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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2024-11-26 Daily Xml
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National Electricity (South Australia) (Orderly Exit Management Framework) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 13 November 2024.)

Mr PATTERSON (Morphett) (11:04): I take the opportunity today to speak in parliament about the National Electricity (South Australia) (Orderly Exit Management Framework) Amendment Bill.

The DEPUTY SPEAKER: I assume you are the lead speaker?

Mr PATTERSON: Yes, I will be the lead speaker. Do not fear: I will not be speaking for an onerous amount of time. In terms of this amendment, it is another one of those batches of reforms that come from the Energy Ministers' Meeting. In particular, this bill looks to make amendments solely to the National Electricity South Australia Act 1996.

The bill was, of course, brought into this house last sitting week. In between sitting weeks, the government gave me a briefing on this. I certainly thank the officers involved in that briefing. They went through the reasoning for this bill, the intention of the bill and then answered questions that arose out of that.

I was also advised during the briefing that the government wants to accelerate the bill through both houses, the House of Assembly and the Legislative Council, this week. Usually what happens is that it comes through the House of Assembly, it is investigated and if it does pass it then sits in recess between the houses between sitting weeks to give the Legislative Council time to look at it; but for whatever reason this bill needs to be put through.

Obviously there are pressures, and with Christmas coming, this may well be the last sitting week. At the briefing, the hope was that this bill could be passed. The energy ministers from around the country are meeting again in early December—I think 6 December—and they hope to have it passed by then.

I have explained previously with these national energy laws that, as South Australia is the lead legislator for the national energy laws, it means that what has been brought through and consulted on by those energy ministers (and their decision to go ahead with it) then comes into the House of Assembly in South Australia with the effect being that when it is passed it filters through to all the other states that are bound by the national laws.

The convention for such changes to these national energy laws is that these legislative amendments are supported by the opposition. As has been the case previously, I indicate that the opposition will be supporting this bill and will follow up in terms of moving this bill through expeditiously. The opposition is certainly not looking to delay the bill or draw out debate on this bill.

I will endeavour to keep my comments reasonably brief. I came down with a bit of a virus last week so that will inhibit me as well and will be another reason for me not to speak at such length as maybe I usually do on every issue. I also indicate we will look to go into committee—there is not an onerous number of clauses—to reinforce some of the issues that came up in the briefing.

We have this bill coming before us with the nomenclature, which a lot of these bills do, of 'orderly exit management framework', so maybe putting rose-coloured glasses on what is really happening in the energy space. Here in South Australia, we are at a time when South Australians are facing unprecedented energy costs. They have record-high power bills. There are warning signs from the market bodies around what the liability prospects of our electricity supply are going forward, so there are real issues there at that level.

In terms of this bill, I was informed that the real core part of it is around allowing governments to manage the early exit of thermal generators, seeking what the alternative options are to replace the capacity of a thermal generator that is leaving or, in most cases—certainly at the moment—seeking an extension to the closing date of the thermal generators because of the very real impacts that occur to energy reliability and security here. That is what the bill is about.

The genesis of the bill goes back to November 2023, I was informed at the briefing, when the energy ministers agreed to opt in to this orderly exit management framework that is then going to be part of the operation of the National Electricity Market. At the briefing, I was informed that the framework is designed to give government the tools to manage the early exit of thermal generators, as I said, to ensure that the exits do not destabilise the grid or leave customers exposed to blackouts. As I said previously, what is the situation like on the ground? The market bodies are putting out information around that.

South Australia, as I said, is the lead legislator. It has this bill now coming before us in parliament, but the reality is: why would we need to? We have to really ask the question. Yes, while it is quite obvious in parts of the National Electricity Market that having this ability to keep thermal generation in the market is becoming more and more prescient, you really do have to ask why this is necessary in the first place. You would have to say it is actually a really true reflection and a direct result of what have been reckless and poorly planned energy policies by governments: the Malinauskas Labor government here in South Australia and, of course, their predecessor the Weatherill Labor government.

The chief cheerleader and ringleader as well is the federal Labor government, led by the hapless Prime Minister, Anthony Albanese. He has no grasp of detail and has just given this responsibility across to the climate and energy minister, Chris Bowen. You would have to say the actions of Chris Bowen put those things in order. He concentrates all on climate, and pigheadedly so, with the result being chaos in the energy markets.

Now we have the federal government doubling down on this aim to have a massive rush toward renewable energy. The most complicated electricity grid in the world, which is the Australian national energy market, is to be transformed by 2030, so that 82 per cent of it will be running on renewables. All the push for that has no consideration around let's do that push but make sure that energy remains reliable and affordable. No, it is all about that headline rate, and no detailed plan around how that is going to come about other than a promise that this can all be backed up with energy prices coming down in 2025 by $275.

We have the federal government pushing that, the state Labor government pushing that, and certainly the case here is that South Australia is pushing down that path too, really focusing disproportionately on emissions. We have this great race to go down there, and then of course all these dreams of energy ministers when they sat down back in November have been punched in the face, basically. Reality has mugged them, and they are saying, 'Actually, now we realise that base load generation is vitally important because it is so substantive.' It is not only the amount of energy it produces at a point in time—some of them are gigawatt scale; others are half a gigawatt—it is the amount of megawatt hours they produce over the course of a year as well and the implications that has on reliability and capacity generation.

The energy ministers have been mugged by reality, and therefore we now have this bill before us. The rush is on to get this bill through both houses this week so that the minister can return to the Energy Ministers' Meeting in early December. What is the rush? Is it to avoid scrutiny of what is a policy failure? Is it because they need to deal with another imminent shutdown? Who knows? We do not have that visibility before us. That is what we have before us now.

We have had a number of energy bills come through this place over the last two years. As they have come through, I have made points that for the vast majority of them the changes have been about giving the market bodies—the Australian Energy Market Operator or the Australian Energy Regulator or the Australian Energy Market Commission—increased powers to collect data for more transparency and not bringing power prices down by encouraging more supply-side generation and to have that in place before retiring base load generation.

At least with this bill there is a change in approach now. Maybe they have got the message. I am certain at the Energy Ministers' Meeting they would take these comments into account. Surely they have received the message that changes to these energy laws should not be about giving market bodies extra powers. Instead, here we have a bill that is now giving energy ministers in each of their jurisdictions more powers. You might say that there are things to be wary of, and energy market bodies have experts working there. However, what this bill does is give powers to these ministers to keep retiring base load generation in the market. It is not so much getting new supply into the market; it is just keeping the base load.

I suppose they heard the message I have been pushing around base load generation. The interesting thing here is—and it should be made a point of, and we will do so as we go through—that the ministers have that power to keep base load generation in the market, but, strikingly, it gives ministers the ability to directly have charges involved passed on to households and small businesses for the privilege.

We need to be going into this with eyes wide open. Certainly, it cannot be emphasised enough that it would have to be a huge embarrassment for both this state's energy minister and the federal energy minister that we are even having to bring this into parliament, because it really does reinforce a huge policy failure that has occurred here in South Australia, and this contagion now is spreading to other parts of the network. That relentless rush to renewables is having an effect where base load generators are retiring early before there are cost-effective and reliable alternatives in place to take account of that base load generation.

The changes that we see before us, this instrument, the orderly exit management framework, is a direct result of governments and their policies, with the South Australian Labor government leading the charge. There is no question that they have allowed an unmanaged and government-subsidised flood of renewable energy into the market that has had the direct result that base load electricity generation is now having to retire because of age and economic reality.

