SPEECH THE AUSTRALIAN GOVERNMENT S PERSPECTIVE ON THE FUTURE OF THE AUSTRALIAN ENERGY SECTOR AUSTRALIAN ENERGY WEEK 2016 MELBOURNE

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1 The Hon Josh Frydenberg MP Minister for Resources, Energy and Northern Australia Federal Member for Kooyong SPEECH THE AUSTRALIAN GOVERNMENT S PERSPECTIVE ON THE FUTURE OF THE AUSTRALIAN ENERGY SECTOR AUSTRALIAN ENERGY WEEK 2016 MELBOURNE 21 JUNE 2016 Acknowledgments and introductory remarks Good morning ladies and gentlemen. It s a pleasure to be here for the 2016 Australian Energy Week Conference. I d like to start by thanking Keith Orchison for inviting me to address this conference. I would also like to acknowledge: - The Hon. Lily D Ambrosio MP, Minister for Energy and Resources, Government of Victoria; - John Pierce, Chair, Australian Energy Market Commission; and - Christoph Frei, Secretary General, World Energy Council. Introduction Australia s energy market is changing rapidly. New technologies, innovative services, the transition to a low carbon economy, and changing consumer demands are all major drivers of this change. For the Turnbull Government, the long-term interests of consumers remain at the heart of its vision and goals for the energy sector. 1

2 Supporting consumers in this rapidly changing energy world is very different now, to what it was only a few years ago. Not only do consumers want safe and reliable energy, they want affordable energy, and increasingly, they want to know that renewables are growing as a share of the overall mix. It is this trifecta that Government and industry alike are striving to achieve. To this end, my remarks today will focus on three things: 1. the Turnbull Government s record and energy market reform priorities; 2. improving Australia s energy productivity in a bid to reduce energy consumption, costs and emissions; and 3. alternative approaches that risk jeopardising this trifecta of reliability, affordability and lower emissions. 1. Our record and reform priorities Since the Hilmer Reforms, Australia has relied upon competitive markets to provide reliable, affordable electricity. These reforms have served Australia well over the last two decades, and the Turnbull Government believes that efficient and competitive markets are likely to be of even greater value in the transition ahead. Policies that seek to prescribe the future technology mix and direct where new generation should be built are likely to impose higher costs for consumers. Like the rest of the world, Australia is transitioning towards a lower emissions energy future. As part of this transition we are seeing a reduction in the use of coal and an increase in the use of renewables, with the RET driving a doubling in large-scale renewable energy between now and Coal-fired generation has already come down from 77 per cent in 2004 to around 60 per cent as a proportion of our overall electricity mix. Eight of our 12 most emissions intensive power stations have closed down since

3 Renewable energy now makes up 100 per cent of all major investment in gridconnected electricity generation and there are 482 large-scale renewable power stations accredited under the Renewable Energy Target. The installed capacity of solar PV is now 4.8 gigawatts and AEMO projects that this will quadruple over the next 20 years. In considering how best to manage this transition, it s important to understand that every country is starting this transition from a different point and with a different set of circumstances. These differences have a material impact on the choices and costs we face when transitioning to a lower emissions energy system. For example, France produces 77 per cent of its energy from nuclear sources and Sweden produces 41 per cent. 98 per cent of Norway s energy and 57 per cent of Austria s energy comes from hydro, compared to around 7 per cent in Australia. Indeed, countries like Denmark will soon be able to meet more than their entire peak load from generators outside the country. Our circumstances should not be used as an excuse for inaction. But nor can they be ignored. They need to be dealt with in a considered and methodical manner. The Government has already: Committed to ambitious and achievable climate targets, to reduce national greenhouse gas emissions by 26 to 28 per cent below 2005 levels by This represents a halving of per capita emissions the second largest per capita emission reduction of developed countries. Set out a comprehensive energy policy in the Energy White Paper; 3

