As political debate about Australia’s energy future ratchets up, AGL has found itself in the cross-hairs over plans for its aging Liddell power plant.
But the utility's chief executive Andy Vesey is holding strong – and focusing on other initiatives to assist the shift away from coal to renewables.
Although he addressed the “elephant in the room” at a Committee for Economic Development of Australia event on Friday, Mr Vesey also took the opportunity to shine a light on the utility’s new “wind firming product units” designed to help provide liquidity to the renewable energy market, which he said was vital to its success.
“Without retailers having access to the contracts they need to firm their product, this goes nowhere,” Mr Vesey said, referring to the inherent challenges of a market that’s reliant on the vagaries of wind and cloud cover.
AGL’s new product acted like insurance for wind farmers by giving more certainty around financial exposure, Mr Vesey told the event hosted by chief executive of Westpac’s institutional bank Lyn Cobley.
“If you have a wind farm, you can contract with us so when you have a deviation against your capacity factor and you’re short when prices are high, we'll give you energy at the spot price, so you're covered,” Mr Vesey said. “If you're short when it's low, that's our opportunity to make that money back. It's a pretty interesting swap deal.”
He said it “demonstrates what competitive markets can do”, pre-empting the proposed National Energy Guarantee which he said would be “critically important” in firming up the reliability of the market as it transitions from the “legacy of low priced fuel and aging plants, to new renewable plants such as wind and solar”.
Mr Vesey also addressed the recent public criticism initiated by some sections of the government of AGL’s 2015 decision to repurpose, rather than extend or sell, the Liddell coal-fired power plant at the end of its “economic life” in 2022.
He confirmed AGL’s intention to convert the site into a “renewables integration hub”, a plan he said had anticipated changing energy policy settings, and would be more reliable, have less environmental impact, and create continued economic activity and “high quality jobs that will last for decades”.
“We're five years away from closure. We have time to do this right," he said. "That's why we are so supportive of the National Energy Guarantee to help make this happen."
Dr Kerry Schott, AO, the chair of the Energy Security Board tasked with implementing the recommendations of the Review into the Future Security of the National Electricity Market – known as the Finkle Review – also told the audience there is “no need for panic” on energy policy, as there is a reasonably lengthy period of time to transform the market.
She said under the current design of the NEG, which she confirmed would go before the Council of Australian Governments energy council “in the next couple of weeks”, energy producers would need to meet two sets of obligations – one relating to emissions intensity, the other reliability.
“The emissions intensity target… implies a requirement on the electricity sector to get their emissions down,” she said, obligating retailers to supply energy at specified emissions levels to enable Australia to meet its international commitment to cut emissions overall by 26-28 per cent on 2005 levels by 2030.
The reliability obligation will require retailers to buy a minimum percentage of their energy from dispatchable sources that can be adjusted to meet the real-time demands of the grid.
“Those retailers that don't meet their obligations will be met with penalties,” Dr Schott said. “There’ll be a compliance regime, and there'll be a lot of transparency required around the contracting, but we're going to try to do it in a way that keeps the market operating more smoothly than it does now.”
Dr Schott said she anticipates that if “all goes according to plan”, the NEG design will be “wrapped up” by year’s end ready to move into implementation. But she stressed that the NEG was only one part of the policy changes required, highlighting the inadequacies of a transmission system that was designed for highly concentrated coal-fired generators, rather than the more distributed model of renewable generation.
Paul Italiano, chief executive of Transgrid, the operator of the transmission network in NSW and the ACT, added that the “disruption” in the market “is going to cause players in the supply chain to operate very differently” at a time when demand for energy was increasing significantly, at roughly the same rate as NSW’s gross state product.
Mr Italiano predicted a fall in energy prices, a topic he said was dominating the energy conversation nationally and driving policy reforms. He also confirmed Transgrid had proposed a price reduction for the next regulatory period.
Mr Vesey added that he believed, once market reforms had been implemented, new investment will flood the market to renew the energy system, which will drive energy prices down.
AGL and Transgrid are clients of Westpac Institutional Bank.