Purpose 5: Energy
This purpose aims to support the reliable, affordable, sustainable and secure operations of energy markets. Achieving Purpose 5 will provide long-term benefit to the Australian community through improved energy supply, efficiency, quality, performance and productivity.
In 2019–20, we worked to achieve Purpose 5 by delivering on two intended results:
- Intended result 5.1: Lower energy bills for consumers
- Intended result 5.2: Australia’s energy supplies are reliable.
Intended result 5.1: Lower energy bills for consumers
Key achievements The department continued to deliver on our National Energy Productivity Plan commitments, which focus on lowering energy bills for Australians. The Energy Efficient Communities Program, launched in April 2020, has financially assisted businesses to improve their equipment and save on bills. The Business Energy Advice Program, launched in August 2019, has consulted with more than 4223 businesses to help them get better energy deals.
The Commonwealth-led Liddell Taskforce was established in August 2019 to investigate the potential impacts of closing the Liddell power station and options to ensure ongoing affordable and reliable energy for NSW consumers. The Taskforce report was delivered to the Minister in mid 2020.
The Australian Government’s Default Market Offer (DMO), capping the most expensive electricity standing offers in NSW, South Australia and Southeast Queensland, was implemented on 1 July 2019. This resulted in lower energy bills for consumers on high standing offers.
We coordinated development of nationally consistent principles for essential service providers to support customers facing hardship because of COVID-19. Information on the energy sector response to COVID-19, and advice for households and businesses, was published on energy.gov.au. The site received over 64 000 views, including more than 40 000 views of the household advice page.
Performance criteria and results Table 16 presents the results measured against the performance criteria for Intended result 5.1 and its associated Program 3.1 (refer to Figure 3), as set out in the former Department of the Environment and Energy’s Corporate Plan 2019–20, pages 25–26.
Table 16: Intended result 5.1: Lower energy bills for consumers
Wholesale electricity price in the National Energy Market
Progress towards wholesale price <$70 per MWh
The National Electricity Market (NEM)-wide average spot price for the 2019–20 financial year was $63 per MWh, which is 34% lower compared to the same period in 2018–19.
Falling wholesale costs are a result of lower demand, falling prices for fuel inputs for gas and coal generators, and increased amounts of low-priced solar generation. Government initiatives, such as the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Act 2019 also play a role.
Domestic market gas prices
Domestic gas market prices lower than liquefied natural gas (LNG) netback price
As reported in the Australian Energy Regulator’s wholesale markets quarterly report (released on 18 May 2020), domestic gas spot prices and LNG netback prices were more closely aligned from the end of 2019.
At the end of the 2018–19 financial year, the simple average of East Coast domestic spot prices was 52% higher than the Asian netback price. Over the current reporting period, the difference has been trending down, with East Coast domestic spot prices only 8% higher at the end of the first quarter of 2020.
Note: The LNG netback price is a measure of an export parity price that a gas supplier can expect to receive for exporting its gas. It is calculated by taking the price that could be received for LNG and subtracting or ‘netting back’ the costs incurred by the supplier to convert the gas to LNG and ship it to the destination port. The Australian Competition Consumer Commission publishes an LNG netback data series every two weeks.
Retailers’ standing offer prices do not exceed default market offer
The government’s DMO, implemented on 1 July 2019, placed a cap on the most expensive electricity standing offers in New South Wales, South Australia and Southeast Queensland.
The highest priced standing offers have been removed from the market, with average residential customers on standing offers in 2019-20 saving 25% or $590 in South Australia; up to 38% or $664 in New South Wales; and 42% or $663 in Southeast Queensland.
National energy intensity
Improvement in national energy intensity relative to 2015–16
Between 2017–18 and 2018–19, Australia’s energy intensity improved by 2%.
Energy intensity for 2019–20 will be reported in the Australian Energy Statistics later this year.
Analysis During the 2019–20 period, the department continued to make progress towards the objective of reducing the cost of energy for consumers. The following outcomes have been achieved through the enactment of legislation, collaboration with state governments and market bodies, and increasing consumer awareness and support.
- The DMO placed a cap on the highest priced electricity standing offers. As a result, an average household in New South Wales, South Australia or Southeast Queensland, which were on the highest standing offer prior to the DMO, could have saved between $481 and $664 in 2019–20, depending on their location.
- The Underwriting New Generation Investment program worked towards supporting the introduction of new low-cost dispatchable generation, to put downwards pressure on electricity prices.
- The Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Act 2019 (the Big Stick legislation) came into effect on 10 June 2020. Throughout 2020–21 the Australian Competition and Consumer Commission will have the power to penalise retailers that do not put consumers first by passing on substantial and sustained falls in wholesale energy costs to consumers.
The department delivered a number of key Australian Government commitments in 2019–20 to help lower energy costs for consumers. We did so under the National Energy Productivity Plan, and major outcomes included:
- launching the Business Energy Advice Program in August 2019, and completing more than 4223 consultations to help small businesses get better energy deals
- launching the Energy Efficient Communities Program (under the Climate Solutions Package) in April 2020 to work with businesses and community organisations to help them save energy and lower energy bills
- accelerating the expansion of the National Australian Built Environment Rating System to help industry compare the energy performance of schools, retail stores and industrial buildings continuing to implement the 2019 Trajectory for Low Energy Buildings.
Intended result 5.2: Australia’s energy supplies are reliable
Key achievements Despite challenges posed by the COVID-19 pandemic, we have worked hard with Australian businesses to maintain delivery of reliable and stable energy markets.
