Last year almost saw the passage of a clean energy target for the National Energy Market (NEM). However, the introduction of that scheme failed at the last hurdle due to a lack of party-room support within the Federal Government's ranks.
Attention is now turning to the federal election to see which political party forms government, and whether they'll control, or be able to garner the support of the cross-bench in, the Senate. The major political parties are going to the election with very different emissions and renewables policies. The party that forms government is expected to have a marked impact on the regulatory framework for the sector in the short to medium term. The outcome of the federal election may also lead the States and Territories to accelerate or, alternatively, pare back, their own emissions and renewable policies, depending upon their political persuasion or level of satisfaction with Federal policies.
Below the political level, the Australian Energy Market Commission has prioritised reforms aimed at improving the ability of Australia's transmission network to accommodate higher levels of asynchronous generation in a manner which also allows the system operator (AEMO) to better manage the changing power system. For some renewable projects, this has meant higher capital costs to meet their assigned generator performance standards, or to offset any system stability issues arising from their connection to the grid. The quid pro quo is intended to be that projects will have a clearer path to grid connection (through greater certainty of the connection requirements for intermittent renewable generation).
Separately, the AEMC is progressing rule changes to accelerate the most pressing network augmentations to improve interconnectivity between NEM regions, and to re-open some of the East Coast's most prospective renewable regions (for example, by alleviating network constraints in those regions). The Commission has also proposed a raft of regulatory changes to 'better coordinate investment in renewable generation and transmission infrastructure', which, if implemented, could see renewable projects receive 'firm' access to network infrastructure they fund. This is a marked change from the 'open access' principles that currently apply.
The reform agenda will not solve all of the regulatory challenges faced by some renewable projects. For example, marginal loss factors (which are the market mechanism for ensuring that generators bear some of the cost of system losses relating to their output) have moved negatively for a number of existing and potential renewable projects, particularly those located at the fringe of the grid or in areas of net generation rather than net demand. Competing access requirements can also be a challenge for projects where a good renewable resource is collocated with prime agricultural land, highly prospective minerals or petroleum resources, or community development concerns. However, it is arguable that these are examples where the regulatory regime is properly directing projects to be located in the most appropriate areas from a societal or economic perspective.
We will soon be releasing a new report highlighting the investment outlook for the renewable energy sector in Australia. This based on unique research conducted in early 2019. Contact us to find out more or to receive a copy of the report.