However, you have the situation now that these same governments have spent wads and wads of taxpayer money on this policy of pushing very quickly and rapidly renewable generation into the market, and you have to ask the question: is there the technology around to enable that to happen? These same governments now realise that they require this base load generation to avoid blackouts because it then protects them from voter backlash.

That has gone and now, to add insult to injury, ultimately the costs incurred by these generators remaining open will be recovered from each applicable jurisdiction's electricity customers. We have subsidised at the front end, at the renewables end, and now customers are having to pay at the back end as well, all at the same as they are paying huge electricity costs, huge power bills—and I will certainly cover that a little bit further on.

You would have to say that these ministers, when I am talking about the risk of blackouts, are basically doing it to save their backsides. I think the name of the direction here in this bill is a 'mandatory operation direction' (MOD). It really could be like the MOD is a ministerial backside-covering direction because that is what is needed here, because we have seen the importance of base load generation in our electricity system.

Just recently in New South Wales that Labor government entered into a voluntary agreement for Eraring power station to stay open for longer to extend its life until I think 2027. It was due to close in 2025. It is a massive electricity generation, 2.8 gigawatts. That is huge; that is nearly South Australia's peak electricity demand. We are around the three-plus gigawatts, so that just puts it into perspective. Victoria has also entered into agreements for Yallourn and Loy Yang.

Of course, in South Australia we are familiar with the necessity of base load generation. We saw under the former Weatherill Labor government what the impact was when big base load generation units left the market. The Northern power station was allowed to close. There was the opportunity for a voluntary agreement, but that was ignored and the result was that once that exited the market wholesale prices went through the roof because there was not the replacement generation capacity, both in terms of instantaneous output but substantially in terms of the amount of megawatt hours produced over a year, to be able to recover this closure, when it could have been kept open.

Wholesale prices, when it was all said and done, unfortunately, people had to go through the impact of it and wholesale prices increased 25 per cent between the time that that power station was closed, and I think that was over the first year and a half, as the market tried to recover from that. That had a big impact on customers' bills, I think an estimated $250 extra per South Australian—they had an extra $250 added onto their customer bill because of this. That really emphasises the impact of these base load generations and what that means.

It is important. Certainly the former Liberal government, those on this side, understood the importance of dispatchable generation, and when in government set about to really work hard to address that situation: base load generation, dispatchable generation, basically effectively being able to put energy into the market independent of the weather conditions so it is there.

As I have said previously, these closures and the need for this framework really talk to the whole energy trilemma that people like to talk about: taking into account affordability of electricity, taking into account reliability of electricity, and then taking into account emissions reductions as well. If one is emphasised over the other two, it really does cause big effects. You cannot just push very hard in one direction and not expect there to be a counter-reaction with the others. What happened at Northern power station is a direct result of when you push emissions too quickly. You need to work these in unison and concentrate on each aspect of this, which is exactly what was done while we were in government.

Now, of course, we are talking through what the impact is on the situation. We have a government which took no plan to the election to ensure that electricity was affordable or reliable, and at the same time the current government, this Labor government, are pushing emissions targets with seemingly no concern for the impact of what it will mean for South Australians. We see the consequences of this being felt by South Australians and businesses every day.

It is worth considering what the situation is like in SA as we sit here in parliament talking about this orderly exit management framework. There is no doubt that the power bills and the prices that South Australians are paying for their power bill is a huge factor. Each year, the Essential Services Commission of South Australia puts out the average household electricity bill and the average small business electricity bill for the financial year for the periods of July of one year to June of the next. As I have said before in this place, the latest report that came out has shown that for South Australian households the average electricity bill has now risen to $2,621, which is the highest ever recorded in South Australia.

In particular, the report showed a number of things. That record high electricity price was the result of the average family seeing their average electricity bill rise by $411 between 1 July 2023 and 30 June 2024. As I said, these reports come out each year. This is the third report that has come out under the Malinauskas Labor government, and each of those reports shows that household electricity bills went up and continue to go up. This has a huge impact.

Look at what this does if you break it down into a quantifiable example. We have South Australians such as pensioner Rick Wahlheim, who explained that paying the power bill has been getting tougher and tougher, with his most recent bill rising from $900 a year to $1,400 a year. These are big increases and it speaks to what was shown in the ESCOSA reports, where electricity bills had gone up for the three reports in a row and that household power bills have increased by 44 per cent over these reports, or $798 a year. Those are massive increases there for households.

For small businesses, it is a similar result as well. The ESCOSA report showed that the power bills for the average South Australian business rose by a staggering $791 just in the last report period, 1 July 2023 through to 30 June 2024. That means the average power bill for a small business is now $5,364, the highest ever recorded by ESCOSA. Under this Labor government, we have seen small businesses have their power bills jump by $1,685. That is an increase of 45 per cent.

We know that the cost of doing business is going up in South Australia across multiple areas, with inflation driving a lot of this. Certainly, these skyrocketing power bills are having a big impact on South Australians, to the point where we are paying the highest prices for electricity. If you look at capital cities, between Adelaide, Melbourne and Sydney and Brisbane it is people in the South Australian capital, here in Adelaide, who are paying the highest price for their electricity, which is a real concern.

It is the same with business. We have had businesses come forward and talk through what the impact of this has been. I have spoken previously about Nippy's. They have had their energy bills doubled. Despite using less electricity than the year before, their electricity bill has doubled. The implication is that the factory cannot run at all times, because the power bills simply get too much. This could then, of course, with their products have a direct impact on everyone's grocery bills as well.

Another example is, of course, Vili's, who are famous for their pies, pasties and sausage rolls. They employ 350 people and they have been going for over 50 years here. It is a fantastic bakery and a great supporter of community sport as well. They sponsored Norwood when I was playing there, so there is certainly much affection from me towards this great company. They have seen their power bills go up by 18 per cent compared to last year. This is going to result in them increasing prices.

In terms of people's grocery bills, Drakes employ 6,000 people and they have seen their energy bills increase too. Their 2023 bill was $10 million. They are estimating it is going to go up to $14.5 million this year. This is a supermarket that needs to compete with the big giants, such as Coles and Woolworths, and so there is a huge concern that the bill shock that is being felt by a lot of the agricultural food producers and supermarkets where we buy food will have a flow-on effect, a direct impact on everyone's bills here.

I think one of the quotes around this that was published was by Drakes, saying that one of the reasons for the spiralling bills is this rush to shift to renewables. I think this is the reason we are paying so much more for electricity, because we are trying to go to all renewables. This speaks to my comments earlier in the contribution around this push and now people realising there is a cause and effect. The effect is that some of the substantive reliable base load is leaving early. It is going to cause even more bill shock if they leave early, and hence the need for this reactive bill to come in to try to shore that up. That is important.

I talked about the effect of the Northern power station on wholesale power bills. When that closed, it took a long time for that to correct itself. I talked about the impact on bills. I think it was not until the second quarter of 2020 that the average quarterly wholesale power price that AER reports on came down to be at a level that it was before the power station closure in 2016. You can see a long lag time, but now we have wholesale prices in South Australia again surging.

The AER released their quarterly wholesale power prices, and the wholesale power prices here in South Australia for the third quarter, the July to September rate, were massive; it was $201 per megawatt hour on average. To put that in context, I think that is 42 per cent higher than the next state, so we are head and shoulders above other states here in South Australia. I think the next state was $142 a megawatt hour. This is hugely concerning.