In January 2020, the Commonwealth and NSW government signed an agreement (valued at more than $2 billion) to improve energy security and affordability across the NEM, while reducing emissions. We have begun negotiating with other states on similar agreements.
We announced successful projects under Phase One of the Regional and Remote Communities Reliability Fund in June 2020. These projects will examine options to deliver more reliable and affordable energy for consumers in regional and remote communities.
The department has also implemented a number of measures to assist International Energy Agency (IEA) compliance, including establishing Australia’s first national fuel reserve. At the end of May 2020, Australia held 59 IEA days of cover, or 81 days of stocks stored on water and overseas.
Performance criteria and results Table 17 presents the results measured against the performance criteria for Intended result 5.2 and its associated Program 3.1 (refer to Figure 3), set out in the former Department of the Environment and Energy’s Corporate Plan 2019–20, pages 26–27.
Table 17: Intended result 5.2: Australia’s energy supplies are reliable
National Electricity Market Reliability Standard
The reliability standard is met
All regions of the NEM met the reliability standard for 2019–20.
Domestic gas market is in supply–demand balance
Australian Domestic Gas Security Mechanism (ADGSM) is not triggered
The ADGSM was not triggered.
The Minister for Resources, Water and Northern Australia did not issue a notification of a shortfall year for 2020.
Liquid fuel market is in supply–demand balance
Liquid Fuel Emergency Act 1984 is not triggered
The Liquid Fuel Emergency Act 1984 was not triggered.
Timely delivery of Integrated System Plan (ISP) transmission projects
Projects delivered in line with ISP timetable
A number of ISP priority grid projects identified by the Australian Energy Market Operator in its ISP have been committed to and are likely to be delivered within recommended ISP timeframes. These include the South Australian power system strength remediation project, system augmentations in Northern and Western Victoria, and a minor upgrade of the Queensland–NSW Interconnector.
Other priority projects are undergoing regulatory assessment.
Australia’s International Energy Agency (IEA) stockholding obligation
IEA members accept Australia’s strategy for returning to compliance
Australia presented a return to compliance update to the IEA Governing Board on 18 June 2020.
The Board acknowledged Australia’s compliance efforts. A further update is required in 2021.
Analysis To ensure continuing energy reliability during the COVID-19 pandemic, the department established a taskforce and cross jurisdiction coordination mechanism to manage issues specific to the energy sector and to coordinate advice to the National Cabinet. Key matters identified and managed through the taskforce were:
- daily engagement with energy market bodies and companies to identify emerging risks to the sector
- regular engagement with the energy industry, and states and territories through the energy coordination mechanism to monitor impacts of the pandemic on energy supply and also preparedness for summer, including maintenance works to be undertaken in line with COVID-19 restrictions
- implementing measures to assist energy markets to balance, for example jet fuel oversupply due to the significant drop in demand when air travel ceased. Temporary changes to diesel standard were made by Minister Taylor to enable Australian refineries to utilise excess jet fuel supplies
- coordinating cross-border transit issues for critical personnel working in the energy sector, for example retail fuel distribution and electricity transmission maintenance
- connecting energy businesses to other areas of expertise (such as for the provision of personal protective equipment and COVID-19 testing) or advice, including for manufacturing initiatives.
Snowy Hydro Limited is progressing with the Snowy 2.0 project, which will contribute to reliable and secure energy supplies in the NEM. On 30 June 2020, following NSW approval, the government announced environmental approval for the project. Snowy Hydro Limited is expected to issue its Notice to Proceed on the Snowy 2.0 project in the 2020–21 financial year, following final shareholder approval. Snowy 2.0 will provide an additional generation capacity of 2000 MW and energy storage of 350 000 MWh. The department also works closely with our joint shareholding department, the Department of Finance, to ensure Snowy Hydro Limited has the capability to meet the requirements of the Government Business Enterprise framework.
The Commonwealth worked with state governments to support the timely delivery of electricity transmission infrastructure. The Australian Energy Market Operator has identified this infrastructure in its Integrated System Plan (ISP) to ensure the reliability of the electricity supply in the NEM.
On 28 November 2019, the Australian Government announced that the Commonwealth and NSW would jointly underwrite up to $102 million of early works to accelerate the minor upgrade of the Queensland–NSW Interconnector. Early works began before the Australian Energy Regulator approved the project on 28 April 2020.
On 5 June 2020, the Minister awarded $19.6 million to 17 projects under the first round of the Regional and Remote Communities Reliability Fund. The program supports feasibility studies to examine whether establishing a microgrid, or upgrading existing off-grid technologies, would better meet the electricity supply needs of regional and remote communities. Microgrids and standalone power systems provide innovative solutions to grid integration and stability issues, extreme weather risk management and energy inequality. The benefits they offer include reliability, security, affordability and low emissions.
The department assisted the Minister to secure agreement from state and territory governments to pursue interim measures to ensure reliable electricity. This was achieved by establishing an out-of-market capacity reserve and amending triggering arrangements for the Retailer Reliability Obligation.
We continued to advance the Australian Government’s commitment to return to compliance with the IEA’s stockholding obligation, and advised on policies to improve domestic fuel security. Key achievements to improve liquid fuel security included:
- signing a long-term lease to store oil in the United States Strategic Petroleum Reserve (SPR)
- purchasing a large parcel of crude oil stock, to be stored in the SPR
- finalising a tender for up to 400 kilotonnes of oil stock tickets in 2020–21
- issuing a request for information to seek industry and community input to boost Australia’s domestic fuel storage capacity.