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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2023-02-07 Daily Xml
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National Electricity (South Australia) (Ministerial Reliability Instrument) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 16 November 2022.)

Mr PATTERSON (Morphett) (12:20): I am taking the opportunity today to speak in parliament about the National Electricity (South Australia) (Ministerial Reliability Instrument) Amendment Bill. I indicate that I am the lead speaker for the opposition.

In terms of what this amendment bill is about, it builds on the Retailer Reliability Obligation that was brought to this parliament by the former Liberal government in 2019. I had the opportunity to participate in the debate before it was ultimately passed by both houses in April and May of that year before coming into operation in July 2019.

The Retailer Reliability Obligation was a national reform. As such, it amended the National Electricity (South Australia) Act 1996 which, with South Australia being the lead jurisdiction, is the mechanism by which reform occurs nationally. The current ministerial reliability instrument amendment bill seeks to give equivalent ministerial powers for other jurisdictions that the South Australian energy minister had put in place in 2019 to make a T-3 reliability instrument.

Before going into that in more depth, it is worth addressing and revisiting the intent of the Retailer Reliability Obligation, to give a bit of context to these current amendments that are being proposed in the amendment bill. In terms of the National Electricity Market, it was designed at a time when it was predominantly run with coal and gas as base load generators and, as such, was based on being an energy-only market. They could run 24 hours a day, and it was taken for granted that dispatchable energy would be available at all times. It was an assumed ability of these generators.

As we fast forward into where the electricity market is going now, there has been a massive growth in intermittent sources, such as wind and solar, that now form part of the generation mix of electricity in the National Electricity Market. At the same time, this has been accompanied by the retirement of base load power from the system. This base load power is dispatchable and can be brought up on demand.

We have already experienced the retirement of base load power in South Australia and what effect that has had on electricity in our state. We saw that when the Northern Power Station was retired under the former Labor government. If we look at what the impact was in South Australia, just looking at a cost basis the total traded value in the National Electricity Market in South Australia was $450 billion in the 2014-15 year, which was prior to that closure. After the closure, the total value traded in the NEM in South Australia skyrocketed to $1,450 billion in the 2016-17 year. That is three times the value.

Where a lot of this value was, it saw a massive surge in spot prices over the higher price bands. Predominantly, this was because of capacity scarcity. We had lost a big base load generation source before there had been time for that to be replaced. The former Labor government had the opportunity to delay that retirement; they did not take it. Of course, what that meant was we saw this big surge in prices—three times the national total traded value—in South Australia. Of course, where that hits is on customers' bills, household electricity bills, business bills. We saw these jump massively by $477 in the final two years of the former Labor government from July 2016.

Not only is there an issue around cost but also we saw the electricity market becoming very unreliable. There were lots of blackouts, and that has a massive impact on people running their business and going about their daily lives. To emphasise the effect of that, we saw over seven million customer hours lost from unscheduled load shedding between 2014 and 2018. You can see the massive disruption that can occur if dispatchable energy is not available and if retirements of base load are not handled sufficiently.

When the former Liberal government came into power, a strong focus was put on trying to get that reliability back into the system to make sure that electricity for families and businesses was affordable and, as I said, most importantly, reliable as well. The Retailer Reliability Obligation was one such tool to increase reliability in the grids. The Retailer Reliability Obligation provides some form of recognition of capacity in the National Electricity Market and is designed to change the way generators will invest and places what is a clear value on dispatchability in the system.

Other jurisdictions internationally have also considered this. Countries such as the United States, the United Kingdom, Spain, France and Germany have various capacity mechanisms in place. Each have their benefits and their costs as well. When the Retailer Reliability Obligation was introduced into parliament by the then energy minister Dan van Holst Pellekaan, he explained that the Retailer Reliability Obligation is a mechanism designed to ensure the electricity system operates to reliably meet electricity demand at the lowest cost.