Prices increased by 35 per cent between quarter 2 and quarter 3. The ESCOSA report said these are the power prices South Australians are paying up until June and now we have surges in wholesale prices in the three months afterwards. It is a real concern for both the households and the small businesses that are crying out for support here when only three months later we have found that wholesale prices have increased by 35 per cent. How this is playing out, of course, is South Australians are experiencing elevated energy debt that is growing, unfortunately because they are struggling to pay the bills.

The AER put out the 'State of the energy market' recently and it showed that the residential energy debt for South Australians has hit $1,379 per customer, the highest in the country. Further to that, to reinforce it, the precursor is also the customers on hardship programs. That has risen to be the highest proportion in the nation, too, at 2.4 per cent. That is a record high amongst the other states. That just shows more and more that customers here in South Australia are struggling under the way that the energy market is being rolled out here in South Australia, and now we have this bill before us as well.

While that is going on as well, pertinently to this point about orderly exit management as well, under this current Malinauskas government taxpayers did a similar thing. I have laboured the point about statistics but in terms of what these statistics bode for and what they represent, we have to always humanise it really, and I tried to do that through the families and the businesses. It represents families that are struggling to make ends meet, and small businesses fighting to survive, and ultimately a state economy that is being held back by poor energy policy.

There is a lot of discussion around economy. We really need to focus on what the effect is on the private economy here. A lot of the economic increase has been from government spending. We have to get to a stage where it is the business sector, private enterprise, that is pushing this—and a real handbrake on that is energy policy.

In this environment, we have seen this government do effectively something that is envisaged here in the framework where, under this government, taxpayers were forced to foot a $19.5 million bill to keep the Torrens Island power station operational, the B unit there. The costs, as I said, have been passed on to consumers. This is an example of what has happened. Again, that, at the time, showed the pressures that these base load generators are under and should have been a warning to both this government and other governments around to be careful around how they roll out this whole energy transition. But, as I said before, we have the federal energy minister certainly leading the charge, just pushing recklessly towards an 82 per cent target for Australia wide, and that is having an impact.

At the time of the TIPS B, as its known, closing down, the energy minister has tried to blame the interconnector to New South Wales for that. But you would have to say the merits of the interconnector speak for themselves. I do not see the minister trying to actually stop the interconnector to New South Wales from happening because it is a vital piece of infrastructure that was championed by this side of the house that will ultimately, when it is in operation, provide a high level of energy security and reliability here because it allows South Australia to export excess renewables. It also provides for when there is a shortfall in South Australia for us to gain energy not only from Victoria, where we have an existing interconnector, but from the big New South Wales' market as well. So that will help us, and it will help keep prices down as well.

It also becomes critical by having redundancy in this interconnector if one of them goes down because of storm damage. We saw the storm damage that occurred in South Australia in November 2022 when the Victorian interconnector went down and the South Australian energy market was islanded. Straightaway, wholesale prices went up, which of course ends up landing on South Australian households' electricity bills.

It is a vital piece of infrastructure, and the interconnector is not in place at the moment. TIPSB was already having to battle through competing against the swathe of renewables entering the market. It also has to deal with the government's hydrogen power plant coming online. Keeping TIPSB spoke to the importance of gas and that is so vital to the underpinnings of this whole rollout.

Recently, we have seen that it seems the government's hydrogen power station is going to be heavily reliant on gas in the first years of its operation. The government put out a tender for that power station to be supplied for up to the first two years with substantial amounts of gas that will be trucked in by B-double diesel-powered trucks. It needs up to 7.2 terajoules a day to allow it to run for four hours and up to 1,100 terajoules a year, so it is not just, as has been proclaimed, to have the power station start and then kick over.

It really speaks to the fact that it is going to be backed up and heavily dependent on gas, which, as we have seen more and more, is going to become vital to the energy security of not only the South Australian energy market but also the Australian energy market as well. AEMO has said we are going to need 15 gigawatts of gas come 2050 to back up the electricity system here.

You have the ambitions that are there and then the cold hard reality. As I said, really the impetus for having this bill land here is the cold hard reality of the existing technology available now before us that is required to keep energy affordable and the lights on. That is certainly a further example of the need for an orderly transition here as well.

That is a bit of the circumstances we find ourselves in here where we see this orderly exit management framework to try to manage the retirement of thermal generators. Going through it, it does not address the root cause, though, of what is causing our energy crisis and that is the need for affordable and reliable power. As I said, it really is a reactive measure that is being caused by mismanagement of the system by prematurely forcing the closure of thermal generators without ensuring there is adequate replacement capacity available. Labor governments and their reckless rush have left South Australians exposed to these higher costs. So that is where we find ourselves.

In terms of the framework itself, it has been described that it will be opt-in. We will see in the committee stage what the minister's intentions are for each jurisdiction. When an operator says, 'This generator is going to close early,' this framework will allow for the minister to then investigate what is the impact of that and what are the alternative solutions, and then make a choice: is it the case that it closes, or is it the case that there is an alternative solution, or is it the case that there needs to be an arrangement made with the generator? I should also say that the aim would be, in this framework, that there is an attempt made for a voluntary agreement prior to any mandatory agreement being put in place.

In terms of stakeholder feedback, it is fair to say that a lot of the feedback would have been from the generators, which you would expect. Largely, you would have to say that the energy companies and the generation companies that would ultimately be subject to this law are certainly of the view that voluntary agreements are superior to having a mandatory operational directive imposed. If you look at Alinta Energy's submission, they made the following statement:

Alinta Energy considers the orderly exit management framework unnecessary and that voluntary negotiations between the project operator and the jurisdictional government are superior to a mandatory mechanism.

Other stakeholders include the Australian Energy Council, the peak industry body for both electricity and downstream natural gas businesses. They are operating in the competitive wholesale and retail energy market. The submission from the Australian Energy Council noted that:

There are practical challenges associated with regulating the ongoing operation of generators with bespoke operating requirements. It is therefore crucial that the OEM framework, if implemented, acts only as a last resort measure and that due regard is given to existing regulatory arrangements supporting an orderly transition.

Those are some of their comments.

It is interesting that a few other submissions touched on the potential for there to be an investment disincentive by having this in place. Usually when a generator closes, that would be a signal from the market that there is a need to replace that with generation; whereas if there is the potential that a generator is going to close and there is a question of whether it will or will not be extended, that may mean investors wait it out pending a decision on whether the generator is forced to extend its life. Potentially, also, you might have investors thinking, 'There is an alternative solution: maybe we could look to take advantage of the fact that customers will ultimately have to pay for an alternative solution, so instead of keeping it open, maybe we could look to get some customers to pay for it as mandated.' So there are a few comments around that.

Ultimately, what is required to ensure that this does not come forward to us is to have more dispatchable generation in the market and, certainly, we need to encourage that here. In conclusion, it is fair to say that South Australians, as I have said, are in a high-cost environment at the moment and they are feeling it. They deserve an energy system that works for them. As I said, South Australia is the lead legislator here, so the convention is for these changes to come into effect nationally by passing through the South Australian parliament. As such, the opposition will allow that process to occur for these amendments to the energy laws to pass through the South Australian parliament.

In so doing, it certainly should be made clear that these changes just reinforce the impact that a reckless rush to renewables is having on the energy markets in South Australia and Australia more broadly. Putting all our eggs in one basket, just going all in for having only renewables: this will be the result. In turn, the ones that ultimately have to pay for these policy positions of governments are not only paying for it in their current electricity bill but we know that they will now have to pay for it in their bill because it will be passed on to them via this framework.