4 Fixed the Renewable Energy Target, which will see 23.5 per cent of Australia s electricity delivered by renewables by 2020; Abolished the carbon tax, which saw electricity prices fall for the first time in a decade; and Ensured the Australian Energy Regulator has more effective powers to scrutinise network spending. Building on the Government s earlier work, the Turnbull Government is taking further steps to ensure a smooth transition. We have recently commenced work on a Low Emissions Technology Roadmap led by the CSIRO. This roadmap will help us navigate through this transition and it will highlight areas of potential growth in Australia s clean energy technology sector. We are also investing billions of dollars in energy innovation. Through a portfolio of CEFC investments worth around $1.5 billion. Through ARENA, with more than 200 projects underway. Through the $1 billion Clean Energy Innovation fund that will help early stage demonstration projects make the leap to commercialisation. Through the Sustainable Cities Investment Fund that will provide $100 million per annum to accelerate the deployment of cutting edge projects, such as precinct scale renewable energy plants and retrofitting social and affordable housing. CSIRO forecasts that in the next 10 years, battery storage costs are expected to fall by about 60 per cent. With our high level of rooftop solar, battery adoption is expected to grow rapidly. In anticipation, we have established a partnership between Standards Australia and the COAG Energy Council to chart a path for energy 4

5 storage standards in consultation with industry, government, consumers and academia. This work will ensure that we can support the safe adoption of batteries and other storage solutions through appropriate standards, training and accreditation programs, and where appropriate, additional customer protections. On the more technical side, the COAG Energy Council, which I chair, is working closely with the Australian Energy Market Operator to ensure we are taking steps to maintain system security as renewables grow as a share of our total energy mix. We are also empowering consumers by allowing them to select from a wider range of tariff structures. These new cost-reflective tariffs, will drive innovation in the energy market by supporting the wider uptake of smart appliances, electric vehicles and battery storage. These reforms will give consumers more control over their bills. These initiatives provide a platform to ensure that the energy system continues to provide safe, reliable and affordable energy to Australian households and businesses, while at the same time supporting a smooth transition to more renewables. 2. Improving Australia s Energy Productivity The Turnbull Government has a target to improve Australia s energy productivity by 40 per cent by 2030 through a National Energy Productivity Plan (NEPP). In the last decade, OECD countries have saved more energy through energy efficiency measures than the entire energy used by the US and Germany in 2012, combined. Energy efficiency improvements over the last 25 years saved the globe a cumulative $US 5.7 trillion in energy expenditures. 5

6 Energy productivity means either doing more with the energy you use, or doing the same thing but using less energy to do it. By improving Australia s energy productivity, we can: - boost our competitiveness, creating investment and jobs; - help consumers manage their energy costs to reduce bills; and - reduce our carbon emissions. Australia has been a world leader. As host of the G20 Brisbane Summit in 2014, we initiated the Energy Efficiency Action Plan, which involves collaborating with the world s largest economies on improving energy efficiency finance, light and heavy duty vehicle efficiency, appliances, buildings and industrial measures. Australia has also recently been appointed Chair of the International Energy Agency s Co-operative Programme on Energy Efficiency End-Use Equipment (4E), which is responsible for driving international collaboration on energy efficiency policies for appliances and equipment. Here in Australia our improvements in energy efficiency have been impressive. Our Energy Performance Standards have driven significant improvements. For example the most efficient air conditioners sold in 2003 would no longer meet the minimum standard today. Remarkably, houses built after 2010 use around 30 per cent less electricity than houses built before These examples demonstrate the substantial gains that can be made. This is why the Turnbull Government is very focused on pushing ahead with our NEPP. 6

7 The NEPP aims to improve energy productivity by: making it easier for households and businesses to make productive energy choices; and supporting innovation and modern competitive markets for energy services. Our Plan is also expected to deliver at least one quarter of Australia s 2030 emissions reduction target. To achieve this, in December 2015 we outlined 34 actions across the building, transport and appliance sectors. Actions we are currently working on include: improving residential building energy ratings and disclosure; updating the Energy Efficiency in Government Operations policy; updating energy efficiency requirements and improving compliance with building codes; and improving the fuel efficiency of our vehicle fleets. Today I am delighted to announce further progress in the implementation of the NEPP. Expanding the Commercial Buildings Disclosure Scheme Firstly, I am pleased to announce that the Turnbull Government will be expanding the Commercial Building Disclosure (CBD) scheme so that it captures more buildings. We will also streamline its operation to get the regulatory balance right. Commercial buildings account for roughly 10 per cent of overall energy consumption in Australia. 7