The way to achieve that is to try to encourage retailers and other market customers to increase their long-term contracting of dispatchable electricity. Having these longer term contracts in place promotes investment into dispatchable capacity and investment in either the maintenance of existing plants or bringing new plants into the market as well. Having that ultimately supports the reliability of the National Electricity Market.

The Retailer Reliability Obligation requires that each year the Australian Energy Market Operator undertakes forecasting on reliability gaps for future years, which is outlined in AEMO's Electricity Statement of Opportunities, which is released annually. The Australian Energy Market Operator forecasts supply and demand of the market over a 10-year outlook and it refines its forecast annually with the intention that it provides the market with the opportunity to address identified reliability gaps.

In terms of what those reliability gaps are, they are linked to the National Electricity Market's reliability standard, which is a measure of unserved energy in each region. The reliability standard is based on no more than 0.002 per cent of energy demanded in a year not being able to be served. However, because there is unreliability in the National Electricity Market, there is currently an interim reliability measure, which is designed to reduce the risk of load shedding.

As I said, we experienced a massive amount of load shedding in those 2014 and 2018 years, with seven million customer hours lost, so it is a concern. This interim reliability measure has been put in place by AEMO to try to measure shortfalls, and that is at 0.0006 per cent. The way it works is that the reliability gap occurs where the forecast reliability in any particular region for a given financial year would result in the National Electricity Market reliability standard not being met to a material extent.

As I said, AEMO provides its statement of opportunities, providing a 10-year horizon and refining each year as it goes along. However, if AEMO continues to forecast a material reliability gap or if one emerges three years from the period in which the forecast is to occur—which is known as T-3, as I referred to earlier—AEMO applies to the Australian Energy Regulator to trigger the Retailer Reliability Obligation. If the Australian Energy Regulator agrees with AEMO’s request, the AER may make a reliability instrument and the Retailer Reliability Obligation would then be triggered.

The reliability instrument will provide information about the forecast reliability gap such as the region in which it is to occur and also the gap period. One of the key objectives of such a reliability instrument is for the market to have the right signals to contract and invest, which would minimise the likelihood of the reliability gap occurring in the first place.

So, that means if the market adequately responds—as I said, by investing into new plant that is dispatchable or keeping plant maintained to keep it in the National Electricity Market—then because of these incentives, any material reliability gaps should be resolved before that actual reliability obligation needs to be placed on the retailers. As I said, if this was to occur, then the reliability obligation does not need to be triggered to act as a safety net.

However, if there is a continuing forecast of a material reliability gap one year from the period in which it is forecast to occur, AEMO can then request another reliability instrument be made by the AER, and if the AER does make such reliability instruments, then liable entities must ensure that their net contract position for the trading period described in that instrument is no less than their share of a one-in-two-year peak demand forecast for that reliability gap period.

In terms of the South Australian context, AEMO’s latest statement of opportunities outlines that over the 2023 summer, the one-in-two-year peak demand forecast is approximately 2,950 megawatts, and this is expected to grow so that by 2026-27 it will be nearly 3,250 megawatts. So, you can see that demand is growing, so there needs to be a commensurate increase in supply into the market and, importantly, that supply needs to be dispatchable and help increase the reliability as well.

But in terms of the South Australian context, in this context of rising demand, we have experienced electricity supply events that had not been forecast by the Australian Energy Market Operator three years ahead of their occurrence. Recognising this, as I said, with seven million customer hours lost, in addition to AEMO having powers to trigger a reliability instrument, the former energy minister also provided an extra safeguard for the South Australian minister to also make a reliability instrument in the National Electricity (South Australia) (Retailer Reliability Obligation) Amendment Bill 2019.