Again, South Australians are having to pay for it, whether that is households, working families, pensioners on fixed income, small businesses or large businesses, through ever-increasing power prices. The fact that this bill is even in here just highlights Labor's policy failures of going all in on renewables. Having this here in this parliament is just a desperate attempt to manage the fallout of poor decisions, rushed closures and misplaced priorities. I made the point that the legislation is not targeting the real need for South Australian families right now, which is to bring down energy bills.

The government needs to be focusing on those measures because South Australians deserve affordable and reliable energy, yet they have been burdened with years of energy mismanagement by Labor governments, which has led to skyrocketing power prices and empty promises around where it is heading. The $275 energy bill reduction by the federal Labor government has been shown to be an empty promise; in fact, prices have gone up in South Australia by $798 in that time. The opposition is calling on the Malinauskas Labor government to focus on real solutions that will lower energy prices for South Australians during the cost-of-living crisis.

Mr PEDERICK (Hammond) (11:52): I rise to speak to the National Electricity (South Australia) (Orderly Exit Management Framework) Amendment Bill. It is good to follow such an excellent summation by the shadow minister, the member for Morphett, of why this has come in place. Certainly, my view of the world is that it is at least 15 years too late. This sort of legislation should have been in place before the rush to knock down power stations, coal-fired power stations and gas power stations, with the headlong rush into heavily subsidised renewables.

What we have seen is a whole change of dynamic here in South Australia mainly, because we do have very good coverage of renewables. I think at times we can generate 100 per cent renewable electricity, but they are very rare and far between. The issue with renewable generation is that you have to overbuild the resource by about four times to get enough capacity. At night, obviously your solar panels are not going to work. If the wind does not blow, the wind farms will not operate—apart from the fact the proliferation of these types of technology is causing quite a bit of angst in rural communities.

What we used to have in generation of power was the old J tariff, the night tariff, where you would want to run everything at night because we had base load humming away in South Australia, generator base load from either coal or gas. Because of the lack of industry operating at night and the lack of other demands, it was best placed to get a cheaper electricity rate by operating at night.

What has happened now and over the years is with the renewables that have come online we are encouraged to operate during the day. That is certainly what I have found and I have had solar on my farmhouse for many years now. I came in on the second round of the scheme. I missed the 44¢ per kilowatt-hour scheme.

What is interesting with the proliferation of solar panels, especially on household roofs, is that AGL have suddenly decided that they are going to reduce—and I think they may have already—the payment per kilowatt hour. It had dropped to 5¢ a kilowatt hour and now it is dropping to 4¢ a kilowatt hour. Obviously there is legislation in place due to the amount of solar now, and occasionally people may not be able to export that electricity from their properties.

It is a huge issue in this state and there should have been an orderly exit management framework, or something of its ilk, long ago—as I said, 15 years ago when there was a rush headlong into these renewable technologies. Mind you, when these renewable energy systems are not functioning anymore, when these technologies have reached their end of life, whether it is a wind turbine that has done its 30 or 35 years or whether it is a solar panel that has reached its end of life, essentially the waste will all be buried. Those were the answers I was given from the environment minister, the member for Port Adelaide, when we were discussing the bill earlier this year in regard to how the waste would be dealt with and she indicated that it would be dealt with like all other waste. Essentially, that is what is going to happen.

The issue we have is that probably up to two thirds of the power generated in the national energy market, which is essentially the eastern side of the country we are connected to, is still coal powered, and because of the demonisation of both coal and gas there are coal-fired power stations that, as they generating electricity, are literally falling apart.

We still need that power generation as we move forward and we certainly need gas. We have even seen the government now with their hydrogen plan, which I believe will not work because it is essentially going to be gas turbines and, if there is some way of generating hydrogen, there might be a little bit of hydrogen going through them. As the shadow minister indicated, that is after the gas is trucked in with B-double trucks and many, many tonnes of gas. That is hardly green energy.

Coupled with this hydrogen experiment is the fact that there will be thousands of wind turbines, thousands of solar panels and, from what I have been told, an 80 per cent loss of power from renewable energy to the hydrogen plant. It is totally experimental and you see people like Twiggy Forrest (Andrew Forrest) turning their back on it—he is at the forefront of trying to find energy solutions for his mining operations—and certainly Origin Energy.

That is what worries me: that we have a project that has been budgeted at $593 million, it has not had that budget expanded for three years, and obviously the costs for every other business operating in the state have gone up remarkably, one of those being the price of power, which is not only hurting domestic users of electricity but also putting businesses out of business because the power costs are just over the top.

We recently saw with Bestons' two factories at Jervois and Murray Bridge—and they are struggling at the moment and on a thread—that when the Japanese firm Megmilk were looking at investing in the factories they just looked at the power costs and said that it was just not viable to keep that operation going. With the troubles there I have certainly been working with the member for Finniss to do what we can to make sure that whatever happens with those two milk plants we can keep them operating into the future in a viable manner. It is not as if there is a lack of interest in the businesses, but it is a matter of getting there, and it is a matter of keeping jobs for South Australians and those 170-odd jobs in my electorate.

What we saw with this headlong rush—and we were sitting the day the power went out in September 2016. It was about 4.23 in the afternoon—I do not have the exact date—when we lost all power across the state. I have never seen anything like it. That was under the previous Labor government when the whole state just went out. We never saw anything like that, nowhere near it, in the time we were in government, the Marshall Liberal government.

The thing is we looked at what needed to be done into the future, especially in regard to EnergyConnect, the new interconnector into New South Wales. That is a vital part of the equation. But some of the stakeholder feedback in regard to this energy framework exit plan is that many of the people who are involved in this are of the view that voluntary agreements are superior to this plan. Certainly, Alinta Energy made the statement that they consider the:

…Orderly Exit Management Framework (OEMF) unnecessary and that voluntary negotiations between the project operator and the jurisdictional government are superior to a mandatory mechanism.

The Australian Energy Council is the peak industry body for electricity and downstream natural gas businesses operating in the competitive wholesale and retail energy markets. The AEC noted:

There are practical challenges associated with regulating the ongoing operation of generators with bespoke operating requirements. It is therefore crucial that the [Orderly Exit Management] Framework, if implemented, acts only as a last resort measure and that due regard is given to existing regulatory arrangements supporting an orderly transition.

Certainly, as I discussed, this instrument is a direct result of governments allowing an unmanaged and government-subsidised flood of renewable energy into the market that has had the direct result of base load electricity generation having to retire because of age and economic realities. Too many times we have heard in here, especially from the Minister for Energy, that it is the cost of bringing on gas-fired generation that is the issue. No, the issue is gas-fired generation is struggling to compete with the heavily subsidised renewable generation of electricity which, just by its very nature, does not work all the time.

We need base load, and economical base load, to assist in running this state. These same Labor governments require this base load generation to avoid blackouts and thereby protect themselves from voter backlash. Is that not interesting? Ultimately the costs incurred by the generators in remaining open will have to be recovered from the applicable jurisdictions' electricity customers, who are already struggling with the cost of power in this state.

