With the price of electricity set to soar across the eastern states of from July 1, the nation’s Chief Scientist Dr Alan Finkel has warned that Australia’s approach to energy must change.
“Our electricity system is entering an era where it must deal with changing priorities and evolving technologies. If the world around us is changing, we have to change with it. More of the same is not an option, we need to aim higher,” Dr Finkel said.
On Friday the Chief Scientist delivered a report, which said if the nation pressed on with its approach to energy as it has done over the course of the last 10 years, Australia will be choosing the most expensive path to power the nation.
The report about the future of Australia’s energy market mostly focused on the wholesale price of power.
A leading lawyer advising on renewables projects has said the trick for Australia will be getting “the energy mix” right.
According to King & Wood Mallesons partner Craig Rogers, the future success of Australia’s energy approach will be how to deal with the combination of energy output derived from coal and gas-fired power in addition to renewable alternatives.
“I think where the market’s going, which will be interesting, is the combination of wind, solar and battery storage. I believe that in time this will take us towards a more supply-based load,” Mr Rogers said.
“The renewable part and policy mix is important but it’s a limb that needs to be considered and viewed across the overall energy mix in the economy here,” he said.
Australia’s current energy needs are met by 10 per cent gas, 13 per cent renewable energy and 77 per cent comes from high-emission brown and black coal.
Under the Paris climate change agreement Australia’s emissions reduction target is aiming for a cut in emissions between 26-28 per cent by 2030.
In this context, energy solutions that ensure Australia’s power supply are secure, reliable, affordable and can also achieve Australia’s 2030 emissions reduction targets are critical.
Dr Finkel’s Independent Review into the Future Security of the National Electricity Market determined that a clean energy target would be the most effective way to meet these needs.
One of the report’s key recommendations was that the government address energy stability concerns with new generation investment in power facilities that have battery storage capacity, in addition to infrastructure that offers back-up power generation.
Commenting on the evolving renewables project landscape before the Dr Finkel released his report, Mr Rogers noted that there are a number of factors playing into Australia’s current energy debate. He highlighted the role of energy for domestic consumption and export as being just as important as the “energy mix”.
“Obviously, we’ve still got coal. And there is a discussion around the gas market in Australia at the moment and particularly domestic versus export,” Mr Rogers said.
“The thing that comes into the domestic [output] is what the longer term role will be for gas-fired power generation in the country,” he said.
Last week’s report to government from the Chief Scientist also advised power interconnections between the Australian states and territories with the implementation of a NEM-wide integrated grid plan.
It is one example in Dr Finkel’s blueprint for strategic power planning that suggests without cohesive federal and state energy policies, the cost of electricity will continue to hurt the back pocket of national households.
“If we adopt a strategic approach, we will have fewer local and regional problems, and can ensure that consumers pay the lowest possible prices over the long term,” Dr Finkel said.
“The blueprint released today presents the essential elements for a strategic plan for our electricity future. It is up to federal, state and territory governments to take these recommendations, make decisions, add detail and drive it forward,” he said.
Mr Rogers, who works in the energy and resources projects group at KWM, said the Queensland renewables energy regime was a leading example among the states and territories of policy to encourage investment in renewables facilities like solar and wind farms.
He pointed to Queensland’s Solar 150 investment program, an initiative introduced to support the generation of up to 150 megawatts of solar power in the state. The program is offered in conjunction with funding from the national Australian Renewable Energy Agency (ARENA) and has the basic objective of removing “obstacles” for large-scale solar growth in the state.
“Some states such as Queensland are being more helpful in terms of trying to encourage the development of the renewable energy industry,” Mr Rogers said.
“The challenges for renewables projects are probably the same in each jurisdiction but different states that are doing different things,” he said.
Solar farms dominate the construction of renewables facilities in the sunshine state, whereas other regions like for example the eastern seaboard states are more favourable locations for wind farms, Mr Rogers added. Other facilities in Western Australia are relying on the combination of both solar and wind to generate a more consistent electricity output.
Over the course of his career Mr Rogers has worked across the spectrum of the commodities markets, including natural gas and LNG, oil and oil products, coal and power. Since the Australian government firmed its position on renewable energy in 2015, the projects partner said that he has seen activity in the area increase substantially.
There are some new entrants to project investment in renewable energy facilities too, Mr Rogers said, including a growing number of diversified corporates and private equity funded parties.
Mr Rogers added that these different types of client joining the renewable investor lineup have required law firms to tailor the projects to match the different risk profiles and funding sources in new ways.
“Traditionally in the area we would have only acted for developers and financiers but the pool has really increased,” Mr Rogers said.
“One of the things that we as lawyers do is try and adapt the structure of these projects to satisfy the different risk profiles and funding sources out there. For example, a large scale super fund might have a different risk profile to a smaller private equity player.
“What’s good about these projects is there is an ability to adapt the way that we structure them to meet the investment criteria of a variety of different players,” he said.
The federal ARENA program is underpinned by the federal renewable energy target, which aims to deliver 33, 000 gigawatt hours of additional electricity from renewable energy sources by 2020. It is one of the driving policies that has attracted the attention of traditional and new investors in Australian power projects, a number of which the major law firms in Australia have advised on. KWM is a prominent advisor to clients among them.
Mr Rogers said that as the competition in the market heats up, lawyers advising clients on renewables projects in Australia will be required to deliver more inventive equity structure and debt solutions. This is where lawyers have the opportunity to really optimise aspects of a bid and make a developer’s proposal the most compelling option, he said.
“When you think about a renewable energy project, you think about often the construction contract and the power purchase agreement and tenure rights; but where you can help optimise client outcomes is in appropriate structuring of the equity arrangements to allow for the different capital components.
“People look at these as [just] power projects but the equity structuring component and the debt component is critically important.”
Last week Dr Finkel underscored the need to ensure that the strategy for Australia’s energy future to have an impact.
“The national electricity market is 5,000 kilometres long, spans five states and one territory and has more than 9 million metered customers. It’s essential that we get it right,” Dr Finkel said.
The government is currently considering the Chief Scientist’s Independent Review into the Future Security of the National Electricity Market. Read the full report.