Presentation: Select Committee on Energy Planning and Regulation in Australia – Institutional structures, governance, regulation, functions and performance of the Australian energy market.

October 18, 2024

To: Select Committee on Energy Planning and Regulation in Australia
Re: Institutional structures, governance, regulation, functions and performance of the Australian energy market.

Thank you for the opportunity for the Institute for Energy Economics and Financial Analysis (IEEFA) to provide information to the Select Committee on Energy Planning and Regulation in Australia regarding the institutional structures, governance, regulation, functions and operation of the Australian energy market. IEEFA is an independent energy finance think tank that examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

IEEFA’s recommendations on energy planning and regulation and related issues are summarized below.

• IEEFA found that gas and electricity networks made persistent abnormal profits between 2014 and 2022. To bring network profits to a reasonable level, it is necessary to make changes to rules and processes, as well as increase transparency and monitoring of network profits.
• Efficient appliances offer the cheapest energy solution for households. therefore, household electrification is expected to accelerate. Given the trend towards electrification and the fact that residential customers account for more than 80% of regulated gas distribution network revenues, a poorly managed phase-out could result in customers bearing the costs of failing gas distribution assets. Energy market governance must ensure a manageable and fair phase-out of gas distribution networks. A federal government-led managed reduction plan will provide certainty and direction.
• Distributed energy resources (DER) could generate $19 billion in economic benefits for Australia by 2040, but action is required to realize this economic opportunity. Economic regulation needs to be adjusted to suit a DER-rich world. An independent body should be created to develop DER technical standards. The Australian Energy Market Operator (AEMO) needs to pay more attention to the demand side and DERs in its modeling – IEEFA notes that the results of the Integrated System Review (ISP) should help with this. There needs to be more emphasis on the demand side and DERs by all energy market authorities and in rules and regulations.
• Renewable energy with storage and transmission is Australia’s cheapest route, and the Capacity Investment Scheme (CIS) has a key role to play in scaling up renewable energy. However, minor adjustments to LPG design can help ensure the success and speed of deployment of large amounts of renewable energy and storage. The Orderly Output Management Framework (OEMF) risks delaying coal output and increasing electricity system costs for consumers. In addition, the introduction of nuclear power in Australia also poses a serious risk to the cost of living, with IEEFA research showing that nuclear power in Australia will lead to higher energy bills for households. Increasing reliance on gas generation in anticipation of nuclear power will also increase wholesale electricity costs, as gas is one of the most expensive forms of electricity generation in the National Electricity Market (NEM).

Sincerely,

Joanna Bowyer, Lead Analyst, Australian Electricity, IEEFA
Jay Gordon, Energy Finance Analyst, Australian Electricity, IEEFA

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