The former Weatherill Labor government refused to enter into a voluntary agreement to keep the Northern power station open. Instead, the closure saw power bills skyrocket. The Malinauskas Labor government, in November 2022, reached an agreement with AGL to keep the Torrens Island B power station open, and the cost to do so was $19.5 million. That was passed on to South Australian consumers through an increased SA Power Networks network charge in their power bills, so there are more costs to South Australian consumers. We are seeing that at a time when the electricity bills in this state are the highest in the nation and as the Malinauskas Labor government adds another $19.5 million to this burden on families and businesses to pay more for their electricity bills.

What we need to see is orderly work. We certainly need to see it in regard to gas-fired generation, which will be needed until at least 2050, because we need some thermal generation to make sure this state and this country works. Certainly, we need to take a serious look at the federal Liberal and National parties' proposal of nuclear if we are going to go anywhere near net zero. If we are going to go anywhere near net zero with power generation in this state, in this country, that is where we should be looking as a base load supplier working around all of these renewables that we certainly have in this state.

The shadow minister mentioned the Heywood interconnector. When that had a couple of towers blow down back in 2022, not far from where I live, up between Cooke Plains and Tailem Bend, it caused a major frustration. It essentially shut that interconnector down and left just one interstate connection of that underground interconnector, through the Riverland. It caused a massive issue in the market on this side of the country, and obviously there are issues with a lack of being able to not only export but import electricity on that interconnector, which is so vital.

That is why, prior to the 2018 election, it appeared that all sides were keen on the EnergyConnect proposal to build the interconnector through to New South Wales. I note that the South Australian side of the project has been built. When it gets completed, it will be a major support for the amount of renewable energy that we generate in this state, in that we can export it and then can also import thermal-generated energy to come back if we need it.

I want to talk about the EnergyConnect project a bit and note that construction of the South Australian component of Project EnergyConnect, the new high-voltage transmission line between South Australia and New South Wales, has been completed—these were statements made at the end of 2023. Project EnergyConnect is the largest transmission project ever delivered by ElectraNet. The transmission line covers 206 kilometres from Robertstown to the South Australia-New South Wales state border. It includes South Australia's first 330-kilovolt substation at Bundey.

ElectraNet Chief Executive Officer Simon Emms said that Project EnergyConnect is a transformational project for South Australia and the National Electricity Market. Project EnergyConnect is the latest in a series of major network projects delivered by ElectraNet in the past five years, essential to enabling South Australia's clean energy transition and net-zero goals. A quote from Simon is:

The interconnector strengthens South Australia's position as a leader in the transition to a low-carbon economy and enhances our ability to export our abundance of renewable energy resources. As well as unlocking renewable energy developments, it strengthens South Australia's power grid, and will deliver price savings for consumers. Once in full operation the new interconnector is expected to deliver bill savings of $127 for a typical South Australian residential power customer and between $6,000 and $18,000 for business customers.

Project EnergyConnect is already contributing to South Australia's clean energy future through new renewable energy developments in excess of 2 gigawatts including wind, solar and batteries that are now proposing to connect to the grid.

I note some comments at the time from the South Australian Minister for Energy and Mining, Tom Koutsantonis, who said:

I congratulate ElectraNet for completing the South Australian side of Project EnergyConnect.

I further quote:

The Malinauskas government now looks forward to final investment decisions being made by the many renewable energy companies which intend to use this link to the NSW market. South Australia has plenty of sun and wind resources which can be harnessed as energy for sale to NSW.

They were comments from the minister near the end of 2023. In question time last week we had some interesting comments from the minister. In answer to a question the other week on, 12 November, the minister stated:

There are a number of factors in South Australia that are hard to overcome. One of them is the number of customers per line of transmission across the state and the distribution lines. We have one of the longest and skinniest grids anywhere in the world with the fewest customers on it. It makes up nearly half of our bill. Members—

and this is the interesting line—

opposite forced South Australians, and the people of New South Wales, to pay an extra $2.6 billion, or more, I think, to put up a brand-new interconnector that is still not operational.

Here is a minister who a year ago was praising the building of this interconnector. He chops and changes with his view of it, but he knows as well as I do that this will be a vital connection link between our states to not only bring down power prices but stabilise the market because of the lack of thermal generation in this state.

I look forward to the discussion as we go into committee on this bill. One thing we need to do in this state is stop power prices going through the roof and look after the citizens of the state in their homes and their businesses.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (12:12): I thank the house for consideration of the bill and I look forward to its speedy passage through this house and the upper house. I will make a few comments on some of the remarks I heard from both the member for Hammond and the shadow minister—an interesting revision of history.

The member for Hammond laments the amounts of thermal generation in the state, yet is passionate about greater interconnection—the two are linked. Every time you interconnect you lose thermal generation. It was part of the regulatory investment test the government, of which the member for Hammond was a member, championed. In their regulatory investment test the previous government championed the fact that this would displace gas-fired generation in the state.

He talks about chopping and changing. The danger of having a little bit of knowledge, and what you say and understand what you have put in print and what you have submitted to the regulators to pass a regulatory investment test—the member for Hammond, in the government he supported, said, 'Build the interconnector to displace gas, to displace thermal generation in the state.' Yet, he gets up in this house and purports to tell the people of South Australia that the interconnector will give us more thermal generation.

Mr Pederick interjecting:

The Hon. A. KOUTSANTONIS: Here we go, the member for Hammond just said, 'Yes it will,' despite the fact that we know that when Heywood was built it displaced Port Augusta. We also know that when—

Mr Pederick interjecting:

The Hon. A. KOUTSANTONIS: Congratulations, and usually from some of the bigger jurisdictions to the smaller ones. Hence the regulatory investment test that members opposite put their names to.

The other part that I wanted to talk about as well was the shadow minister talking about this government's push to put subsidised power, renewable energy, into the system that has displaced thermal generation. What subsidised power did we put into the system? What subsidised grid-scale power did we put into the system that displaced thermal energy? I am trying to think of the subsidy scheme. Could it be the subsidy scheme that the Greens and the Liberals supported and amended, that the solar feed-in tariff was meant to be for five years and they made it for over decades long, because there is no grid-scale subsidy at a state level; this was commonwealth subsidies. I am just trying to look and think about what scheme he is talking about.

Perhaps when we get to the committee stage, he can inform the house of this subsidy scheme that the state government supported. The only subsidy we put in place was to build two gas-fired generators, which members opposite promptly sold. That is not fact. Let's not let facts get in the way of a good story here. This is an important piece of reform. This reform will allow the orderly exit of generation caused by gradient to connection, caused by the transition that is occurring. It is not caused by anything else other than market conditions. Because members opposite privatised this system and we do not own the generation that we have anymore, it is important that we have a regulatory process in place to make sure that we can have an orderly exit of generation because the system is a physical one and it relies on the laws of physics.

We need to have sufficient generation in place to meet demand. Renewables can do that, they need to be firmed and they can be firmed by either interconnection or thermal generation, and there needs to be an adequate mix of both. So I thank the member for his support of this legislation. What is the rush? There is no rush. In terms of the humiliation he was talking about, I will let the Liberal members on the energy ministers' council know what his views of them are when I host them in December and I read out his remarks in Hansard to the assembled Liberal energy ministers who are ringing me and asking me when this is going to pass. Again, it is not draughts; it is chess. I look forward to the passage of this legislation and I look forward to the informed questions of my colleagues opposite.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Mr PATTERSON: Can the minister give an overview of some of the cost considerations, and how the costs keep a power station that is subject to one of these mandatory operations directions, how those cost considerations will be arrived at and will they take into account capital upgrades, maintenance, fuel costs, insurance, and also other costs that may be incurred along the way? I think there was discussion in the framework around paying the market bodies for some of their research, so if you could elaborate on that, please.

