Can the sugar industry do anything about excessive electricity prices
Australian Sugar Industry Alliance Forum 30th April 2015 Na%onal Electricity Market (NEM) Reform ] Risks and Opportuni%es for the Australian Sugar Industry Hugh Grant Execu@ve Director,ResponseAbility Disclaimer Any una'ributed views or opinions expressed within this presenta5on are the author's own and do not purport to represent the views of other members of Expert Advisory Panels or Reference Groups that the author par5cipates in. The Na%onal Electricity Market (NEM) is at a Crossroads § Various complex and unprecedented issues are confron%ng Australia’s Electricity Market and Regulatory Frameworks, e.g.: • • • • • Drama%c increases in electricity prices Declining demand Excessive system capacity The growth in distributed genera%on Increasing consumer empowerment § Most of these issues were not contemplated when the NEM was designed § Policy makers are now accep%ng that major reforms to the NEM frameworks are required § A number of reforms are an%cipated -‐ presen%ng significant risks and opportuni%es to the Australian sugar industry RECENT ELECTRICITY PRICE INCREASES Recent Electricity Price Increases Ø Over most of the last century, real Australian electricity prices were stable or declined Ø Since 2007 Australia has recorded the world’s highest increases in electricity prices, resul%ng in Australia’s electricity prices now being amongst the highest in the world Ø It is now well understood that the majority of the price increases were due to increasing charges from the monopoly transmission and distribu%on networks Ø Numerous expert reviews have concluded that a large propor%on of those price increases were unnecessary and arose from deficiencies in the regulatory framework Ø Deficiencies that resulted in the Regulator (the AER) approving excessive rates of return, over-‐investment and inefficient expenditure on network infrastructure Recent Electricity Price Increases Source: Produc%vity Commission Inquiry Report -‐ Electricity Network Regulatory Frameworks Interna%onal Electricity Prices Recent Growth in Interna%onal Electricity Prices The Contribu%on of Network Prices to Australia’s Electricity Prices ELECTRICITY NETWORK REGULATION KEY DEFICIENCIES PROVIDING GUARANTEED RETURNS ON UNNECESSARY AND INEFFICIENT PAST INVESTMENTS Providing Guaranteed Returns on Unnecessary/Inefficient Investments § Australia’s electricity networks receive guaranteed returns on their past investments -‐ returns which are driving around 70% of their prices § The Regulated Asset Bases (RABs) -‐ the valua%on of the electricity networks’ past investments, are grossly inflated due to unnecessary and inefficient past investments § Australia’s electricity system now has an installed asset base well in excess of requirements § The AER cannot challenge the need or efficiency of those past investments – i.e. the rules do not allow the regulator to address past “gold pla%ng” Ergon: Revenue Components Return$on$Capital$ 5%$ 4%$ Deprecia7on$ 22%$ Opex$ 59%$ Tax$Allowance$ 10%$ Incen7ve$Payments$ Energex -‐ Historical and Proposed RAB Growth Ergon -‐ Historical and Proposed RAB Growth RAB Per Connec%on: Interna%onal Comparisons !$14,000!! Regulated!asset!value!per!connecMon!in!2013!!($!per! connecMon)! 2014!Australian!dollars,!PPP!exchanges!rates!! !$12,000!! !$10,000!! !$8,000!! !$6,000!! !$4,000!! !$2,000!! !$#!!!! LP N! EP N! SP N EN ! W L SS ! ES EM ! ID NP ! gY NP ! SW gN AL ! ES ! SP SW D! ES W T! M Un S ID ite PM ! d! W En ! er gy SS ! SA Je EH! m !P ow Po en e w a! Au r!Ne erc sN tw or! et or !Se ks r v !! Po ice w s! er c Ve o! c A CiM to En uro po r! de ra we av !En r! ou er r!E gy ne ! Es se En rgy nM e ! al rge !E x ne ! rg Er Au y!! go sg n! rid En ! er gy ! Source: CME Recent RAB Growth: Australian Distribu%on Networks !$16,000!! !$14,000!! RAB$per$connec+on$ $ 2002! 2014! !$12,000!! !$10,000!! !$8,000!! !$6,000!! !$4,000!! !$2,000!! Source: CME !