CEDA Speech 7/6/19 - The Hon. Matt Kean
I want to thank CEDA for hosting today’s event. CEDA does fantastic work and it is an absolute pleasure to be here today.
I also want to congratulate the Morrison Government on its re-election. A returned Coalition Government is good news for the Australian people and the Australian economy. I intend to take a constructive, pragmatic approach in working with the Commonwealth Government. I have already met with Minister Taylor and I am looking forward to working constructively with him to address the challenges in the energy sector.
I have always had a connection to energy through my dad. You see in 1968, my dad, a young man just out of high school, started work as a clerk at the Electricity Commission. This was the start of a 38 year career in electricity, most of it spent as an accountant at the Sydney County Council and its successor organisations. At that time, the council ran the distribution network for metropolitan Sydney.
A lot has changed since my dad was a fresh-faced clerk on $24 a week. Back then, the Electricity Commission owned and operated the State’s generation fleet and it sold electricity to Councils who were responsible for supplying it to consumers. It is fair to say that today’s event would have been more of a departmental staff meeting in the 1960s than the gathering CEDA has put on for us today.
But however much has changed in the last fifty years, it is nothing compared to the change that is currently underway. This is a change that is being driven by today’s economics and would not be happening without our past efforts at home and abroad to address climate change.
It’s more than 12 years since John Howard announced an inquiry into a national emissions trading scheme. A lot has happened since then. More than two million Australian households now have solar panels. The cost of wind and solar has fallen dramatically. More than 100 wind and solar farms have been built and ten coal-fired power stations have closed. Electricity prices have increased by around 60 per cent due in large part to the spike in wholesale prices from disorderly generation closures.
Since the Howard Government, successive state and federal governments have been acting and reacting on climate and energy. This political instability has increased uncertainty, exacerbated risk, stalled investment and contributed to the problem, rather than helped to solve it. The climate wars have not delivered for the people of NSW.
I know there are some on both the left and the right who want to continue this fight. But it is time for a new approach to climate and energy policy. The world has changed and climate and energy politics need to change with it.
Today, I want to set out the principles of a new pragmatic approach to climate and energy. An approach that addresses the practical constraints that face our electricity system today, harnesses the benefits of competitive markets and acknowledges that the state is the ultimate guarantor of electricity supply.
It is useful to begin with the objectives of our approach. The people of NSW have three expectations from their Governments and the entities who participate in the electricity system:
First, they expect the lights to stay on. Our lives and businesses are built around electricity. Put simply, we cannot live without it. When blackouts occur, it is not just the TV or the dishwasher that are affected. Traffic lights, lifts, hospitals, pubs and restaurants all depend on reliable electricity and people expect these services to be available.
Second, the people of NSW want power costs to stop increasing and to start falling – high power prices hurt business, threaten jobs and eat into households budgets.
Increases in electricity bills are regressive; they affect the most vulnerable people in our community the most. As a modern liberal I do not want to see the hopes and aspirations of these people undermined.
Third, the people of NSW expect decisive and responsible action on climate change.
Since the scientific revolution, we have evolved a greater understanding of the physical world and how things work. Modern life is built upon complex systems that incorporate advanced science and engineering in their seamless delivery. Much of the progress that has been made has been due to our ability to draw
logical conclusions based on evidence.
Scientists have been applying these same principles to get a better understanding of the Earth’s climate for more than a century. Since the 1980s, their increasingly confident conclusion was that changes to the earth’s climate are being rapidly accelerated by human activity, and that this change poses a material risk to our prosperity and way of life.
No responsible leader can accept the contribution made by science but then ignore the risk posed by climate change.
This is why the New South Wales Government supports the Paris target of limiting global warming to well below two degrees Celsius. It is also why we set the State a target of net zero emissions by 2050. The more immediate question is what we do now.
Over the next twenty years, most remaining coal fired power stations will close. That’s 60 per cent of Australia’s electricity generation. Right now the market is telling me that these power stations will be replaced with renewable energy firmed by a combination of gas and emerging storage technologies because of the economics. We are already seeing the consequences of these economics.
Two weeks ago, one of our leading Australian energy companies, Infigen, announced it was buying a gas peaking power station in western Sydney to firm its growing portfolio of renewable generators. Their share price increased by 12 per cent following this announcement.
Today, the most economic form of reliable generation is firmed renewables and that is driving the biggest change in our electricity system’s history. It will change the location, availability and emissions of our power supply.
A decade ago, the challenge was to decarbonise a reliable grid, despite the economics. Today, the economics are decarbonising the grid. The challenge is to ensure the grid stays affordable and reliable while it does.
And we need a new politics to take on this challenge.
The climate wars saw ideology and populism pitted against our scientific traditions. Those traditions have lifted our prosperity and improved every aspect of our way of life. We cannot afford to let these ideological indulgences continue.
During this transition, private operators may need to upgrade coal-fired power plants to ensure they can supply their customers and provide more time for firmed renewable generation to be built. Coal mines in NSW will continue to supply power stations at home and overseas. This does not mean that we have given up on taking action on climate change. Rather, it reflects that our economy and economies overseas need to smooth the transition to low emissions electricity generation.
Likewise, investments in new coal generation need to be based on sound economics, not nostalgia.