The Hon. A. KOUTSANTONIS: Any generator wishing to access, who has given notice of an exit and who is subject to this framework, will be required to provide information to the Australian Energy Regulator about costs: operational costs, insurance costs. The AER will then make an independent determination and that determination will then go to the jurisdictional minister about what level of cost can be passed through to consumers to keep the generator operational. Those costs will be determined by the AER and the AER will then make a recommendation to the minister. Subdivision 3 provides:

(2) A payment order may specify the payments a MOD generator is to receive for the following:

(a) the reasonable costs directly related to operating and maintaining the relevant MOD generating unit and, in accordance with the Rules, a fair margin on those costs;

(b) a risk management margin, including risks associated with the relevant MOD generating unit being inoperable for 1 or more periods of time;

(c) other costs prescribed by the Rules.

The payments must be determined by the AER in accordance with the rules. The minister will then take into account the cost of AEMO and the AER in making these determinations and then make a decision about what can be passed through.

Mr PATTERSON: Thank you for that response. In terms of these costs, there are two parts to that. Firstly, will these costs overall be made public or will it just be a final figure? Will there be a breakdown and will it take into account, when you talk about operational costs, the fact that some of it may be variable as well? How will that be put through into the costings so that it is transparent?

The Hon. A. KOUTSANTONIS: Once the Australian Energy Regulator makes a contribution determination, it must be made publicly available as per statute and it must be published in the Gazette or in other ways determined by either the Australian Energy Regulator or the relevant minister. I am assuming the AER will give the minister a recommendation on how to publish those in the Gazette, and I am assuming that is what will be followed, and then that contribution and determination will be passed on to the distribution networks for collection.

The CHAIR: Any further questions?

Mr PATTERSON: Yes, I have one more on this one. So I take it that it will be overall, and I am assuming it will be broken down and transparent and not just a big lump sum. You said that it is then given to the distribution network provider. Can you talk through how that process then follows for customers? Ultimately, as it appears to me and as has been explained to me in the briefing, the distribution network provider gets charged as prescribed by the AER and then that distribution network provider then on-charges that to every customer who touches the distribution network, which is effectively all electricity customers. Maybe if you could explain the process and how it takes into account the operational cost and the risk margins. Is there a flat fee or if it is a variable fee, how does that get estimated so that it appears as a charge? Is it an annual fee, ongoing, etc.?

The Hon. A. KOUTSANTONIS: I suppose the easiest answer is one that members opposite will have the most familiarity with, which is when you decided to build Project EnergyConnect and those costs were passed on to consumers; it is exactly the same process. To pay for the half a billion dollars' worth of ElectraNet cost to build Project EnergyConnect, which was passed on to consumers and which they will be paying for once that is operational, it is exactly the same process. Section 118AZC provides:

118AZC—Orderly exit management payments by distribution network service providers

(1) The financial vehicle may, by written order, [which is basically a contribution order] direct a distribution network service provider to make payments to the orderly exit management fund…in accordance with the contribution determination applying to the distribution network…provider.

(2) A contribution order must specify…

(a) the distribution network service provider required to make the [orderly exit] payments;

(b) the amount of each payment;

(c) the date by which each payment must be made;

(d) the way each payment must be made;

(e) that each OEM payment must be made to the financial vehicle for payment into the orderly exit management fund;

Basically it is the same as prescribed in the rules now for any other mandatory contribution, whether it be for infrastructure or any other determination.

Mr McBRIDE: First of all, thank you to the government and probably really parliament: I think they recognised the importance of this legislation, these amendments, and looked at it on a national front. My questions to you, minister, will not be to say you have done anything wrong, they are about whether we are really being looked after here in South Australia into the future as best we can be in this unpredictable energy area.

In all that this stands for in South Australia, would you agree that the infrastructure that is left over in South Australia is now only small in generational terms and the real issues belong to Victoria, New South Wales and Queensland because of their coal-fired, old, power stations?

The Hon. A. KOUTSANTONIS: Yes. This framework has been brought in place mainly to deal with Queensland, New South Wales and Victoria. South Australia is the lead legislator. Those states have requested that this legislation be passed quickly to allow them to have an orderly exit framework in place and that is why the ministerial council has determined this to be done at this time.

Mr McBRIDE: Thank you, minister, for that answer. It is exactly as I sort of anticipated. I have to say that I was privileged enough to have a briefing from your staff and really appreciated the time that I was given. The concern came up that these states and this legislation is rolled out to allow the states of Victoria, New South Wales and Queensland around these ageing coal-fired power stations to make a deal that works for those states. What I thought might be missing, minister, is South Australia was not in that conversation, yet we do depend on Victorian power, for example, with the interconnector from Victoria coming across into the Limestone Coast.

We might not be able to participate in making sure this infrastructure is kept going even though it still belongs in Victoria, New South Wales or Queensland. If we are dependent on some of this infrastructure, we are not around the table to convince those states, or even help those states, to keep this infrastructure going for our needs when we do call on that power to come across our borders. Can you tell me what sort of role the government does have in playing at that table, and if we can shore up our power needs from other states when they do provide in our time of need?

The Hon. A. KOUTSANTONIS: There are pain-sharing arrangements in place between Victoria and South Australia for load shedding if necessary to protect the system in the south-eastern district, but you are right: I am not party to a Yallourn arrangement or any other coal-fired power arrangement, but nor is the Victorian government in any way aligned or responsible for what might occur at Torrens Island or at Moomba for gas production, and they had no say in the ban on fracture stimulation in the South-East either which caused a loss of a lot more gas too.

Just remember, generation of electricity is a state-based responsibility, so it is not a commonwealth responsibility. What this framework will do is it will allow the AER and relevant jurisdictions to bring in an orderly exit framework that will allow the market bodies to keep generation that it thinks is necessary in the system without those costs being borne by the taxpayer, but rather by consumers.

You might argue they are the same people, but this is a fairer way of doing it and therefore it is not reliant on the individual initiative of individual jurisdictions to keep these types of plants in place. For example, for a large coal-fired power station in Victoria, an early exit would not only be devastating for Victoria but could also have implications here in South Australia, as you said. This framework gives the market bodies, which are independent, the opportunity to make recommendations to say that if one of these large, coal-fired power stations or large generators, or even a large renewable power station, decided to shut abruptly, this framework could apply and therefore the market bodies could keep them operational while the system has time to adjust.

It actually does deal with the substance of your question. It does put us around the table. In fact, who it puts around the table are the people who actually manage the market, the Australian Energy Market Operator, so it deals exactly with what the member for MacKillop is asking. It actually wraps us around and interlinks us a lot more than it did previously, because previously we were entirely reliant on other sovereign governments making decisions that would also benefit us. This now allows more collective thinking about jurisdictional needs and regional needs.

That interconnector between South Australia and Victoria is vital, not just for us, it is also vital for Victoria, so it is important that we have this more regional view rather than jurisdictional view, and that is exactly what this legislation deals with to answer the exact question that you raised.

Mr McBRIDE: Thank you, minister, for that excellent answer. This is just a straight-out sort of topping off what I have to say was a good answer. Minister, do you have confidence with this legislation that our South Australian interests will be looked after around a Victorian piece of infrastructure and that, when it comes to the crux around keeping a power station going, our interests will be considered as equally as Victoria's interests?

