After a turbulent year in the energy sector, two major reports released today have highlighted energy affordability as a significant challenge in Australia's transition away from fossil fuels to renewable power.
The reports found multiple factors would continue to push up costs in the near-term, but long-term the energy transition would deliver net benefits and improve affordability for consumers.
The Australian Energy Regulator's (AER) State of the Energy Market report warned high inflation and the rising cost of network investments could add to the pain of high energy prices in the near-term.
But the Health of the National Energy Market (NEM) report, released simultaneously, said the best strategy to improve energy affordability was "massive physical investment and purposeful, coordinated policy reform".
"An orderly energy transition remains the best way to improve energy affordability in the long-term," the NEM report said.
"However, this will take time and the required investments will add to cost pressures, although they will be lower than the costs of a disorderly transition."
Energy Security Board (ESB) chair Anna Collyer said the NEM was going through an unprecedented period of transformation.
"Events earlier this year highlighted the types of challenges we face and the bumps that can emerge due to a combination of factors including the pace and scale of change, our exposure to the volatility of global commodities markets and the accelerating retirement of thermal generation," Ms Collyer said.
"Managing those risks and delivering an orderly transition requires urgent market reform and regulatory settings that encourage efficient investment in our energy future."
Consumers bear the brunt
AER chair Clare Savage said declining energy affordability was increasingly concerning for consumers already facing higher costs of living.
"We've seen record wholesale energy prices in July, but network costs are also likely to increase as inflation and rising cost of capital impact the cost of network investments that will be needed to support an orderly decarbonisation of the energy system," Ms Savage said.
"In these tough economic conditions, we are focused on using our regulatory levers to get the best possible outcomes for consumers to ensure the energy transition is delivered at least-cost."
The AER will launch a consumer vulnerability strategy in October that includes a series of actions to tackle market complexity and improve energy equity.
"Market transition and design needs to have consumers at the centre of it," Ms Savage said.
"Consumers need to feel confident that Australia's transitioning energy market is working for them, and we are focused on doing everything we can to make that happen."
Renewables growth
In good news, households and businesses continued to install record volumes of rooftop solar capacity, reducing the volume of electricity households need to buy from the grid.
Rooftop systems connected to the grid now total more than 15GW of capacity, which is about one-fifth of the NEM's total generation capacity.
Lower costs and expanding opportunities for battery technology saw a significant increase in battery investment, including an increase of small-scale batteries by 33 per cent.
Meanwhile, four new big batteries came online, bringing the total across the NEM to nine, including the Victorian Big Battery, which is now the largest lithium-ion battery in the southern hemisphere.
Ensuring reliability
The reports both warned acceleration of coal power station closures and delays in transmission projects could lead to potential supply gaps in reliable power in the future.
The Health of the NEM report said the best strategy to deal with the transition was to build replacement assets quickly and cost-effectively, in advance of coal and gas generation retirements.
"This will reduce our exposure to the shocks of international gas and coal price movements, reduce our reliance on ageing assets and allow consumers to benefit from strongly connected, geographically diverse renewable energy resources," the report stated.