8 Australia has a proud history and (along with New Zealand) has ranked first for the last five years in the leading international sustainability survey for the commercial built environment the Global Real Estate Sustainability Benchmark. Today, over 79 per cent of Australia s office space is certified with a National Australian Built Environment Rating System (NABERS) rating. By requiring standardised energy efficiency information to be provided to the market, buyers and lessors have access to consistent and meaningful information about a building's energy performance. An informed market rewards better performing buildings. It creates a strong marketbased incentive for owners to improve their properties with cost-effective energy efficient upgrades that are attractive to buyers and tenants and increase the return on investment. Following extensive consultation with a range of industry and government stakeholders, including the Property Council and the Energy Efficiency Council, we will amend the Commercial Buildings Disclosure Scheme by lowering the threshold from 2,000m 2 to 1,000 m 2. These buildings will now also be required to report on their energy performance when they are being sold or leased. Nationally, this will mean around 1,000 new smaller commercial buildings with be captured by the scheme. To get the regulatory balance right, we will reduce the frequency of Tenancy Lighting Assessments, which are required as part of the Commercial Buildings Disclosure Scheme. Tenancy Lighting Assessments will now be valid for a period five years, as opposed to one. This change will reduce the regulatory burden for all building owners in the Scheme. With the changes announced today, the Commercial Buildings Disclosure Scheme is expected to deliver net economic benefits of more than $60 million over five years through energy cost savings and productivity improvements. 8

9 It will reduce end use energy consumption by 17,395 terajoules. That s more than the average yearly energy consumption of 420,000 households, or approximately 20 per cent of Victoria, and will deliver 3.5 million tonnes of greenhouse gas abatement over that same five year period ( ). The changes to the Tenancy Lighting Assessment will take place from 1 September The changes to the disclosure threshold will take effect on 1 July New priorities for the Equipment Energy Efficiency (E3) Program Secondly, I would also like to announce our new priorities for the Equipment Energy Efficiency (E3) Program. The E3 program contributes more than $1 billion in avoided energy costs to the Australian economy annually. We will build on the program by focussing our efforts on six priority areas. These are: 1. lighting; 2. non-domestic fans; 3. swimming pool pumps; 4. refrigerated storage and display cabinets; 5. air conditioning (including chillers); and 6. fridges and freezers. By releasing this prioritised work plan today, we are ensuring that opportunities to lower energy costs for households and businesses are realised as soon as possible. And the benefits are significant. Our number one priority, which involves updating minimum performance standards for lighting, will underpin a transition in lighting technology in the residential and commercial sectors with cost savings that exceed $1 billion per annum. 9

10 A home with a mix of halogen downlights and traditional halogen lights, could save $2,600 over 10 years by upgrading to LED lights at a cost of approximately $450. Changing lighting also has other environmental benefits, including significantly reducing mercury content in fluorescent lamps. Significant savings can be made in other appliances too. Introducing zone energy rating labels for air conditioners could save a house in in Central Victoria over $860 per year if they use this information to choose a climate specific product. Our proposed changes to lighting, air conditioning, chillers and other appliances could reduce greenhouse gas emissions by up to 29 million tonnes to Alternative approaches There is of course an alternative. We all remember Labor s carbon tax and the $15.4 billion in higher costs it imposed on the economy over the two years it was in operation. We now know they plan to do it all over again. They ve also set a 50 per cent renewable energy target by 2030 without even modelling the cost of such a target. Bloomberg New Energy Finance estimated that it will require an additional $48.2 billion in generation investment before you even consider the increased system costs needed to support a large injection of intermittent generation over such a short period of time. Modelling commissioned by Labor just prior to the last election of a similar carbon tax on Australian households, businesses and families showed a 78 per cent increase in wholesale electricity prices and $209 carbon price by Labor continues to rush out announcements without understanding how they will affect energy markets or consumers. 10

11 Instead, we are investing in innovation, driving competition and choice, and adopting a technology neutral approach to ensure we get efficient investment and better outcomes for consumers rather than announcing simplistic targets without the detail of how we will get there, and without being upfront about what they will cost. Conclusion In conclusion, Australia s energy system transition is well underway and being carefully managed. Only the Turnbull Government can be trusted to ensure we retain a safe, reliable and affordable energy supply at the same time as we continue to increase the share of renewables. Ends 11