$#!!!! Er go n Au !! sg rid En ! ! er g Es ex! se E n n 7a de l av ! ou r Au !! ro r Au a! ro ra Ci 7 p !! ow e Au r! sN et !! SA Po PN! w er co Je r! m en a Un ! i te d! ! $'000#per#connec4on## Regulated#Asset#Value#per#connec4on#($'000#per#connec4on)# (2014#Australia#dollars,#PPP#exchange#rates)# $14# $12# New$Zealand$(average$of$all$29)$ Great$Britain$(average$of$all$14)$ $10# Australia,$government>owned$distributors$ (average$of$all$6)$ $8# Australia,$$privately$owned$distributors$ (average$of$all$6)$ $6# Ergon$$ $4# $2# $0# 1991#1992#1993#1994#1995#1996#1997#1998#1999#2000#2001#2002#2003#2004#2005#2006#2007#2008#2009#2010#2011#2012#2013# Source: CME Capital Efficiency: Qld Govt Independent Review Panel Findings “An industry engineering culture biased toward expanding the network infrastructure and enlarging the capital base of the NSPs -‐ driving inefficient expenditure” “A deficient commercial model in that there was no rigorous capital ra:oning by the Government, as shareholder and provider of capital, to guide investment decisions” “A regulatory model that does not allow the Australian Energy Regulator (AER) to drive the networks to deliver efficient capital and opera5ng programs” FLAWED DEMAND FORECASTING Consump%on Trend – Na%onal Electricity Market Declining Network Demand § Afer decades of rising in tandem with economic growth, Australia’s electricity consump%on and peak demand has declined since 2009 § All credible energy forecasters are predic%ng that Queensland’s recent flat/ declining peak demand and energy consump%on trends will con%nue, due to: – Consumers responding to higher electricity prices by reducing energy use and adop%ng energy efficiency measures – Increasing penetra%on of distributed genera%on, including commercial and residen%al photovoltaic (PV) genera%on – Subdued economic growth and weaker energy demand from the manufacturing and minerals processing sectors – Subdued popula%on growth in Queensland, par%cularly in terms of interstate and interna%onal migra%on – The impacts of new building regula%ons on energy use and efficiency The Networks’ Flawed Demand Forecasts...... Energex and Ergon were rewarded with ‘windfall profits’ of around $1 billion for these forecas@ng errors (through returns and deprecia%on on capex that they did not incur) The Qld Networks’ Systemic Over-‐Es%ma%on of Demand “Another factor contribu5ng to the escala5on in capital programs has been the consistent over-‐ es:ma:on of demand by the NSPs “ The Panel also notes that the current revenue cap control mechanism places volume risk on customers” “Where demand is over-‐es5mated, capital programs will be excess to requirements and network tariffs to customers will increase during the regulatory control period to ensure the NSPs are able to recover the allowable revenue” Source: Queensland Government Independent Review Panel (IRP) on Network Costs AEMO’s Flawed Demand Forecasts...... AEMO's$forecast$of$2014/15$energy$ consump<on$in$NSW$(GWh)$ AEMO’s changing forecasts of NSW 2014/15 consump%on !85,000!! !80,000!! !75,000!! !70,000!! !65,000!! !60,000!! 2010$ 2011$ 2012$ Year$in$which$predic<on$was$made$ Source: CME 2013$ 2014$ AEMO’s Latest Energy Forecasts Ergon Historical/Proposed Augmenta%on Capex 500 450 400 350 300 250 200 150 100 50 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Qld Networks: Historical/Proposed Replacement Capex Energex Replacement Capex Ergon Replacement Capex 350 450 400 300 350 250 300 200 250 200 150 150 100 100 50 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 THE NETWORKS’ EXCESS CAPACITY AND DECLINING UTILISATION Excess Network Capacity...... Energex: RAB/Peak Demand Ergon: RAB/Peak Demand 2.60 4.30 2.40 3.80 2.20 2.00 3.30 1.80 2.80 1.60 1.40 2.30 1.20 1.00 2006 2007 2008 2009 2010 2011 2012 2013 1.80 2006 2007 2008 2009 2010 2011 2012 2013 Declining System U%lisa%on........ U/lisa/on&(%)& Energex:&System&U/lisa/on&& 31.0%& 30.0%& 29.0%& 28.0%& 27.0%& 26.0%& 25.0%& 24.0%& 2006$ 2007$ 2008$ 2009$ 2010$ System&U/lisa/on& 2011$ 2012$ 2013$ Decreasing Network Ages........... A FLAWED NETWORK VALUATION METHODOLOGY A Flawed Network Valua%on Methodology § Prior to 2006, the regulatory rules required the value of the networks RABs to be ‘op%mised’ -‐ to reflect the minimum value of assets needed to deliver the required services § Under those rules, any ‘excess capacity’ was excluded from the networks’ regulatory asset base un%l it was needed § In 2006, Australia’s electricity networks managed to persuade policy makers to make significant changes to the Na%onal Electricity Rules to beper incen%vise investment § One of the key changes was the removal of the “asset op%misa%on” rules, thereby removing the only constraint to over-‐investment that was contained within the rules A Flawed Network Valua%on Methodology § The networks’ asset values are determined by using the Depreciated Op5mized Replacement Cost (DORC) valua%on approach -‐ a methodology that significantly overstates the value of the assets § The networks’ asset values are inflated each year by CPI indexa%on § The networks are provided with guaranteed returns on their regulated asset bases (RABs) § All past capex was included in the RAB without a review of its need or efficiency § Resul%ng in major over-‐investment -‐ par%cularly by the government owned networks THE NETWORKS’ REVENUE AND PRICE GROWTH Australia’s Network Prices: Interna%onal Comparisons Australian Distribu%on Networks’ Prices !! !! SA PN ! En er ge x Au ! sN et !! Je m en a! Au ro ra En !! de av ou r!! Po w er co r! Un ite d! Ci .p ow er ! gr id !! al Er go n se n. Au s Es Average'price'($/MWh)' Recent Growth in Network Prices !$140!! 2002! !$120!! 2014! !$100!! !$80!! !$60!! !$40!! !$20!! !$#!!!! Revenue per Connec%on The Qld DNSPs are Proposing Con%nued Revenue Increases ERGON'3'Revenue' $million'(2014)' Proposed! !$10,000!! Allowed!! Actual! !$9,000!! !$8,000!! !$7,000!! !$6,000!! !$5,000!! !$4,000!! !$3,000!! !$2,000!! !$1,000!! !$#!!!! 2001#5! 2006#10! 2011#15! 2016#20! ENERGEX'3'Revenue' $million'(2014)' Proposed! Allowed!! Actual! !$9,000!! !$8,000!! !$7,000!! !$6,000!! !$5,000!! !$4,000!! !$3,000!! !$2,000!! !$1,000!! !$#!!!! 2001#5! 2006#10! 2011#15! 2016#20! THE NETWORKS’ EXTRAORDINARY PROFITABILITY Electricity Networks are Extraordinarily Profitable § Australia’s electricity networks are much more profitable than the regulatory framework assumes -‐ par%cularly the government owned networks § Equity markets and investors are valuing the networks significantly higher than their regulated asset bases (RABs) – with some valua%ons at over 150% of RAB § Lenders are lending to the regulated business at significantly lower rates than the ‘cost of debt’ allowances provided by the AER § The AER is inappropriately applying its discre%on by selec%ng WACC input parameters at the top end of the possible ranges § The AER has consistently set higher WACCs than other comparable regulators in Australia and overseas Ergon Profitability Trends !$1,600!! Income!tax!equivalents! !$1,400!! Compe??ve!neutrality!fees! $million' !$1,200!! Profits!(aFer#tax)! !$1,000!! !$800!! !$600!! !$400!! !$200!! !$#!!!! 2008/09! 2009/10! 2010/11! 2011/12! 2012/13! 2013/14! Qld DNSPs: Compara%ve Profits per Connec%on !$700!! Pecuniary* benefit*per* connec0on** !$600!! !$500!! !$400!! !$300!! !$200!! !$100!! !$#!!!! UK!Power!Networks! South!Australia!Power! NSW!Government! QLD!Government! (2012)! Networks!(2012/13)! distributors!(2012/13)! distrbutors!