEG failure and other developments.
What I can tell you is that Labor remains committed to taking meaningful action on climate change. We are absolutely committed to reducing Australia’s carbon pollution by 45 per cent by 2030 compared to 2000 levels and driving at least 50 per cent renewable energy by 2030. We are in the happy position that due to renewables now being the cheapest form of new energy, by committing to 50 per cent renewable energy we are also committed to lower power prices compared to the business as usual case. We are the party of lower pollution and lower prices.
According to the latest ACOSS - Frontier Economics research Labor’s 45 per cent emissions reduction target will drive a fall of 18.3 per cent in average power bills by 2030. An ANU study found that 50 per cent renewables is achievable at “zero net cost” because renewables are the cheapest form of new generation, are cheaper than existing gas generation and are cheaper than existing wholesale electricity costs.
In fact, the AEMO has found that the cheapest replacement for the country’s ageing coal-fired generators would be solar, wind and storage technologies.
We are developing our policies in consultation with industry, following the best advice of regulators and experts. We will not let a few fossils in the Government party room derail much needed policy solutions.
Labor’s Climate Change and Energy Spokesperson, Mark Butler, has asked me to lead two key elements of our plan. They being Just Transitions for carbon intensive communities, such as my home region of the Hunter, and developing clean energy jobs.
I’d like to turn to the latter responsibility and outline why Labor and I are so excited about Australia becoming a clean energy superpower.
As an industry policy economist I can tell you that the nations that develop and harness new technologies that characterise an industrial revolution are the ones that benefit the most. The United Kingdom, by developing the technologies of steam and textiles production, dominated the 18th century through the first Industrial Revolution. The nations that developed steel and chemicals dominated economically in the 19th century—that was the United States, the United Kingdom and, later on, Germany. The nations that had technological dominance in electronics through the transistor revolution dominated the late 20th century—that is Japan and the United States. Just as these did, it will be the economies that invent and dominate in clean energy technologies in the 21st century that will be set to prosper.
This was the opportunity that presented itself twenty years ago as we established our dominance in solar power research. Over 60 per cent of the world’s solar cells use technology developed by Australian researchers, most notably at the University of New South Wales. Yet we failed to create a sizable industry or jobs out of this.
A significant factor was the ever present hostility the Howard Government adopted towards renewable energy.
We have an opportunity and an obligation to now reverse this course.
The shift to decarbonise our economy is portrayed by opponents of such a shift as the death of Australia as an energy superpower. Nothing can be further from the truth.
As the world decarbonises, if we plan well, Australia can not only continue to be an energy exporting superpower, we should also enjoy a manufacturing boom.
We need to acknowledge that exports of coal for power generation, that is thermal coal, will decline significantly over the next few decades. The Government’s own figures acknowledge that world trade in thermal coal peaked some years ago.
We will continue to export metallurgical coal, which makes up 65% of our coal exports by value, for a long time to come as there is no other way of manufacturing steel at an industrial scale. However, we are in position to replace the thermal coal exports with renewable energy exports.
Whether it’s direct export of electricity as the Pilbara to Indonesia project proposes, or the Hydrogen economy we can develop to support the switch to hydrogen in our major trading partners like Japan, we can still be an energy export superpower, it just won’t be fossilised carbon, instead it will be wind and solar power. The shift to renewables also offers Australia the opportunity to revitalise the manufacturing sector.
As the world decarbonises its electricity supply, the nations that can transform into manufacturing powerhouses are those with the cheapest energy, which will be the nations with the best renewable energy resources.
Australia has the highest average solar radiation per square metre of any continent in the world. We also have some of the best wind and wave resources, which often complement solar resources in when they provide the most potential power.
Our geographical diversity north-south and east-west means that renewable energy generation can be established in separate regions to capture different periods of windiness and sunniness. This power can be made reliable when coupled with gas peaking plants initially and then pumped hydro and battery storage as the AEMO ISP proposes.
Under Labor’s vision, Australia can be the land of cheap and endless energy which could power generations of metal manufacturing and other energy intensive manufacturing industries.
We have already announced that a future Labor Government would create Renewable Energy Zones – geographic areas with the right resources, topography and developer interest to drive cost-effective renewable projects. This is an early instalment of our plan and will not only ensure that we develop cheap renewable energy for the grid and improve reliability by introducing geographic diversity, but the zones will also be central to developing new industries such as Hydrogen, direct electricity export and new energy intensive manufacturing facilities.
We are also well poised to be the capital of mining and processing of key inputs for the renewables revolution. We are the second largest producer of rare earths, we supply 41 per cent of the world’s lithium and we have 12.4 per cent of global copper reserves. These are all crucial materials for clean energy and battery manufacture.
More traditional industries also stand to benefit from the renewables boom.
It takes over 200 tonnes of metallurgical coal to produce one wind turbine. Using moderate projections for global growth in wind power capacity to 2030 and the fact that Australia has 17 per cent of the global coking coal market, Australia will have to export 15.5 million tonnes of coking coal to build these turbines. This is the equivalent of three years output from the Moranbah North coking coal mine in Queensland for example.
In a similar vein, if we source local steel for the wind farms that will be built to meet Labor’s 50 per cent renewable energy commitment; this would need 423,000 tonnes of Australian steel. This is around 10 per cent of Australia’s annual steel production. This transition will produce tens, if not hundreds, of thousands of clean energy jobs.
This is not some hippy nirvana. This can happen and is already happening in other nations.
For all the focus on President Trump and his policies, actions at a state level and by the previous Obama Administration mean that there are almost 3.4 million clean energy jobs in the United States. Even the United Kingdom has over 200,000 clean energy jobs. China has 4 million jobs in renewable energy alone, while Germany has 350,000.
Labor and I are committed to making Australia a renewable energy export superpower, a land of energy intensive manufacturing and home of “renewable metals” processing.
The alternative is to continue the current policy chaos, to have a Government that buries its head in the sand and fights change. In this scenario, we will become the rust belt economy of the Asia Pacific. The home of high electricity prices, the home of broken down, old power plants, the home of unrealised potential and the home of a very gloomy future. It is our choice.
I wish you luck for the rest of the conference.