The transition that is underway will impact all NSW households and businesses. The stakes are too high to jettison the tools that have delivered our society its prosperity. We need a new politics defined by pragmatism, evidence and which draws on our best traditions of innovation and science.
In taking this new approach we will give effect to four principles.
First, we will use markets to discover efficient solutions to new problems. The biggest engine in the world is capitalism and competition. We will back the creativity of our entrepreneurs, engineers, and scientists. We will embrace competition to keep costs down and to reward innovation. And we will enable private capital to build the 21st century grid.
Government should not pick winners. We may be surprised by the combination of technologies that are developed to deliver this transformation. That’s ok. We can’t always predict the future. We can only discover it. A clear framework will enable energy companies to compete, innovate and solve. The brightest minds and the best ideas should win.
In this respect, we support market mechanisms such as the Retailer Reliability Obligation (RRO). But we have to ensure that they are sufficiently robust to achieve their purpose. The RRO has to be more than an intellectual exercise or just another trading scheme. It has to be real. It must provide us with the levels of reliability the public expects; it must drive new investment in firm generation.
In this respect, I have already asked for advice on how we can ensure that retailers have sufficient capacity to deal with a one in ten-year event.
Second, we want NSW to be the easiest jurisdiction to develop new electricity infrastructure in the OECD. This means making our planning and other approvals processes as streamlined as possible. This does not mean compromising the integrity of the planning and approvals process. It does mean doing them better.
Easy to do business also means ensuring that there is a pipeline of new projects. The NSW Government has already supported our generation pipeline through the work of NSW Water on pumped hydro opportunities and through the Emerging Energy Program which provides grants for feasibility studies.
While approval processes need to take their course, we also support more gas being made available to the State. This may be through import terminals, pipelines or local sources of supply, but whatever the case we need to ensure that the state has a secure supply of gas.
Being an easy place to do business also means reducing investment risk to industry. In electricity, a key component of any new generation investment is being able to connect to the grid. A changing generation mix will require an enhanced transmission network, both within the state and to our neighbours. The NSW Government has already set out our transmission strategy, including renewable energy zones.
The Integrated System Plan produced by the AEMO is also an important guide to optimise transmission investment. Transmission will play an important role over the next decade to help manage reliability and to enable renewable generation to deploy where it can deliver the greatest value. We need to ensure that new transmission investment complements investment in new generation, not impedes it.
Reducing risk also means that we need a national framework that properly integrates climate and energy policy. That’s why the NSW Government still supports the National Energy Guarantee and will continue to support a national mechanism that integrates climate and energy policy, which provides business with the freedom to innovate.
Third, the electricity system is too big to fail. Put simply, it is unacceptable for the State to be left with insufficient capacity to address peak demand. We need to transition our generation; not our expectations.
Accordingly, if the need arises, the NSW Government will act. Our strong preference is that we never have to. We strongly prefer to create sufficient certainty so that Governments don’t have to step in as the provider of last resort.
It should also be the preference of every industry participant that Government does not have to intervene. If the NSW Government has to intervene when a power station closes, it will be in a manner which ensures that market participants are not incentivised to see Government intervene again.
I want to see people get ahead because of the value they add, not because of the value government transferred to them.
Fourth, we will ensure that the people of NSW get long-term benefits from the advances in technology and the new products and services emerging from this transition. The NSW Government will explore ways to accelerate innovation and the development of the new technologies needed to support this transformation.
The nature of this innovation is not just limited to electricity. I believe that NSW can and should be a pioneer in industries that adapt to and capitalise on emerging energy technologies.
The term ahead
The first test of these principles will be the closure of the Liddell coal fired power station in 2022. We need to manage this better than the way we managed the recent closures of other major coal fired power stations. It is my number one priority to ensure there is sufficient capacity in New South Wales after Liddell has closed.
The NSW Government will take a pragmatic approach to reliability. Even if it were economic, a new coal power station would take at least seven years to plan, approve and build and wouldn’t be ready in time to address Liddell’s closure.
Instead, Liddell’s capacity will be replaced by a combination of increased interconnection to other States, and increased generation in New South Wales. We are working closely with industry and will expedite these investments to ensure they are delivered on time.
But Liddell’s closure is just the next chapter in this transition. I want to ensure that in this term we have the framework in place to successfully manage the closures of other generators that will inevitably follow.
My dad’s generation provided the people of this state with reliable and affordable electricity. Our generation is the first to have the opportunity of doing the same while also taking decisive action on climate change.
To take this opportunity, we need a new politics that draws on our best scientific traditions. Traditions which have successfully eradicated diseases, taken us to the moon and given us the ability to instantaneously communicate with friends and family on the other side of the world.
In my time in Office, I intend to draw on these traditions to set the framework to manage this transition and to practically deal with the challenges it will pose.
The challenge for every energy person in this room is to take make the most of our opportunity. What we do over the next decade will pioneer global understanding of how large, isolated, high renewable electricity grids can operate. We have a responsibility to get this transition right, not only for our constituents who will suffer if we don’t, but because the rest of the world is watching and hoping we can show them the way. This revolution done well will not only underpin the next generation of Australian prosperity but will see us export our technologies and services to the rest of the world.
Done well, this revolution will see us get electricity back to being an unremarkable and science led industry that successfully powers this wonderful sunburnt country.