(2012/13)! Energex and Ergon’s Return on Equity (excuding revalua%on reserves) Energex and Ergon: Return on Equity (excuding revalua@on reserves) 50% 40% 30% Energex Actual ROE Ergon Actual ROE AER Allowance 20% 10% 0% 2011 2012 2013 2014 The Queensland Electricity Networks’ Extraordinary Profitability § In recent years Energex and Ergon have achieved return on equity levels of around 3-‐4 %mes the level that the AER assumed in its ‘return on equity’ allowance § These returns are well in excess of the returns being achieved by Australia’s best performing ASX50 en%%es § These returns are being achieved, despite: – Electricity networks being effec%vely ‘zero risk’ businesses; and – Queensland’s networks being amongst the least efficient in the NEM § The AER’s Draf Determina%ons will result in Energex and Ergon con%nuing to deliver extraordinary returns over the next 5 years Queensland Government’s Posi%on on Future Shareholder Returns? • The desire to con%nue to achieve these extraordinary returns is significantly compromising the networks’ posi%ons on NEM policy reforms • In reality, the Queensland networks could s%ll deliver very healthy returns with major reduc%ons to their revenues • The Queensland networks’ extraordinary profitability is not common knowledge within the Queensland community • It contradicts the espoused posi%ons of successive governments regarding the importance of ensuring efficient and fair electricity prices for Queensland consumers • Raising the Queensland community’s awareness of the networks’ extraordinary profitability will be an important element of the Australian sugar industry’s advocacy on NEM reforms THE NETWORKS’ POOR AND DECLINING PRODUCTIVITY The Poor Produc%vity of Government Owned Networks • The produc%vity of Australian electricity network sector is poor by interna%onal standards and is rapidly declining -‐ par%cularly for the government-‐owned networks • The efficiency of Australia’s electricity networks is predominantly determined by ownership • The privately owned electricity networks in Victoria are much more efficient than the networks in the other states – demonstra%ng significantly lower growth in revenues, regulated asset bases, capital and opera%onal expenditure per unit of output growth Mul%lateral Total Factor Produc%vity Opex Determina%on Par%al Factor Produc%vity -‐ Opex Qld Networks’ Produc%vity: Queensland IDC Report Findings “The IDC was par5cularly concerned about the IRP’s reports of a no:ceable cultural disregard for cost within the distribu:on network businesses” “The capital programs and opera5ng costs of the GOCs have increased sharply and unsustainably” “The overhead expense (indirect costs) of Ergon Energy and Energex is more than $1 billion annually). This expense has grown rapidly in recent years and places the Queensland DNSPs among the least efficient in the NEM” “Addi:onal impetus is needed to produce the level of savings required to restore affordability for customers” Er go n! Es se ! n En 3al d e !! av ou Au r! sg rid Au !! ro ra Au !! sN et E n !! er ge x! SA PN ! Au ! ro Po ra! w er co Je r! m en a Un ! ite d Ci 3 p !! ow er ! Opex%per%customer% Ergon: Highest Opex per Customer in the NEM !$700!! !$600!! 2002! 2013! !$500!! !$400!! !$300!! !$200!! !$100!! !$#!!!! Ergon is proposing to con%nue to increase its opex...... ERGON'3'opex' $million'(2014)' Proposed! Allowed!! Actual! !$2,500!! !$2,000!! !$1,500!! !$1,000!! !$500!! !$#!!!! 2001#5! 2006#10! 2011#15! 2016#20! THE GROWTH OF DISTRIBUTED GENERATION An Uneven Playing Field § Australia’s market and regulatory frameworks have been designed with a strong bias towards investment in centralised genera%on -‐ presen%ng significant barriers to the take-‐up of cost-‐effec%ve distributed genera%on § Distributed genera%on can be significantly more cost effec%ve than conven%onal large scale centralised genera%on § There are very strong economic drivers to provide a more level playing field for distributed genera%on § Cost effec%ve distributed genera%on has the poten%al to drama%cally reshape, and play a major role in Australia’s future electricity market § Such reforms have been successfully implemented in other countries, which are now capturing the significant economic benefits of distributed genera%on and demand-‐side solu%ons Distributed Genera%on – Key Benefits § Reduced electricity prices § Improved energy supply efficiency § Avoidance of inefficient investment in large-‐scale centralised genera%on and network infrastructure § Improved energy security