The Hon. A. KOUTSANTONIS: Without this legislation, there is no way of us having any say. What this does now is it allows AEMO to do a body of work to say, 'That generation closes, and it has impacts in this area,' and the borders mean nothing. I think it does exactly what the member is asking for it to do. It thinks about this as an entire system, as a National Electricity Market should be, rather than discrete jurisdictions working on their own.

Clause passed.

Clause 2.

Mr PATTERSON: Picking up on that, because I have a similar line of questioning around jurisdictions, you have explained how the market operator looks at it and says, 'This might have a flow-on effect.' Can the costs that are incurred in one state then be spread over multiple states if the stability of electricity in multiple states is affected by the closure of a particular generator? You made the point that we are getting the power.

The Hon. A. KOUTSANTONIS: No. One of the key policy decisions in this legislation is that only the people in that jurisdiction will pay. If there is a determination made on Yallourn, only the jurisdiction in which Yallourn resides will pay for the orderly exit framework. You might say, 'That's unfair.' I do not think so, because there are other frameworks that are going to be applied here that would allow the benefit to grids as well, so it is done on a basis of who will benefit the system as a whole. I think it is a good compromise and an important policy improvement. Otherwise, there is a very real chance that this legislation will not occur and we would have continued disorderly exits from the market. So we are preserved.

Mr PATTERSON: Thank you for that answer. It seems like at least each jurisdiction can have a say, not just a particular jurisdiction. Neighbouring affected jurisdictions can say, 'Actually, I am concerned about this too. Bring it to the market bodies,' and ultimately that particular jurisdiction pays for it, and it is a bit of quid pro quo. That is a positive answer there.

If I can talk about when this bill commences, part of the bill refers to where it can also take into account voluntary agreements that were entered into, I think, as far back as December 2020. While they were voluntary and they were entered into prior to the commencement of this framework, this framework can actually apply to them. Maybe you can talk through what that entails. Does that mean that the voluntary agreement can be opened up and changed, or is it more around the fact that there are the transparency mechanisms in place, the closure dates as well? Maybe if you could just talk through that a tiny bit.

The Hon. A. KOUTSANTONIS: If you look at new section 118AB—Application of Part to jurisdiction:

(1) This Part does not apply in a participating jurisdiction unless a regulation, made by the Governor of the participating jurisdiction acting on the recommendation of the Minister, is in force specifying for the jurisdiction—

(a) the date from which this Part applies; and

(b) the extent to which this Part applies; and

(c) the way the financial vehicle is to be established.

(2) An agreement made between the Minister and a Registered participant before this Part applies in the participating jurisdiction may be prescribed by a regulation made under this section as a voluntary agreement.

What that means in short is, if there was some bilateral arrangement in place, you can prescribe that, or you can choose to go down another path. It gives maximum flexibility to the jurisdictions.

Mr PATTERSON: In terms of this framework, it is opt-in, so could the minister say whether South Australia will be participating in the framework and also whether there is an ability for each jurisdiction to fine-tune? It says something about there being some ability for each jurisdiction to try to tailor things, but maybe the minister can talk through what the extent of that is and how much uniformity there is. Is it just around dates, etc., or is it more around, 'We'll take this part of the bill but not another?'

The Hon. A. KOUTSANTONIS: It is both. It is parts of the bill and dates. My instincts are to accept all of them for this jurisdiction, because I want to have every piece of weaponry in my arsenal possible to maintain system security and have an orderly transition to net zero. It is very important that we have this in place. But yes, some jurisdictions may not wish to participate. That is a matter for them, which I think is something that every jurisdiction will very quickly embrace. My guess is that New South Wales and Victoria will be the first to embrace this ASAP, followed by Queensland and South Australia.

Mr McBRIDE: I am going to reiterate: good answer, minister, on that last question. I fully understand where you are coming from and support what you are trying to achieve here. Minister, if I can just tell you that what you are rolling out here in legislation terms deals with people, and people who know how to make money. Those people are the owners and shareholders of these power resources, coal-fired power stations, that have a limited life in front of them.

I am going to tell parliament a little bit of history about our own personal experiences around movement from the old windmills on our pastoral leases to solar. We said the silliest thing to our workforce: we said, 'As your windmills fall apart and don't work we'll replace them with solar panels.' Well, guess what? Within one or two years every windmill was then broken, never repaired and we went to solar panels on every bore very quickly.

Windmills are dangerous and they are time-consuming. They work—they have worked for 100 years—but they are no longer relevant in today's age where you have a six by 10 foot 356 solar panel with a submersible pump. You can pull it out by hand and do not have to get in the air. There are no safety issues—really good. Now we are talking about a once billion-dollar power station that is running out of its legs and running out of its use-by date.

'It is tough to make money out there on the electrical grid at the moment, minister. Solar eats away at our profits, wind eats away at our profits, other alternatives are eating away at our profits and getting us into their grid. They are all beating us when the sun shines and the wind blows, but they need us when there is no battery and there is no wind and there is no sun. They need the coal, all the old sources, but our infrastructure has 10 years to roll and it is getting harder to make money, so we'll shut it early. Guess what? We've got a new piece of legislation here—geez we can make a deal here, minister. I can talk to the Victorian Premier and the Victorian Minister for Energy. The Minister for Energy in South Australia, he'll be there because he needs our power and we're going to make our last 10 years the most profitable 10 years that we can find.'

How do you avoid a power station going down that route to say, 'Our costs are going up, our coal has got more expensive, it's not 10 ks away now, it's 100 because we just want it to be. We're not employing 10 people, we're going to employ 20. We're not producing as much power as we used to but we're going to have to shut the door because we're really not profitable. But no, we're going to make the last 10 years really pay and we're going to make some money for our shareholders.' Can you help me out on the way that this could work?

The Hon. A. KOUTSANTONIS: Bodies have extraordinary power, especially the Australian Energy Regulator, to look deeply into the cost structures of these companies. I am not as au fait with the share market as the member for MacKillop may be, but I would hazard a guess that the record profits reporting by Origin and AGL mean that these ageing assets are doing quite well, thank you very much. They are extracting the same amount of rent they have always extracted, just over shorter periods of time, which is having a spike impact.

The AER has the ability to dive deeply into these books. There are severe penalties in place for misleading or hiding information from the Australian Energy Regulator. I have no concerns or qualms about the way Clare Savage conducts herself. She is a very, very talented individual who understands business as an employee of the Business Council of Australia. This is someone who is highly regarded in the business community and who understands the operational aspects of these companies. She does an exceptional job in the default market offer which looks at a lot of the operational costs of these generators.

These generators have nowhere to hide in terms of their costs. Their bidding is done out in the open. Their costs are scrutinised by the Australian Energy Regulator. Their profit margins are seen on the ASX. There is multiple reporting, multiple levels of transparency, multiple levels of enforcement and fines. I do not think this is going to be an issue at all, and I have complete faith in the market bodies to get the right costings.

What I am more concerned about, and the reason this framework is so important, is that when governments do do bilateral arrangements, without the same powers of the Australian Energy Regulator and AEMO, they are doing these bilateral agreements that the taxpayer is funding, and there is no transparency, and they are having market implications. That is why this legislation is so important, because of the transparency and because, once it is determined that you are essential, it is not voluntary, so I think it covers every part of what your concerns are.