So the South Australian minister can make a reliability instrument if it appears on reasonable grounds that there is a real risk that the supply of electricity to all or part of South Australia may be disrupted to a significant degree in one or more occasions during a period; and the South Australian minister can make a reliability instrument three years ahead of the real risk of disruption, known as a T-3 instrument, which I referenced earlier. But, of course, before making a T-3 instrument, the South Australian minister has to consult with both AEMO and AER. Additionally, there is no ability for the South Australian minister to issue a T-1 reliability instrument, so that is one year before the forecast is made, leaving AEMO to trigger that T-1 reliability instrument if they still see that there is a reliability gap forecast.

The ability for the South Australian minister to issue a T-3 reliability instrument has already been used to target reliable supply over the upcoming peak summer months. As an example, on 7 January 2021, the former South Australian energy minister triggered this reliability obligation in South Australia for the first quarter of 2024, which was between 8 January and 15 March 2024. Subsequently, on 24 October 2022, the AER made a T-1 reliability instrument for South Australia from 8 January to 29 February 2024 inclusive. This emphasises that had the T-3 instrument made by the South Australian minister not been in place, the AER would not have been able to make the T-1 instrument. So it is a vital tool that the SA energy minister can have in their abilities to try to protect reliability in South Australia.

As I said, you can see the former energy minister put a lot of time into making sure the system was reliable, and it contrasts with what I spoke about before. During the time 2018-22 when we were in government (the now opposition), there were zero customer hours lost to load shedding, so you can see it is chalk and cheese between the two and it really emphasises the importance of putting in an effort to making sure the system is reliable. The flow-on effect there of course is that customers are not without electricity, businesses can run smoothly and worry about actually producing goods and services, not whether the lights are going to be on and their plant equipment is going to be running.

If I could also reflect on another instrument that the former South Australian energy minister triggered back on 6 January 2022, which identified a reliability gap for the first quarter of 2025, between 13 January and 14 March 2025. Again, that is an encouragement, a signal to the system to make sure that that gap is not going to occur for companies and generators to invest to make sure there is dispatchable energy during that time, and we will await the outcome of that down the track.

Of course, seeing this in action, the other jurisdictions within NEM have recognised the additional level of oversight and powers that the South Australian minister has when it comes to reliability, and they are looking to also have the ability to issue a T-3 instrument, which we are discussing now in this bill before us.

This kicked off in September 2021. The national energy ministers agreed to include a ministerial lever for the T-3 instrument under the Retailer Reliability Obligation for all regions in a NEM. This decision was then endorsed by the national cabinet in October 2021. Added to this, the national energy ministers, also on September 2021, agreed to further progress design work on a mechanism that specifically values capacity in the NEM.

It is interesting that that has caused a lot of fracturing amongst the states around what they view as capacity, and it is a disappointing indication of where the NEM is going, the fact that that has not been able to be progressed. I would encourage the national energy ministers to relook at that because certainly we can see that, with upcoming retirements, it is going to be vital that we put a lot of effort into valuing capacity in the NEM going forward. One way to do that was to look at trying to set up a capacity market in the NEM.

Getting back to South Australia, as I mentioned before we are the lead legislator for the national energy laws. We now see these changes to ministerial powers for the Retailer Reliability Obligation being introduced here. To get to this point, the former Liberal government's energy minister was actively involved in the decision to grant other jurisdictions ministerial powers to issue a T-3 reliability instrument, and it has now finally arrived here in the house. Additionally, the convention for such changes to these national energy laws is that the legislative amendments are supported by the opposition, and so I indicate that the opposition will be supporting this bill.

I spoke previously about AEMO providing reliability forecasts over a 10-year time span, and this was provided yearly by AEMO's Statement of Opportunities. The latest Statement of Opportunities for 2022 came out and it forecast that for the 2022-23 year the interim reliability measure is forecast to be met in all NEM regions for this summer, which is encouraging. As I said, you can see that South Australia has concerns around that sort of January to March period in 2024 and 2025, and AEMO is able to provide comfort for this summer. The weather conditions have been mild, we have had La Nina events keeping that temperature down, so we are expecting that there should not be reliability shortfalls.

