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by Matt Rennie, EY Oceania Leader, Energy Transition

After more than a decade of energy policy inertia, Australia still does not have a complete blueprint to guide the way forward as our energy system evolves. Here, Matt Rennie states the case for such a blueprint, and outlines some of the critical elements it must contain.

Australia has always been an energy superpower. Our land has been blessed with bountiful amounts of natural resources that can be turned into electricity – from sunshine in our tropical north and desert interior, wind on the NSW tablelands and southern coastlines, coal from the Hunter, gas from NSW and Queensland and uranium from the Northern Territory and South Australia.

We have not only exported these resources to the rest of the world, but also used them to generate our own electricity for domestic use.

It is no wonder the rest of the world and indeed many here in Australia wonder why we continue to have such a vicious debate over energy policy.

Our energy generation and transmission architecture was built in the early 20th Century and served the country very well in a time of expanding population and economic prosperity.

However, this architecture must change with the times to meet changing political, economic, technical and social considerations.

These changing considerations are not in the distant future, but rather, are here now. It is these considerations that politicians, regulators, industry, households and the community are dealing with as we chart a course forward on energy policy.

While a few, vocal commentators remain fixated on the debate between coal and renewables, the world has moved on from that settled debate. The industry and regulators have recognised that renewables are the future.

The questions that are now on the lips of industry and regulators relate to managing the challenges associated with a decentralised energy grid and finding the right balance between edge and cloud technologies in our digital future.

As is often the case with significant changes such as these, there remains a lot of noise coming from Canberra and elsewhere about what must be done to affect a successful energy transition.

However, there is a missing piece of the puzzle. Rather than ideological shouting matches, our political leaders should be empowering the guardians of our energy market – namely AEMO, AER and AEMC – to draw a blueprint that best meets policy goals on efficiency, emissions and reliability.

As a start, any blueprint should answer five critical questions about the architecture of our energy generation, distribution and transmission system. These questions are:

  1. What is the best way to firm renewable energy to mitigate intermittent supply?
  2. Which market structure will encourage more competition in the transmission of energy?
  3. How do we better manage the increase in connections to the grid associated with rooftop solar?
  4. How do we best manage the emerging transition towards a decentralised electricity grid?
  5. How do we incorporate new technologies, such as electric vehicles, into the system?

These questions inevitably raise a number of important distributional challenges that will need to be addressed by the energy regulators.

It is important that these questions are answered not by shouts, but rather by detailed policy and regulatory analysis where outcomes for consumers, industry and Australia are dispassionately assessed free from ideological straitjackets.

To that end, three critical actions that government and its agencies could take to ensure a successful energy transition are:

  1. Firming renewables to mitigate intermittent supply
  2. Imposing more competition in the energy transmission sector
  3. New rules and funding mechanisms for energy distribution

Firming renewables to mitigate intermittent supply

One of the clear challenges associated with the renewable energy transition is ensuring there is a constant supply of power.

For example, while solar is great during the day, it does not work as well at night.

The same challenges apply for wind, as there is not always strong enough wind to keep turbines spinning. As a result, there is a need to firm capacity for renewables so back up power is available when the sun is not shining, or the wind is not blowing.

This could take the form of increasing communicable technology to better integrate batteries into the electricity grid. It could also take the form of building capacity or rotating inertia via coal or gas to be paid to be available when there is not enough generation via renewables.

Both of these solutions would see a cleaner energy grid, while ensuring reliability.

Imposing more competition in the energy transmission sector

Another important move is a new regulatory and funding compact to allow smaller scale power plants into the energy grid.

It is clear the Australian Energy Market Commission (AEMC) and Australian Energy Market Operator (AEMO) must continue reform to better allow smaller scale energy generators to connect to the grid.

This change will continue apace as large coal-fired power stations reach the end of their economic life and are retired from the grid.

New rules and funding mechanisms for energy distribution 

The final change must be a new funding and regulatory compact between network operators, generators and retailers.

The Australian Energy Regulator (AER) must be allowed to develop this new compact to give networks the certainty they need but do not tax the consumer beyond that which is prudent and efficient.

This delicate balance is critical to putting the battles over energy policy behind us as political and community support will be sapped by significant or unnecessary increases to household electricity bills.

Despite the headlines, Australia is well placed to settle the long-running debate over energy policy. We have been blessed by an abundance of energy sources that can continue to be a source of wealth and prosperity, as well as cheap and reliable energy.

However, to ensure a successful transition to a low carbon economy we must answer some outstanding questions with clear policy goals in mind, not ideological blinkers.

To that end, the experts must carry the conversation by continuing to focus on the real questions.

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