The National Electricity Market was originally designed to make Australia’s energy system more resilient – and therefore cheaper – by connecting the previously disparate state-based systems via transmission lines, ensuring surplus energy could be sold from one area to another when it was in short supply.
The inadequacy of our market-based energy system and the lack of preparation, vision, and long-term planning has just been demonstrated – graphically – by the collapse of the energy market yesterday, culminating in AEMO’s decision to suspend training until energy generators learn to play nicely.
Consecutive Labor and Liberal governments have allowed oil and gas companies to sell as much as they possibly can on the international market with no caps and no obligation to reserve any amount of domestic supply, forcing Australian households to compete with the international market for access to our own resources.
Failure by design
“Companies like Santos told investors that unrestricted gas exports would definitely increase domestic prices, and that’s a good thing, because then we’ll get more money for our gas,” says Richie Merzian, director of Climate & Energy Program at The Australia Institute.
“It was by design. We knew this was going to happen,” he says.
Australia urgently needs a domestic gas reservation policy. And the producers constantly harping that it would be retrospective – potentially making them and the Commonwealth vulnerable to legal claims – should go back and read their contracts.
Specifically, their Environmental Impact Statements, the approval documents signed, sealed, and delivered by industry when they first go to build a project guaranteeing that their activities will not affect the price or supply of energy domestically.
Bruce Robertson, energy finance analyst at the Institute for Energy Economics and Financial Analysis, says energy producers are already in breach of contract.
“If you benchmark prices back in 2014 in eastern Australia, Australians paid amongst the lowest prices for gas on the globe,” he says.
“Since then, it has become very, very expensive. It is demonstrable that they have not adhered to their Environmental Impact Statements. They have not adhered to their project approval documents.”
Merzian says that while there are already numerous consequences that can be brought to bear on the generators holding Australian households to ransom, ranging from fines to an assessment of whether producers “are fit and proper to be involved in the market to begin with”, they are rarely enforced, demonstrating “entirely” a weakness in how the market is regulated.
During one of the coldest winters on record, with the war in Ukraine still raging, on the same day that the US Federal Reserve hiked rates by 75 basis points – the highest in 28 years – this crisis could not have come at a worse time.
“Part of the solution here is knowing exactly what we’re building,” says Merzian.
Problem is, we haven’t quite figured that out yet.
Energy ministers around the nation are due to meet for the first time next week to consider a plan for what the electricity sector looks like. But experts say that the decisions taken over the next 24-48 hours could have significant long-term implications for the energy market.
“The decisions that are taken over the next 24 hours could cost a lot of money and actually achieve zero gain,” says Robertson.
Inherent absurdities
For example, Robertson describes the need for physical gas storage as “the most absurd idea I have ever come across”.
”Gas pipes are inherently storage vessels,” he says. “If you pressurise a pipe, you have more gas in that pipe than when it is at a lower pressure, and the amount of gas you put in the pipe can vary.
“All you’ve got to do is ensure that the system is supplied with enough gas, by suppliers, to ensure that people in NSW, Victoria, and Queensland can cook their bacon and eggs with no problem. That’s all we’ve got to do. The infrastructure is already there. You don’t need to spend money. You just need to demand as a country, as owners of the gas resource, that these companies actually supply us.
“I’m a property owner. I own a farm. But I don’t own the gas underneath it. It is owned by every other Australian around the country. We all own the gas. It’s owned by the Crown, actually. It’s not up to the landholders. Shell doesn’t own it. We own it. We give them the right to develop it,” Robertson continues.
“That’s the way our system works, fundamentally. This cack-handed way of saying we need to pay for storage and develop gas storage because we don’t have enough gas, it’s just totally wrong. All we have to do is ensure the domestic market is supplied.”
Merzian says that at the end of the day, we need to get off gas as soon as possible.
”Had we done this sooner, if we were at 82 per cent renewables like the government wants to get to by 2030, we wouldn’t be in this crisis,” he says, “because we would have had enough renewables, and diversified smaller generators right across the country.”
“We can build a better grid that supports two-way energy generation at the point of consumption. Australians will always be beholden to expensive gas and coal as long as our energy market continues to run on fossil fuels.”
Claire Connelly is a researcher, journalist, and Policy Fellow at the Sydney Policy Lab at the University of Sydney.