and system reliability § Improved safety in regional areas (reduced bushfire risks) § Shorter energy infrastructure installa%on %mes § Ability to use waste products and renewable resources that may otherwise have no economic value Distributed Genera%on – Key Barriers (1) • Insufficient pricing for exported energy – Payments do not reflect the loca%on or %me of use value of local genera%on – Payments do not reflect the reduced network usage associated with local genera%on – Payments do not reflect the reduced network augmenta%on costs associated with local genera%on – Payments for exported energy are significantly lower than the prices charged for imported energy – DG providers are unable to sell energy to par%es other than a retailer • The lack of cost reflec%ve genera%on and network pricing – Pricing arrangements do not reflect the economic value of distributed genera%on – Pricing arrangements do not reflect the value of reducing network costs or the benefits of addressing network constraints – Pricing arrangements do not value the reduced network losses Distributed Genera%on – Key Barriers (2) • Misaligned DNSPs’ incen%ves – Network businesses' incen%ves aren’t aligned with consumers’ or DG providers interests – The regulatory rules are strongly biased towards centralised genera%on and network investment § Poor Nego%a%ng Posi%on/Informa%on Asymmetries – There are major power and informa%on asymmetries between the networks and distributed genera%on providers – Customers and distributed genera%on providers have limited informa%on and cannot nego%ate on a fair basis – The DNSPs have excessive power and discre%on § Unfair Connec%on Agreements – – – – – – Excessive and unreasonable network connec%on costs Excessive DUOS costs Complex, costly and lengthy connec%on processes First mover disadvantages Inconsistent regula%ons in each juris%c%on Risk averse commercial condi%ons applied by the DNSPs Interna%onal Approaches to Distributed Genera%on • Over the past decade the UK and New Zealand have re-‐designed their electricity markets to remove barriers to distributed genera%on • Introducing ‘Virtual Private Wire’ rules in the UK has increased the UK’s distributed genera%on to almost 20 %mes its 1994 level • New Zealand’s networks are experiencing similar trends • In Europe, distributed cogenera%on is a cri%cal part of the energy system -‐ delivering major economic, energy efficiency, GHG reduc%on and energy security benefits compared to centralised energy solu%ons California’s ‘Loading Order’ Policy Outcomes • In 2003, California implemented a “Loading Order Policy” which only allows the development of centralised genera%on and network infrastructure as a last resort -‐ afer all other op%ons (energy efficiency, distributed genera%on, etc.) have been exhausted • Since this policy was implemented, California has: – Avoided over $40 billion of investment in new energy infrastructure (including over 30 power plants) – Reduced average household energy bills by an average of over $200 per person Leading Interna%onal U%li%es are Reinven%ng their Businesses Major global u%li%es are currently reinven%ng their businesses to capitalise on the emerging opportuni%es, e.g.: § Europe’s largest u%lity E.ON recently divested from its conven%onal electricity business to focus on distributed genera%on § America’s leading generator, NRG, has also decided to focus on solar and distributed genera%on THE NETWORK DEATH SPIRAL The Network “Death Spiral” § The regulatory rules provide electricity networks with guaranteed revenues irrespec%ve of the actual level of demand on their network § Over the past five years it has become apparent that electricity demand has declined and has significantly decoupled from economic growth § This has been driven in part by consumers reducing their consump%on in response to the drama%c increases in network prices § In addi%on, consumers are increasingly moving to self-‐genera%on as the rela%ve costs of distributed genera%on are