However, it does forecast reliability gaps in a number of jurisdictions moving forward. In fact, there are significant gaps forecast across the NEM in various jurisdictions. In New South Wales a forecast gap occurs before 2025-26. They have the Liddell Power Station scheduled to close down in a matter of only months, and that is certainly going to have an impact there. Victoria has a reliability gap identified in the 2027-28 year, and Queensland in 2028-29. So jurisdictions are facing these issues.

South Australia has a reliability gap identified in 2023-24. The gap itself is above the interim reliability measure, above the 0.0006 per cent, but it is below the standard reliability measure of 0.002 per cent. The reliability gap will come about when the Osborne Power Station is expected to retire; this identified gap recognises that shutting down. However AEMO, when it does its forecast, takes into account only current and committed generation. There is a gap there and it needs to be addressed. It is not as big as some of the gaps New South Wales, Victoria and Queensland are facing but, as I said, the projections take into account only what is committed.

There are projects in the pipeline that should give some comfort to those here in parliament today as well as those in the wider South Australian community, because there is certainly some anticipated generation to come online—again, encouraged by having this retail reliability obligation. There is the Torrens Island Battery Energy Storage System now being commissioned, the Bolivar Power Station, the Lincoln Gap Wind Farm, which also has battery energy storage at the same time, and finally the Tailem Bend battery project. These are online, and they should be able to cover any shortfall projected by AEMO.

Significantly, in AEMO's Statement of Opportunities it states, 'From 2024-25, the commissioning of Project EnergyConnect immediately improves the outlook.' Consequently, AEMO's reliability forecast drops below the interim reliability measure of 0.0006 per cent in 2024-25, and drops to effectively zero for the rest of the decade. This highlights the importance of having a second interconnector between South Australia and New South Wales.

The importance of that interconnector has certainly been in the news lately. Just in November we had that big storm come through on a Saturday afternoon that caused severe damage to both the electricity distribution and transmission network in South Australia. In metropolitan Adelaide we saw lines down on the streets, but at the same time there was significant damage to the Victorian interconnector near Tailem Bend and we saw a transmission tower collapsing, which had the effect of causing South Australia to be disconnected from the National Electricity Market in what is commonly known as 'islanding'.

While the state was 'islanded' there was significant potential for both electricity supply and network stability problems here in South Australia, especially on those very sunny days that may be mild in terms of temperature. There is a high amount of electricity being generated by rooftop solar without the commensurate demand, because air-conditioners are not running at the same time, which creates a real risk that significant quantities of rooftop solar could cause stability issues.

AEMO itself declared that the South Australian-New South Wales interconnector was absolutely critical for the ongoing secure operation of the South Australian power system. It is a transmission line of national significance. Again, it highlights the importance of having a second interconnector between South Australia and New South Wales to allow for scenarios such as occurred last November when South Australia was islanded.

Even the minister now acknowledges the interconnector's importance. When asked on ABC radio whether, if the South Australia-New South Wales interconnector had been running at the time that would have helped when the state was islanded due to the wild weather, the minister replied, 'Yes, it would have.' That is a strong endorsement.

On this side of the house we have been saying how important that interconnector is, but with that storm it really hit home why we should have it, why it should be in place: it provides that redundancy and increases reliability.

As a result of seeing the importance of the interconnector, the former Liberal government worked with ElectraNet on the South Australian side and Transgrid on the New South Wales side to fast-track the early works for what was a $2.4 billion interconnector, which is scheduled to be built and energised between the second half of this year and 2024. Stage 1 is Robertstown to Buronga, moving through to the end of 2024 when we will see the second stage between Robertstown and Wagga Wagga being energised and running. Once running, this interconnector will have an 800 megawatt capacity, which has the effect of being able to deliver power to 240,000 homes. Importantly, it also significantly reduces the likelihood of SA being separated from the NEM.

