Friday, March 31, 2023

5 policy decisions from recent history that have led to today’s energy crisis

If you’re not a long-term energy policy news junkie, you’ll be forgiven for thinking today’s crisis came up rather suddenly.

The Liberal leader, Peter Dutton, indeed described it as a recent catastrophe, saying it was caused by Labor “too quickly switching to renewable energy […] they scare the market. ”

But this crisis did not come out of nowhere.

We have arrived here thanks to a series of policy decisions under previous governments – state and federal – that have left Australia’s energy system ill-equipped to meet the demands placed on it.

Here are five key policy moments that have led in part to the power crisis that is engulfing Australia today.

Electricity Infrastructure Behind Fence
The current energy market crisis has not come out of nowhere.
Jono Searle / AAP

1. Privatization of the electricity sector

The 1990s saw a trend towards privatization of state-owned assets, based on the logic that the industry would manage the assets more efficiently.

The Kennett Government in Victoria has had a strong policy of privatizing generators and transmission assets, with South Australia and New South Wales also privatizing energy assets.

However, the real focus of the industry is not to be efficient, but to maximize shareholder profit (which may mean that it is more streamlined, but not necessarily). And so the primary role of the energy sector in providing general benefits to Australian residents and businesses has been lost.

Read more: Do you want electricity reform? Start by giving power back to the states

2. The Gladstone Gas Terminal Agreements

Liquefied natural gas (LNG) exports began from the Gladstone LNG gas terminal in Queensland in 2015, during the Abbott-Turnbull-Morrison era, which linked the eastern states’ domestic gas markets to the international price.

But the journey began long before, with the construction of this terminal beginning in 2010 (in the middle of the Rudd-Gillard-Rudd era). It involved years of strategy discussion, policy design and agreements.

These agreements, forged between industry and various state (especially the Beattie Queensland Labor government) and federal governments (as far back as the Howard era), created a VNG export industry.

Unlike Western Australia, there was no domestic reserve for gas set up as part of the agreements. So on the east coast we are now exposed to international gas prices.

Of course, in the run-up to the creation of the LNG export industry, federal governments might not have been expected to predict Russia’s invasion of Ukraine more than a decade later, causing gas prices to rise.

But the decisions taken around the Gladstone gas agreements allowed Australian gas to be shipped abroad and led to extremely high gas prices domestically.

Four Men Watch Woman Draw Paper
The then Prime Minister Malcolm Turnbull during a 2017 signing ceremony with representatives of the gas industry. Several state and federal governments have influenced gas export policies.
Lukas Coch

3. Reduce the price of carbon, dilute the target for renewable energy

Under former Prime Minister Tony Abbott, the then coalition government removed the price of carbon created by the Rudd-Gillard-Rudd government. It was probably one of the most backward steps in efforts to curb Australia’s carbon emissions and did nothing to encourage renewable energy production.

It also tried very hard to scrap the renewable energy target (RET) – eventually decided to just water it down significantly.

The RET required energy retailers and large customers to ensure that a portion of their energy was sourced from renewable sources.

An earlier form of the target was established in 2001 by the Howard coalition government. The Rudd Labor government increased the target’s ambition in 2009.

In 2015, the Abbott coalition government dramatically reduced the target, and it was easily reached in 2019. Since then, there has been no additional hard incentive to build more renewable energy.

The reason why renewable energy is still being built now is because it is cheaper than coal.

Investment will continue at a faster pace, except for problems encountered by renewable energy producers in getting their power into the network (more on that later).

Three Men In Orange Jackets In Front Of Solar Panels
The Rudd Labor government has raised the target for renewable energy.
Ray Strange / AAP

4. An effective stop to investing in wind farms in Victoria

In 2011, the Victorian Baillieu state government effectively put an end to wind farm investment by creating a 2km exclusion zone around existing homes.

As researchers Lisa Caripis and Anne Kallies wrote in The Conversation in 2012, these laws are:

effectively gives the owners of any home within 2km of a proposed wind farm the power to decide whether the development should continue or not.

This decision, combined with the reduced RET, really delayed investment in renewable energy.

These laws were reformed in 2015 by the Andrews Government in Victoria.

5 Policy Decisions From Recent History That Have Led To Today'S Energy Crisis
Wind farm development requires policy-driven investment.
AAP Image / Lukas Coch

5. Lack of investment in transmission infrastructure

This is not so much a policy moment, but a lack of one.

Transmission infrastructure is the wires, poles and other parts of the system needed to get electricity from power producers to households and businesses.

Most major transmission projects in Australia linking coal, gas and hydro projects to the network were built by governments and then later privatized. Under the current privatized system, the construction of new transmission lines is a complex process.

Renewable power generation projects are often built on a smaller scale in remote locations and new transmission infrastructure is needed to connect them to the network.

Many renewable energy projects are currently unable to connect to the grid because transmission infrastructure cannot safely absorb the extra capacity.

Both federal and state governments have failed to put in place policies that encourage investment in transmission projects that can serve the generation of renewable energy. It set up the system for the failure we see today.

Read more: What is the electricity transmission system, and why does it need to be fixed?

A difficult task ahead

Of course, other policy decisions have also led to today’s crisis. For example, there are limited government policies that encourage the construction of batteries and pumped hydro to store renewable energy produced in times of lower demand.

The exception here, of course, is the taxpayer-funded Snowy 2.0 scheme, which was recently revealed to run on time and on budget.

Without government intervention, it seems unlikely that an orderly transition to renewable energy can be achieved.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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