EPRA Committee Report
I'm pleased to share the findings of the energy committee, which was established on 16 December last year to examine the governance, planning and regulation of Australia's energy system. The final report was tabled immediately prior to Christmas on 20 December.
The committee's objective was straightforward—this is, to inquire whether our energy frameworks are generally fit for purpose, capable of hitting decarbonisation targets, while continuing to deliver reliable and affordable electricity. Despite the very tight time limit it was given, just three short months, the committee managed to examine one of the most technical and complex parts of our economy and certainly one of the most important. This was possible because the committee enjoyed intense expert interest and participation, and I thank everyone for their time.
The inquiry received more than 80 submissions, with testimony from over 35 expert witnesses drawn from academia; industry bodies; market bodies; and government, energy and environmental think tanks. I thank all the participants, the secretariat and my fellow committee members for their support.
Our energy system, the National Electricity Market, as an engine that is simultaneously the largest contributor to our nation's productivity and to our carbon emissions. Through the inquiry, it became evident that the governance and planning of our system are not keeping pace with that system and particularly with the rapid technological shifts that are going on, industry energy needs, consumer cost-of-living pressures and our urgent decarbonisation goals. The inquiry revealed that Australia's energy market has critical weaknesses in governance, which have allowed planning ineffectiveness and economic inefficiency and have meant that the market has not kept pace with our needs. Those weaknesses are historical in origin—that is, what may have been sufficient in a largely coal fuelled system is completely inadequate for the revolutionary transition we need to achieve to power our economy and honour our international agreements.
The energy committee report highlights the disconnect between what is needed to decarbonise swiftly and cost-effectively and what is actually happening in practice. It underscores how our historical frameworks cannot adequately deliver a modern, clean energy system. It has been broadly acknowledged that the inquiry was neither created nor conducted in order to seek or find fault or to score political points. Instead, it provided an opportunity to kickstart genuine reform. Unless it is ignored for paltry political reasons, it should serve as a catalyst to drive important governance and planning change that will set up our economy to be strong, clean and efficient for decades.
The report lays out 22 practical recommendations for reform that address the gulf between what is needed for a swift economic transition and what is actually happening. It underscores how our historical coal focused frameworks cannot adequately deliver a modern, clean energy system. The inquiry found that the development of that energy system has only a gossamer-thin cloak of governance, with only an appearance of oversight and little genuine accountability. This is particularly true of the Australian Energy Market Operator, AEMO, the organisation that has been given enormous powers for the energy transition via its biennial Integrated System Plan, the ISP. That thin veneer of governance gives those charged with the transition just enough cover to maintain the status quo, leading to change at a glacial pace but with accompanying galloping costs—costs that are not borne by governments but passed straight through to energy consumers. By the echoing of the myth that true governance exists, Australians are being asked to keep believing that we are rapidly transitioning to green electricity generation, which, if true, is, I believe, due to households democratising energy, separate from what's happening in the NEM—that is, by making their own choices and installing rooftop solar at world-beating rates.
Governance is not just a word; it is a recognised system of checks and balances to identify, manage and mitigate risks. Why? Simple: to ensure that what should occur is actually what is being done. The argument that governance of our energy system is adequate simply because AEMO says so is a nonsense. The private sector has learnt this the hard way through many failures, numerous royal commissions and government policy eventually catching up. We see the planning phase persist because there is no effective oversight, leaving AEMO effectively unaccountable and given a kind of papal infallibility on what they put in the ISP. AEMO wields considerable authority to plan the enormous amount of capital needed to transition our system, and surely it should be subjected to far more rigorous scrutiny, not less.
It is noteworthy that, after four ISPs since 2018, there is little to show for it. Instead the ISP has, in effect, delivered very little of what AEMO has said was required. While they may have started out under different names, megaprojects such as VNI West, HumeLink and Marinus Link have not even started. Even Project EnergyConnect has only been built to the South Australian border, leaving most of the line yet to be built through New South Wales.
Questioning of these projects has got louder and louder as the capital costs and timelines continue to grow exponentially. We all know that mega projects of all types have a poor track record of both timeline and budget. Current ISP project cost forecasts have blown out to such an extent that surely, at some point, the projects should be withdrawn or alternatives sought. Instead, each ISP argues the case for them to proceed, regardless of whether they still make economic sense. At some point, sense should prevail and alternatives developed. That point may have already passed. But without appropriate oversight and accountability it is not possible to know.
If the increased costs are deemed acceptable by those guiding the NEM, perhaps they should be transferred to government's balance sheet and be subject to the scrutiny and oversight that budgetary processes in parliament require. Greater oversight would mean that transmission and other decarbonisation projects would undergo transparent evaluation using consistent and reliable economic methodology.
I want to be very clear. I'm not against building transmission. We will need a great deal of it. However, the current focus on interregional interconnectors brings significant opportunity costs. It incorrectly frames the problem as geographic—that is, moving power from one state to another—when the real challenge is a temporal mismatch, a mismatch between midday supply peaks and late-day demand surges. Expensive interconnectors do not solve that timing mismatch. For example, one of the simplest ways to make better use of our existing energy generation is by shifting electric hot water heating to the middle of the day, when we've got a surplus of solar power. But only one or two states have even sought to address that.
The first recommendation of the committee was for a comprehensive review by the Productivity Commission. The Productivity Commission last did a review in 2013, so it's very much time that it did one again. It could rectify misplaced priorities and re-energise investment signals in areas such as storage and demand management. A more equitable model would drive innovation in storage and demand-side management, spurring faster decarbonisation while controlling costs.
In conclusion, I look forward to the government's response, where we see a genuine acknowledgement of the problem, a genuine desire to resolve Australia's energy market challenges and real action taken to develop a relevant and future-proof energy system. I seek leave to continue my remarks.
