Energy and Resource law is a crucially important discipline for Australia as we transition towards a low carbon economy in accordance with our domestic and international commitments to emission abatement. As outlined by a recent climate change review, ‘To meet international obligations Australia must now implement a coherent national framework that maintains ‘reliability, security and affordability of energy’. (Commonwealth of Australia, ‘Review of Climate Change Policies’ (Discussion Paper, Department of the Environment and Energy, March 2017) 11. In addition to the profound changes prompted by climate change imperatives, it is clear that technology is driving changes in energy demand. New technologies are emerging far more rapidly than previously envisaged. Variable renewable electricity generation, particularly wind and solar photovoltaic (PV), is increasing. However, as the blackouts in South Australia this year have revealed, the shift from traditional coal generators to wind and solar PV generators has strong implications for security and reliability. Renewable electricity generators have not been capable of providing inertia to support power system security. They are also far less able to contribute to ancillary services that are required to maintain a secure and reliable supply of power.
Within this context energy policy and regulation has to respond to dynamic energy markets, technological developments, the convergence of energy markets with other markets and rising tension between energy, environmental and climate change policy. In order to achieve some perspective in our domestic energy policy framework, it is important to focus upon our priorities We do this not only by evaluating market conditions but by respecting and upholding our global commitments. At the regulatory level, we need to draw upon a panoply of tools that includes: benchmarking to incentivise behavioural shifts; codes to frame standards; market mechanisms to drive and support transition (and this includes such recent developments as the domestic gas security mechanism) and rules to both mandate and monitor the fair, transparent and proportionate commercialization of our energy resources.
The preliminary Finkel report, released in December 2016 outlined a number of key issues that Australia must address in future policy and regulatory disucssions. These are:
- What role should the electricity sector play in meeting Australia’s emissions reduction targets?
- How do we ensure the National Energy Market (NEM) can take advantage of new technologies and business models?
- How do we ensure the NEM meets the needs of all consumers, including residential, large-scale industrial and vulnerable consumers?
- What are the barriers to investment in the electricity sector?
- What immediate actions can we take to reduce risks to grid security and reliability?
- Is there a role for technologies at consumers’ premises in improving energy security and reliability?
- What role is there for new planning and technical frameworks to complement current market operations?
- How can markets help support additional system security services?
- How can we improve the supply of gas for electricity generation to contribute to reliability and security?
- How can we ensure that competitive retail markets are effective and consumers are paying no more than necessary for electricity?
The government has already implemented regulatory frameworks in its transition towards decarbonization. These may be grouped into two primary categories: renewable portfolio standards (aka renewable target/quota obligations) which seek to create markets by requiring electrical utilities to source a portion of the electricity they sell from renewable energy and feed in tariffs (FIT) which attract renewable power generators with above market rates for their output and guaranteed access to the electricity grid. Under the Renewable Energy Target (RET), utilities comply with these requirements through ‘renewable energy credits’ (RECs). The eligible power plant operators receive one REC for every megawatt hour (MWh) of electricity generated from renewable resources. Independent power producers are then able to sell their RECs to utilities to earn a premium on top of their income from power sales in the wholesale electricity market. Additionally, utilities can invest in their own renewable power generation facilities to earn RECs for the electricity they produce. By contrast, feed in tariffs require regulators to set the rates for renewable electricity at a level that incentivizes investment without offering windfall profits. FIT policies generally allow utilities to pass the costs of premium payments for renewable energy on to their ratepayers. FITs are generally technology-specific, offering different tariff rates for different strands of renewable energy technologies based on their respective technological maturity and generation costs.
The final Finkel report, released a couple of weeks ago, has recommended further regulatory changes. These include: the adoption of a clean energy target (CET) to drive investment in low emissions generators across Australia which would be akin to the RET in that it will require electricity retailers to acquire a number of certificates each year to ensure that a proportion of their electricity is purchased from low emissions generators; the introduction of a package of energy security obligations, including inertia requirements in each region or sub-region of the NEM, generator fast frequency response capabilities, a wholesale update to connection standards; a shift to a market-based mechanism for procuring fast frequency response services where there is a demonstrated benefit in doing so; the creation of a generator reliability obligation to ensure the each region of the NEM retains adequate dispatchable capacity; and conferring upon Australian Energy Market Operator (AEMO) a ‘last resort’ power to procure or enter into commercial arrangements to have gas-fired generators available to maintain reliable supply. The federal government has indicated its preparedness to adopt all of these recommendations although it requires further time to determine the framework and detail of the proposed CET.
The recommendations herald a new era in low-carbon energy production and a clear transition away from coal-fired electricity generation in the absence of clean coal technology. These developments cohere with global transitions which are decelerating fossil fuel energy production, incentivising decarbonization via a shift to renewable and low carbon energy production and responding to technological innovation.
Within such a landscape, there has never been a better time to be studying the constitutive elements of energy and resource law in Australia. All of these issues and more are covered in the Mining and Energy Law course at Deakin Law School.
Professor Samantha Hepburn
Director, Centre for Energy and Natural Resources Law
Deakin Law School.