At the same time as reducing that risk, the interconnector also allows for renewable energy to be exported to New South Wales when South Australia is producing an excess which happens a large majority of the time. It also means that, in times when we are in deficit, South Australia can have access to energy from New South Wales when we are in times of shortfall as well. Having that will certainly help drive down the price of electricity for families and businesses and, at the same time, it will strengthen the power grid here so we can try to minimise and avoid islanding situations into the future.

At the same time as helping the electricity side of things, it is also attracting significant investment into renewable energy projects in South Australia worth billions of dollars and creating hundreds of jobs in major renewable projects along its route. This includes Neoen's massive $3 billion Goyder South project, with Neoen's CEO in January 2022 saying that without Project EnergyConnect it would have been impossible to go ahead.

These sorts of measures combined with the Retailer Reliability Obligation are going to help South Australia into the future to make sure that the reliability side of electricity is really given strong consideration. As I said before, because of this the other jurisdictions are facing the retirement of large coal-fired power stations, and they have significant reliability gaps forecast in the coming years by AEMO. Consequently, the other jurisdictions have endorsed the decision by the former Liberal government to give the SA minister the power to make a T-3 reliability instrument, and they wish to have the same ability to act in their jurisdiction.

Ultimately, this bill seeks to give equivalent ministerial powers for other jurisdictions to issue a T-3 reliability instrument that the South Australian energy minister put in place in 2019. By expanding the existing ministerial reliability instrument from South Australia to all NEM jurisdictions, it provides the ability for National Electricity Market jurisdictions to manage potential risks to their system reliability.

With the NEM becoming more interconnected so as to assist with an orderly transition, it is certainly to South Australia's benefit that these other jurisdictions address any reliability risks in their jurisdiction, especially with some upcoming significant retirement of large coal-fired power stations. This will certainly help to that end. As I said before, I indicate that the opposition will be supporting this bill.

Mr HUGHES (Giles) (12:48): I also rise to speak in support of the National Electricity (South Australia) (Ministerial Reliability Instrument) Amendment Bill 2022. I am tempted to respond to some of the comments that have been made—I think there has been some subtle rewriting of history.

We did have a freak storm which wiped out our transmission assets in the Mid North of the state which had serious consequences, and there were a number of load-shedding incidents especially here in Adelaide, but those load-shedding incidents were not as a result of a lack of generating capacity: it was capacity that did not come online, capacity that was privately held. Why was it privately held? Because those opposite some years back privatised what was an essential service. We should never forget that.

I do not want to go over ancient history, but in this house Labor strongly opposed the privatisation of ETSA. When you look back at it then there was incredibly significant market concentration. There was virtually an oligopoly that was brought into being through the privatisation, and that had all sorts of consequences. To the credit of the Weatherill government and the very able minister at the time, Tom Koutsantonis, a number of initiatives were introduced.

I remember when the big battery was introduced—and it was not about long-term storage but about improving the reliability of the grid through its provision of ancillary services—how we were attacked by the federal government at the time, who called it a big banana and all sorts of other things. Now we see batteries of that nature and bigger batteries popping up all over the nation and other parts of the world. South Australia can be proud of its initiative in that area.

Because of the load shedding that occurred when a private sector generator did not come onto the market, we decided back then that it is always useful to have in your back pocket a publicly owned generator that can do a significant amount of work. We are returning to that now with the hydrogen plant, which will be great to see the opposition support in a fulsome way and support my community of Whyalla to diversify its economic base.

That is all a little bit of a tangent there. Seeing this bill come onto the Notice Paper provides me with a moment of deja vu, going back to 2019 when the substantive Retailer Reliability Obligation was debated in this place. The bill before us today goes over the same ground as was discussed back then, adding the capability of a relevant minister to declare a T-3 instrument, triggering the obligation. Only the South Australian minister was given the capability at the time. This bill provides for all jurisdictions to operate in the same way.