The concern I have is when you ask governments to do a bilateral arrangement with a company without the powers to determine what the actual operating costs are, what their margins are, what their insurance costs are, what their position is, how far the coal is, how far the gas is, what their industrial arrangements might be—the AER has every tool it needs to understand those costs and recover those costs and get access to the actual costs so that we can get a proper determination. This is one part I think the member for MacKillop has nothing to worry about.

Mr McBRIDE: Minister, might I say that it is a very good answer, but I am going to be the devil's advocate a little because I do not want you to fail, I do not want the state to fail, and I am going to give you an example of that transparency that you tell me that is going to be there—which I believe—but there is no point in having transparency and people looking but not even understanding what they are looking at.

When you say that AGL and these power producers are making record profits, do you know what they do next? They make more record profits, they make even higher record profits. They do not stop and say, 'That was a bit high for us, we had better come back down again now.' They do not think like that. I will give you one example, with parliamentary privilege, and this is known in commercial terms and you can see this: a simple little business, but it is not little, called Ventia, is doing government contracts out there in the wider world.

We know these contracts they are doing for the South Australian government are expensive compared to the private world. They are making record profits. We know that the big superannuation companies are investing in these record profits. We know that Ventia is even buying back their own shares because they have to report that sort of behaviour. That behaviour only happens because there are record profits.

Minister, I know you have already given an answer, and you say that there is transparency, but one of the things that I want the minister to be aware of is that one sector, the private sector, knows how to make money for shareholders. They are experts at it, hence why they are in the job of doing it. The other sector we are talking about that is going to come along, like the AER or AEMO or a corporation that belongs to government as a watchdog, as we might call them, and a management that looks after the best interests of Australians and, hopefully, South Australia as well: would they have the insight and the power and the will to really call out mismanagement, corporate stealing, as you might call it, if they were allowed to do so, at the expense of consumers on a national level?

It is going to take some really powerful and good individuals to be able to call out a billion-dollar company that is making profits for everyone, including the Public Service that is actually calling it into question, because they have superannuation schemes, and they are connected to some of these big businesses that make these record profits. Sometimes they get a bit blinded by asking: 'Which one do we want to bat for here, my superannuation scheme making a record profit while I work for the Public Service, while the private sector over here is ripping off the taxpayers or electricity users?' It takes a bold person to actually call that out, and I question whether there are enough people in our society with the stomach and the integrity and the skin to be able to do that—I really do.

I have not seen it anywhere yet, and I really do worry that this will happen over something like this. I know the intent here is about electricity and continual production of electricity so the lights do not go out, but the problem we have is that electricity has got bloody expensive. We also know it is making some really good profits for some businesses, and I have a feeling that this is going to increase those profits. The question to you, minister, is: do you just have blind faith or do you really know that we are going to have our interests looked after?

The Hon. A. KOUTSANTONIS: In my experience, public servants are exceptionally well trained and exceptional at their job. I have heard a number of times from the member for MacKillop and other people that we do not have the expertise in government or in these market bodies to understand the work that private companies do in getting around them.

The ASX, AEMO, the Australian Energy Regulator, the Office of the Technical Regulator and my department are exceptional at understanding, because they have come from this industry. They are trained individuals. If I had the attitude that the member for MacKillop does—and I say this politely and with love—I would not trust a DPP, because they prosecute criminals. Police are good people; they find bad guys and lock them up. The ATO is very good at uncovering fraud. I do have complete faith, and it is not blind; it is through past experience.

I know that our public sector and our market bodies are governed by some of the best and brightest people in the country. They are exceptional public servants and they do exceptional work. Daniel Westerman at AEMO is a breath of fresh air. He is an exceptional public servant, who works very hard and understands the National Electricity Market better than most. Clare Savage is one of the most remarkable public sector employees I have ever met, someone who never planned to have a life in the public sector, who probably took a massive pay cut to go off and do this public good, who could have made millions and millions in the private sector. She worked for Energy Australia and the Business Council.

I have complete faith in Anna Collyer as well at the Australian Energy Market Commission and the work that they do in making the rules. These are people who have devoted their life and their expertise, who are extremely well credentialled. I have faith in our institutions, I have faith in our public sector. I am not despondent about the future. I do not think this will increase costs. This will stabilise the system. This will deburden the taxpayer from having to do this bilaterally with companies. This will create more transparency. I think it is exactly the type of framework that gives us good governance, good outcomes and a good system. I know that members are keen to ask lots of questions, but I feel I needed to attack that properly.

Clause passed.

Clause 3 passed.

Clause 4.

Mr PATTERSON: Just talking around the rule-making powers and how they are going to roll out and the mechanisms in place for if there is a notice that the generator is closing early, one of the investigations as part of the process is to look at alternative solutions to the shutdown of a generator and potentially choosing that solution over the generator itself. That may well be the more cost-effective or economic option. Can the minister explain how this process will work and also, if there are costs as part of that alternative solution, how will they be arrived at and are they passed on to the customer as well?

The Hon. A. KOUTSANTONIS: Basically, it allows the minister in the jurisdiction to ask one of the market bodies, AEMO, to look at alternative options, to do a desktop study of what could be an alternative, rather than keeping said generator in the system. Those costs and the alternative solution can also be cost recovered.

If AEMO come up with something else that is potentially cheaper or more advantageous or faster, or whatever other benefit it may have to the grid, the minister can consider that. So it is a good option to have in place here. Rather than saying, 'Do we just shut down this generator?' what are some of the alternatives? It could be grid-scale batteries, it could be augmentation of the grid, it could be something else that comes up. Those costs as well can be used through the framework.

Mr PATTERSON: This is a similar question: can I just confirm then that, as you have said, they will work out the costs and then that will be passed on through the customers?

The Hon. A. KOUTSANTONIS: Yes.

Mr PATTERSON: Talking about some of the stakeholder feedback, it is interesting to hear the commentary around the current situation where there are negotiations in place and maybe the imbalance of information. Of course, generators have said that voluntary agreements should be a first option, which, again, is one of the solutions provided for in the framework prior to a mandatory directive, and that that should be used as a last resort. Could you talk about how you see this operating in terms of the intention for a voluntary agreement?

Do you see that as more likely to occur now because the market bodies will have more information available to them and therefore it is quite likely that there is less of an imbalance in terms of information available and that will help with good faith negotiations, as opposed to saying, 'Actually, yes, I know that voluntary agreement process is there but the most expeditious route as a minister is to go straight to a mandatory directive'? Maybe you could talk a little bit about where you see the pitfalls but also the opportunities in having these voluntary agreements.

The Hon. A. KOUTSANTONIS: The legislation does also first require me to try to get a voluntary agreement with a potential generator. What the legislation wants is, rather than all stick, it actually compels every minister in every jurisdiction to attempt in good faith to come up with a voluntary agreement, and that voluntary agreement can also be cost recovered. So it does give us the ability to do what you are asking, and, as long as we have all the tools we need to be informed well enough to get that voluntary agreement, that would be the preferred option.

But of course there are some scenarios where it is just not feasible to have a voluntary option, because it is not in the commercial interests of the proponent to keep the generation in because they may be doing so, let's be frank, despite prices. Their book might be big enough and they can cover their book through interconnection, especially with the good work of the member for Hammond in closing as much thermal generation as he could through a massive extension cord to New South Wales, given his opposition to gas.

Mr Pederick interjecting:

The CHAIR: Order, please! We have 30 seconds before the bells ring.

The Hon. A. KOUTSANTONIS: So, yes, we have the opportunity to do so.

Progress reported; committee to sit again.

Sitting suspended from 13:00 to 14:00.

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