The Australian energy landscape is undergoing transformation as demand for our mineral and energy resources increases and as we move towards a carbon price and a greater uptake of clean energy. In order to sustain current levels of development and meet projected growth over the coming decades, an unprecedented scale of investment in developing our energy resources is required.
Australia is the world’s ninth-largest energy producer and constant global demand for coal and liquefied natural gas (LNG) resources in particular continues to make Australia the world’s largest exporter in these areas. The pipeline of energy and mineral resource projects due for completion between 2011 and 2020 that have so far been announced is valued at more than $400 billion. Investment in the electricity sector alone, including generation transmission, distribution networks, pipelines and associated infrastructure, is expected to exceed $240 billion by 20301.
Although it is hoped that the energy industry will see many exciting and substantial developments over the coming decades, such growth inevitably comes with its own challenges. The federal government’s release of the draft Energy White Paper in December last year (Draft White Paper) sets the policy context for ensuring that this significant level of development is undertaken in a manner which ensures energy security and reliability for all Australians.
What is the Draft Energy White Paper?
The Draft White Paper is the result of an extensive consultative process commenced in late 2008. It seeks to establish a long-term energy policy framework for addressing challenges in Australia’s energy sector.
The stated core objective is to build a secure, resilient and efficient energy system that;
- provides accessible, reliable and competitively priced energy for all Australians;
- enhances Australia’s domestic and export growth potential; and
- delivers clean and sustainable energy.
The priority areas identified in the Draft White Paper for enhancing Australia’s energy potential are:
- strengthening the resilience of Australia’s energy policy framework;
- reinvigorating the energy market reform agenda;
- developing Australia’s critical energy resources, especially gas; and
- accelerating clean energy outcomes.
The overview of Australia’s energy sector provided in the Draft White Paper is comprehensive and examines a range of policy issues, including energy security, developing energy resources, and improving productivity. It identifies particular issues for infrastructure development going forward, some of which are outlined below.
Issues for infrastructure development
Three key issues identified in the Draft White Paper for infrastructure development are:
- infrastructure reliability;
- securing investment; and
- future energy sources, particularly clean energy technologies and LNG.
Reliable infrastructure is essential to gaining a maximum return on energy resources, maintaining international competitiveness as a supplier and continuing to be an attractive investment destination. One of the greatest issues for infrastructure reliability is inadequate supply chains and ‘bottlenecks’ which severely impact Australia’s ability to meet export demand and threaten energy security and reliability.
A key feature of Australia’s energy resources is that many are located in regional areas. This presents particular challenges with respect to infrastructure reliability in supply chains, particularly where transportation and access to remote locations is required. To compound the issue of remoteness in supply chains, it is also anticipated that the demand for existing supply infrastructure will increase. By 2050, road transport activity will at least double, water-based transport activity will triple and air transport activity will quadruple.
Consequently, the focus is on supply network expansion and replacement of existing networks. To overcome these issues upgrades are needed to existing infrastructure and new infrastructure is required. This is of particular note for increasing the capacity of our major ports, which will require additions and expansions in order to alleviate these constraints, as well as our rail networks and roads.
Some of these challenges are already being addressed in the National Ports Strategy and National Land Freight Strategy, both of which aim to improve infrastructure planning, pricing, funding mechanisms and regulations.
As stated above, there is a demand for projects that improve energy infrastructure reliability and resilience. However, obtaining funding for such projects faces the challenge of not only securing large-scale investment but also attracting timely investment. Timely investment is required to ensure that infrastructure development is responsive to future growth, aids productivity and keeps pace with demand for resources, both with respect to exports and domestically. To account for planning and construction lead times, investment decisions need to be made years before a project may be delivered.
Furthermore, given the amount of funds that are required to support the number of infrastructure projects required, it is expected that most funds will be provided by the private sector, and much of these private funds from foreign sources. Consequently in order to be attractive to private investors, infrastructure projects need to generate revenue, provide sufficient certainty about key future cost exposures and otherwise meet expectations of project financiers.
Future energy sources
The federal government is prioritising the development and uptake of clean energy technologies. This will see a shift away from traditional sources of energy such as coal, and a move towards renewable energy sources as well as gas, which is seen as a reliable baseload energy source with low carbon emissions.
The key technology classes for future energy sources are large-scale solar, geothermal, carbon capture and storage and LNG and we will begin to see new developments in infrastructure in response to this change in our energy mix. We are already at the early stages of new types of infrastructure such as floating LNG platforms and going forward other developments will be seen in renewable energy technologies and unconventional energy resources, like shale gas, and unconventional energy technologies, like coal-to-liquids.
The Draft White Paper provides a basis for future discussions on the directions and priorities for Australian energy policy. It is clear that the development of infrastructure is a key factor in ensuring energy security, productivity and resilience and securing reliable and competitively priced energy. Supply networks will be expanded, and we will see a greater focus on infrastructure development that is consistent with a shift towards low-carbon emission energy sources. Furthermore, future infrastructure development is likely to be privately funded and much of these funds from foreign sources. This will affect the manner in which new infrastructure projects come on line and how they are procured.
Following the release of the Draft White Paper, written submissions were invited from the public by 16 March 2012. The federal government anticipates that the final Energy White Paper will be released in 2012.