Back in 2019 I spoke on the Retailer Reliability Obligation and the contrast between the former Labor state government and the Coalition government in Canberra. That contrast grew even starker as the federal colleagues of those opposite tore themselves apart with an inability to land on a coherent energy and climate policy. We had a decade of almost total energy chaos at a federal level.

Thank goodness that particular dysfunctional government is no longer with us—no longer is the smirking Morrison passing around a piece of coal in parliament. One of the things that I always recall, one of the things that stuck in my mind, was when Barnaby Joyce was the Deputy Prime Minister and he turned up in Whyalla of all places with his big hat.

It was a bit of an Adani roadshow. I will not go into the details, but listening to Barnaby speak you just came to the conclusion it was all hat and nothing else. When he spoke on climate, when he spoke on the environment, it was just bizarre. It would have had to have been one of the most bizarre speeches I have heard in my life. I resisted the push on the part of Adani to line me up behind him so I would be caught in that same footage. It was a bizarre speech. I would normally respect someone who would come to your community as a Deputy Prime Minister, but this was just a very strange day indeed.

Now what we are going to see is a coordinated process between the new commonwealth government and the states. That has begun to ensure there is an affordable, reliable and cleaner energy system. It is good to see all of the states line up, mainly Labor states, but Tasmania and New South Wales are on board. Both Tasmania and New South Wales are doing some good things, and even the previous Liberal government here did some things that were worthwhile as well. I am more than happy to acknowledge that. It is just that sometimes the rewriting of history does not come over too well.

One of the things that was happening with the previous Coalition government in Canberra was during that period for every four megawatts of generating capacity that left the system nationally only one megawatt replaced it. That was an example of the real-world consequences of that lack of investment certainty when it came to policy at a national level. That has now created a very challenging situation when it comes to meeting nationally the emissions targets, and it is interesting that all the states match the federal emission targets or go beyond the federal emission targets, including the Liberal states.

Last year, the Australian Energy Market Operator pointed out the nature of the challenge that we face. When it came to how much additional storage we need, it is 50 gigawatts of additional storage. That is 20 times more as of late last year or mid last year, 20 times more than the storage that we have in place at the moment. That is a huge challenge that federal policy could have addressed years ago, but they chose not to.

When it comes to renewable electricity, we need to roll out to 204 gigawatts. That is a sixfold increase on what we have now. There is a whole range of projects that are happening nationally. There is a whole range of projects, as the member for Morphett alluded to, in the pipeline, but we really do need to get cracking if we are going to address this and ensure cheap energy, ensure reliability and ensure that we do the right thing by the environment. When it comes to the transmission assets that we need, we also need to grow the national transmission asset base by one-fifth. The challenge is huge. There are all sorts of opportunities. There are opportunities for this state and the other states, but it is going to be a serious challenge.

Back in 2019, I highlighted the importance of storage in the energy system, and storage is one of measures which the Retailer Reliability Obligation is designed to encourage. I noted at the time that South Australia had some interest in prospective pumped hydro projects under consideration, including on Eyre Peninsula and the Upper Spencer Gulf. Even though the federal government at the time indicated there was going to be some funding to support them and they were shortlisted, nothing was forthcoming.

The electricity market and the developments that are going on are incredibly dynamic. You always have to look at whatever the project is, what is the levelised cost of electricity from those projects, and things do change over time. Regarding the projects in the Upper Spencer Gulf, there was the Goat Hill project, very close to major transmission assets, and that was going to be a freshwater project with recycling of that water, so its impact on the draw from the Murray would be minimal.

There was the interest in the Cultana project, which was a marine-based project using seawater. That would have introduced a few more complexities, and that did not go ahead. Then there was the Middleback Ranges, what was at the time a surplus iron ore mine site. I seek leave to continue my remarks.

Leave granted; debate adjourned.

Sitting suspended from 12:59 to 14:00.

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