becoming more aprac%ve, thereby further reducing the energy being delivered by the networks. § The networks have responded by further increasing their prices to recover their guaranteed revenues over a reduced volume § As a consequence, network assets are becoming increasingly under-‐u%lised and the industry’s produc%vity is in serious decline Is the Death Spiral Inevitable? § The natural outcome of current trends is the “death spiral” -‐ i.e.: § The burden of paying for the networks’ costs is increasingly placed on a smaller consumer base; un%l § The remaining consumers can no longer afford to stay connected to the network § Many analysts believe that the u%lity death spiral is inevitable and is already well underway in many countries, e.g.: § Deutsche Bank has predicted that solar systems will be at grid parity for 80% of the global energy market by 2017 § UBS is predic%ng similar outcomes by 2018 § The main unknown is how quickly bapery storage costs will drop § Another key unknown is how quickly the leasing market will develop in Australia Distributed Genera%on -‐ Economics Ergon: The Canary in the ‘Death Spiral’ Coalmine? § The Queensland networks are par%cularly exposed to the death spiral § Queensland has the second highest penetra%on of solar PV in Australia § Ergon’s very high network prices make the economics of grid disconnec%on very aprac%ve for a large propor%on of their customers § Importantly, the burden of paying for these stranded costs is being dispropor%onately applied to industrial consumers, who currently have very limited op%ons for disconnec%ng from the grid Es%ma%on of the Value of the NSW Distributors’ “Stranded Assets” How to Deal with Stranded Assets? Various possible op%ons and combina%ons of op%ons are being proposed, e.g.: § Asset Write-‐Downs § Reinstate asset op%misa%on rules -‐ with stranded assets being able to be included when they are “u%lised” § Differen%ated rates of return for sunk and new investments § Accelerated deprecia%on for “stranded assets” § Removing CPI indexa%on from the network valua%on methodology § Plus many others........ Grid Defec%on or Load Defec%on? AVOIDING THE DEATH SPIRAL THROUGH COST REFLECTIVE PRICING Moves Towards Cost Reflec%ve Pricing § The NEM pricing methodologies are not cost reflec%ve § This has resulted in inefficient network and genera%on investment § The inevitable moves towards cost reflec%ve pricing will have significant implica%ons for future network and genera%on pricing COST REFLECTIVE NETWORK PRICING Cost Reflec%ve Network Pricing § The AEMC recently introduced new rules that require electricity distributors to structure their network tariffs to “reflect the business’ efficient costs of providing services to each consumer”. § However, the new rules only provide high level principles regarding cost reflec%ve pricing -‐ whilst con%nuing to provide the networks with a high degree of discre%on in the design of their tariff structures § In reality, the network businesses' incen%ves aren’t aligned with consumers’ long-‐term interests § Consequently, the networks’ responses to this reform will present various risks to ASA Members Network Tariff Reform -‐ Key Risks The networks are likely to: § Shif a large propor%on of their costs to “fixed charges” that cannot be avoided, or would be very hard to avoid, even with significant changes to consump%on paperns § Shif a large propor%on of their costs to “demand based tariffs” § Structure their tariffs to reduce the financial aprac%veness of distributed genera%on, energy efficiency and other cost effec%ve non-‐network solu%ons – i.e., penalise consumers for taking ac@ons that pose a threat to ongoing network growth The Australian Sugar Industry should: § Be in%mately involved in the networks’ development of their new tariff structures, and the AER’s review and approval of the new tariffs § Call for the AER to be provided with strengthened powers for assessing/ approving the network’s new pricing structures Network Tariff Reform: