KPMG – Beyond policy, the action starts now!
1 December 2022, 12-2pm – KPMG boardroom, Perth Office
Tamatha Smith, GM Corporate Affairs and Western Australia
Good afternoon all.
I’m Tamatha Smith GM Corporate Affairs and Western Australia at Energy Networks Australia.
For those of you not familiar with ENA, we are the national peak body representing Australia’s electricity transmission and distribution and gas distribution networks – in WA we have three members Horizon Power, Western Power and ATCO.
I think most of us in this room would agree that the energy sector has been doing the heavy lifting on decarbonisation. As a critical part of the energy supply chain, networks are essential platforms for delivering our net zero ambitions.
Their innovations are transforming the massive, 20th century machines that are our energy grids on the east and west coast into smart, dynamic, customer centric energy delivery systems that are fundamentally changing the way energy is supplied and consumed
WA has been leading that charge on a number of fronts as a first mover nationally on standalone power systems for example, community battery installations, virtual power plants, managing the complexities of DER integration and minimum demand and hydrogen development.
Throughout Australia, networks are working at pace to address the technical, engineering and social challenges of decarbonising. Ensuring the electricity grid can – not just cope with the ever-increasing amounts of solar and storage – but that we can use these technologies to reduce costs for customers and support a reliable, secure power system through the transition.
They are developing innovative approaches to pricing to reward and encourage customers to use power when its cheap and abundant, enabling flexible solar exports so more people can connect solar and batteries and export into the grid.
There is growing focus on making the system more resilient to increasing climate change impacts, major new transmission projects will be delivered to ensure we can get new renewable generation into the system and our gas networks are working to decarbonise replacing methane with green hydrogen and biomethane
These innovations are all growing in maturity and are part of the solution to managing an increasingly volatile energy system and deliver customers a secure, reliable and affordable renewable transition that doesn’t just involve big licks of network augmentation.
KPMG asked me to speak about “maintaining pace with decarbonisation”. It is also about maintaining peace with decarbonisation.
Key to this is social licence – around big transmission projects yes, but also for investment in other critical areas like integrating solar and storage with the grid, rolling out smart meters so networks have visibility of the system, for tariff reform and cost-reflective tariffs that encourage and reward customer behaviour that can save them money and also support the grid.
Getting the right policy settings to support new technologies will mean networks can make the customer journey through this transition more affordable, with a smarter, more integrated system which will result in a more stable grid.
Mass adoption of Electric Vehicles for example will be a major new load on the system that will significantly increase peak demand unless we can manage how they are charged. Remember networks are built to deal with peaks and all customers pay for that.
For cost savings and grid benefits to be delivered, we need smart charging for electric vehicles that aligns with off-peak times, coupled with peak and off-peak electricity price options for customers so power is cheaper when there is plenty of it available.
Scale of the challenge
I Want to call out a couple of elephants in the room, potentially to spark some discussion for later
They are 1. the scale of the challenge and what I describe as the doability of delivering it to increasingly ambitious targets
and 2. The simple narrative that renewables will mean lower energy prices.
Decarbonising the energy system is the biggest technical, engineering, social and logistical challenge since the industrial revolution.
We can’t underestimate the scale of it as we ‘’give legs’’ to ambitious emissions reduction targets and coal exits the system
In WA, WP’s system load is forecast to grow from its current 4.3GW to 15.7 GW by 2038, most of it required by industry.
Generation requirements will go from 2.6GW today to potentially 43 GW under a high decarbonisation scenario by 2030. For context the current combined generation capacity of the National Electricity Market and WA’s Wholesale Elec Market is around 71GW.
In the NEM, AEMO’s step change scenario forecasts a need for nine times more utility scale generation and some 10,000kms of new transmission by 2050. Queensland’s SuperGrid plan will require around 1500kms of new transmission. WA will have its own significant requirements in the SWIS and the NW as our mining sector looks to decarbonise.
And countries throughout the world are doing similar.
There will be issues securing materials and labour – already there are labour shortages across the supply chain.
There are challenges financing big transmission projects – the Federal Government’s $20bn Rewiring the Nation plan is a welcome commitment to helping get projects off the ground in a timely way. But why is this needed?
Our regulatory systems are not designed to deliver swift outcomes we do have a strong focus on cost, more so than other jurisdictions overseas, and this is probably appropriate in a period of slow or incremental change, but now that we’re in a period requiring transformational change we need some tweaks to the reg framework and most importantly a mindset shift from all stakeholders into efficient delivery mode.
Projects delivered on time or early means a small additional cost to customers. Projects delivered late could be hugely costly from both a reliability and a wholesale market cost perspective. The factors slowing down investment, whether they’re in the reg framework or in social license challenges, just serve to put Australia further back in the queue for all sorts of other things like capital attraction and supply chain positioning.
In the NEM, there is work is underway on regulatory changes to support financeability and social licence.
NSW has gone it alone on a benefit payment scheme to support social licence for large transmission projects that will see landowners compensated annually over a 20-year period for hosting tx lines.
It is anticipated that other state govts may consider something similar – and this will be important as failure to bring communities along, failure to recognise impacts, risks delaying what is critical infrastructure development to enabling an affordable transition.
The other elephant is cost.
The energy transition comes at a price. It is incumbent on all stakeholders and decision makers, to manage that narrative and communicate costs and benefits to stakeholders. And we need to ensure vulnerable customers are supported through this journey
We need to be clear that the investment needed to decarbonise our energy system will see overall costs increase in the short to medium term but that this will mean prices in future are lower than they would otherwise be.
At the moment, the overriding message politically in Canberra seems to be the simple building more renewables will deliver lower prices. We know it’s not that simple. It’s going to be a bumpy ride in the shorter term.
This is a difficult narrative to prosecute in the current highly volatile price environment – not only of rising energy prices on the east coast, but also from rampant inflation and cost of living increases generally.
But if we fail to manage expectations, we will lose customer trust and our social licence to decarbonise will go along with it.
Genuine and collaborative customer and community engagement is critical through this journey and I know is central to our networks’ operations
The challenges we face collectively are many and the opportunities are great.
A dynamic, smart energy system that is not just about delivering heat and light – as critical as those things are – but amenity, lifestyle and services for customers and communities.
There is no one perfect solution to delivering a least cost net zero transformation. There are many potential pathways to decarbonise our energy system and broader economy.
We need to be prepared to keep our options open as technology evolves to help us ensure we maximise the benefits and minimise the costs as much as possible.