Move needed to drive orderly transition to low-emissions power sources, Investor Group on Climate Change says
The Turnbull government needs to put a price on carbon to unlock new investment in the electricity sector and drive an orderly transition to low-emissions power sources, according to the Investor Group on Climate Change.
The group, which represents major institutional investors in Australia and New Zealand, has used its submission to the Finkel review to argue that the government’s oft-repeated concerns about network reliability, energy affordability and emissions reductions will be addressed if concrete steps are taken to unlock new investment.
The investor group has joined a host of other organisations in arguing that the government needs to put a price on carbon and adopt a technology-neutral approach in planning new energy infrastructure to ensure the grid is up to the task of supplying reliable base load power and producing emissions reductions consistent with Australia’s Paris commitments.
It warns that policy and regulatory uncertainty is now the key barrier to investment in Australia’s electricity sector “across all energy sources and technology types”.
The advocacy comes as the Climate Council will on Wednesday release a new report arguing that the heat Australia experienced this past summer demonstrated the energy grid was unable to cope with escalating extreme weather.
“Climate change is worsening the impacts from heatwaves and hot weather and is putting a strain on critical infrastructure,” the new report says.
“This summer alone has shown the vulnerability of the electricity grid to heatwaves, with power outages during peak times in South Australia during a severe February heatwave, while New South Wales narrowly avoided widespread outages several days later.”
The report notes that in just 90 days, more than 205 records were broken around Australia this summer, with the state-wide mean temperature the hottest for NSW since records began, with temperatures 2.57C above average, and Brisbane and Canberra recording their hottest summers on record.
The report argues that the only viable approach to slowing and eventually halting the increasing trend of heat-related extreme weather is to “rapidly increase the uptake of renewable energy and to phase out all forms of coal-fired power plants, as well as phasing out other fossil fuels”.
On Tuesday the National Farmers’ Federation reversed its once vociferous opposition to carbon pricing, using its submission to the Finkel review to call for a market-based mechanism to secure clean and affordable energy.
The NFF’s stance mirrors calls for consideration of a market mechanism from Energy Networks Australia, the retailer EnergyAustralia, the electricity provider AGL, the Climate Change Authority, the Business Council of Australia and the CSIRO.
The renewed activism around carbon pricing or a market mechanism to reduce pollution and drive efficient investment decisions in the national electricity market stands at odds with the Turnbull government’s decision to rule out such measures last December.
The energy and environment minister, Josh Frydenberg, initially signalled the government would look at the desirability of an emissions intensity trading scheme for the electricity sector as part of its scheduled review of its Direct Action climate policy – but he reversed his position after key government conservatives voiced their objections.
The man conducting the energy review, the chief scientist, Alan Finkel, gave implicit support for an emissions intensity scheme in his preliminary report, saying it would integrate best “with the electricity market’s pricing and risk management framework” and “had the lowest economic costs and the lowest impact on electricity prices”.
The Clean Energy Finance Corporation has also used its submission to the Finkel review to argue Australia needs “a stable bankable policy framework … to promote investor confidence and capital availability and reduce risk”.
The CEFC has floated a range of potential policy options to drive the decarbonisation of the electricity sector, “including pricing mechanisms such as carbon pricing or an emissions intensity target; ‘technology-pull’ policies such as a renewable energy target, a low-emissions target, or reverse auctions with contracts for difference; or regulatory interventions such as regulated closures or absolute baselines”.
It has also repeated previous arguments that new investment in coal-fired capacity would be unlikely to be financed by Australian or international capital markets because of the risk of stranded assets.
“Further, there is arguably no longer a social licence for new coal-fired power stations in Australia,” the submission says.
The CEFC notes there are now several proposals in the market for new gas-fired generators in Australia but it says proponents are finding it “challenging” to find long-term domestic gas supply agreements to support new investment.
Senior executives from AGL Energy told a Senate committee on Tuesday the main issue causing problems with reliable energy supply in South Australia was “dysfunction” in the gas market – not too many windfarms making the grid unreliable.
Richard Wrightson, AGL’s general manager of wholesale markets, told Tuesday’s hearing the problem was so dire the company was contemplating building its own LNG hub in Queensland to help secure reliable supply downstream.