Preliminary Es%mates of Price Impacts § Irrigators in the St George District o Demand-‐based tariffs for water harvesters will typically increase bills by 200-‐300 per cent § Move from Tariff 22 to Tariff 48 for Queensland Sugar Mills o Greater than 40 per cent increase over next 5 years Network Tariff Reform – Opportuini%es If implemented appropriately, the new tariff structures should present some opportuni%es for ASMC members, e.g.: – Rewarding consumers for taking ac%ons that reduce network costs (load aggrega%on, load curtailment, demand management, etc.) – Providing appropriate prices for distributed genera%on COST REFLECTIVE LOCAL GENERATION PRICING Facilita%ng Local Genera%on Through Cost Reflec%ve Pricing Realising Australia’s cost effec%ve local genera%on poten%al will require reforms to local genera%on pricing, e.g: § Restructuring network charges to recognise the true value of local energy § Providing access and use of the shared network at reasonable prices and commercial terms § Providing distributed generators with the ability to export energy to the grid and to sell it directly to on and off-‐site energy users (e.g. growers) § Removal of the networks’ misaligned incen%ves and inappropriate powers § Introducing independence and transparency into the electricity system planning processes Facilita%ng Local Genera%on – Current/Recent Rule Changes Cost Reflec%ve Local Genera%on Pricing: Benefits to Key Stakeholders § Electricity Networks – – – – – Arres%ng the death spiral and improving the networks’ ongoing viability Reducing unnecessary and inefficient network investment More effec%ve u%lisa%on of exis%ng electricity network infrastructure Reduced system losses Improved system resilience and security § Consumers – Lower electricity prices – More efficient and cost effec%ve electricity supply – Improved supply reliability • Distributed Generators – Major growth and profitable diversifica%on opportuni%es – Major growth in regional genera%on investment City of Sydney Rule Change Request: Network Charges for Local Energy § The City of City is currently finalising a rule change request to introduce a system of reduced charges for sending electricity from local generators to local customers § It is expected that this rule change request will be submiped to the AEMC in May 2015 POLICY UNCERTAINTY Carbon Policy Uncertainty § The electricity sector accounts for over a third of Australia’s carbon emissions § Substan%al emissions reduc%ons will be required from the sector if Australia is to meet its carbon reduc%on commitments § There is currently bipar%san support for a 2020 GHG abatement target of 5–15% below 2000 levels (25%, subject to interna%onal progress) § However, there is no bipar%san view on the appropriate policy mechanisms to achieve this target, or on the post 2020 targets § This uncertainty is currently resul%ng in sub-‐op%mal investment decisions for electricity genera%on § The Large-‐Scale Renewable Energy Target (rather than a carbon price) is currently the primary driver of new genera%on capacity § Carbon abatement targets beyond 2020 will become increasingly material to genera%on investment RET Policy Uncertainty § Afer years of bipar%san support for the 41,000 GWhrs target, the current moves to significantly reduce the RET target is causing major uncertainty for investors § Major investments have ground to a halt since the RET review was announced § Many interna%onal renewable energy investors consider Australian renewable energy policy environment to be too risky § With the excess supply in the genera%on market, the RET is currently the key driver of investment in genera%on capacity § The sugar industry has iden%fied a poten%al $1 billion in renewable energy investments at exis%ng mill sites § The viability of those investments is cri%cally dependent upon the outcome of the current RET target nego%a%ons Thank You ] Hugh Grant Execu@ve Director, ResponseAbility
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