The Queensland Government has recently released two papers considering the future of energy supply in the state, relating in particular to the gas and renewable energy industries.
In November, the Department of Natural Resources and Mines released a discussion paper to canvas community input into its ‘Queensland gas supply and demand action plan’ (Gas Discussion Paper).
The previous month, in October, the Queensland Renewable Energy Expert Panel released for comment a draft report entitled ‘Credible pathways to a 50% renewable energy target for Queensland’ (Renewable Energy Draft Report).
Taken together, the Gas Discussion Paper and the Renewable Energy Draft Report paint a picture of a government grappling with the challenge of supporting the state’s crucial gas industry, while at the same time encouraging the growth of a nascent renewables sector.
Gas Discussion Paper
For a number of years the Queensland gas industry has called for regulatory reforms to halt flagging gas exploration and development activity in the state. The Gas Discussion Paper (and the ‘action plan’ which is intended to succeed it) is the Queensland Government’s response to these calls.
The Discussion Paper considers a number of reform ideas, focussed on the regulation of upstream gas operations, which are aimed at improving the Queensland gas industry’s social licence to operate, and decreasing the barriers to supply of natural gas in the state.
All in all, 29 reform ideas are reviewed. The reform ideas include a number that have been advocated by industry for some time. A few of the more interesting reform ideas include:
- Negotiation of an ‘agency memorandum of understanding’ between state and federal agencies to provide a framework for collaboration and cooperation across regulatory functions – the resurrection of the idea of a regulatory ‘one-stop shop’.
- Enhancing the case management approach for smaller projects that do not require an environmental impact statement through the entire government approvals process – allowing smaller projects to access the benefits of having a project ‘coordinator-general’.
- Investigating the facilitation of a single process in which relevant regulatory approvals are acquired across an entire basin or sub-basin before exploration occurs.
- Testing the suitability of extending the Exploration Industry Expenditure Concession (which allows for a 50% reduction of proposed expenditure on minerals exploration tenure) to include gas exploration tenure.
- Establishing an overarching governing body that brings all parties (suppliers, explorers, academia, producers etc) together ‘to develop strategies that address sector-wide concerns’.
- Introducing more flexibility into gas exploration work program commitments (by the use of ‘results-based exploration reporting’, rather than ‘activity-based reporting’).
- Developing a funding and delivery model for gas industry R&D and technological innovation, possibly based on the Australian Coal Association Research Program (ACARP).
Also of note is that the Discussion Paper does not support the imposition of a domestic gas reservation policy on existing tenures. However, the imposition of a reservation policy on future tenures is not expressly rejected, and indeed the Discussion Paper recognises provisions in the Petroleum and Gas (Production and Safety) Act 2004 which allow for conditioning of future petroleum exploration tenure releases to require that gas produced from subsequent production tenure may only be supplied for consumption within the Australian market (the ‘Australian market supply condition’).
The reform ideas contained in the Discussion Paper overlap with a significant body of work being undertaken at the Federal level by the COAG Energy Council and by market regulators in relation to development and regulation of the national gas market. The Discussion Paper notes that feedback received in respect of the Discussion Paper will be incorporated into the national reform process where appropriate, but that Queensland Government initiative is needed to put these separate frameworks ‘into a focused action plan for the state’.
The period for submissions on the Gas Discussion Paper remains open until 5pm on Monday 19 December 2016. A finalised ‘gas supply and demand action plan’ is due for release in 2017.
Renewable Energy Draft Report
When the Palaszczuk government was elected to power in Queensland in 2015 one of its mandates was to establish an inquiry into how Queensland can achieve a target of 50% renewable energy by 2030. A panel was appointed to lead the inquiry and that panel recently released its report.
The Renewable Energy Draft Report reviews the costs and benefits of adopting the 50% target and the policy action that will be required to achieve the goal. Policy action the Draft Report recommends includes:
- In the short term, leveraging off existing Federal Renewable Energy Target funding to attract renewables projects to Queensland via a competitive reverse auction process in 2017-2018 for delivery of up to 400 MW of renewable energy generating capacity. It is proposed that this will be implemented through ‘contracts for difference’ arrangements (CFDs).
- In the longer term, encouraging the market to contract and deliver the requisite renewable energy capacity to meet the 50% target, while at the same time maintaining flexibility in policy settings and monitoring developments in separate state, territory and federal emissions targets. Where additional Queensland Government incentives are required, it is again proposed that these additional incentives be provided through competitive reverse auctions for CFDs.
The Draft Report examines three ‘post-2020 pathways’ for the purposes of meeting the 50% target – a ‘linear pathway’ (assuming a uniform annual rate of renewables build from 2020-2030), a ‘ramp pathway’ (featuring a ramp up in effort later in the 2020-2030 period, to capitalise on falling technology costs), and a ‘stronger national action pathway’ (assessing additional Queensland Government action required if a stronger national emissions reduction scheme is put in place).
The Draft Report states that, under the ‘linear’ and ‘ramp’ pathways, the effect of a 50% target on residential electricity prices will be ‘broadly neutral’. This statement is based on modelling which indicates that early retirement of coal-fired generation in Queensland will not be required to meet the 50% target under those pathways, and that increased penetration of renewables will in fact suppress wholesale electricity prices – assumptions which are under dispute (see further below).
The Draft Report also finds that the 50% target can be met while maintaining the required electricity supply reliability standard in Queensland. Again, this statement is based on the assumption that coal-fired generation will continue to play a significant role in the Queensland energy mix to 2030 under the ‘linear’ and ‘ramp’ pathways. The Draft Report notes the recent supply challenges in South Australia but contrasts the situation in that state with the situation in Queensland, where significant controllable thermal electricity generation is expected to be retained in service to 2030.
In terms of broader economic impact, the Draft Report finds that, again under the ‘linear’ and ‘ramp’ pathways, a 50% target ‘does not result in a major effect across the whole economy’, and that in fact modelling projects a net increase in employment in Queensland between 2020 and 2030. The Draft Report acknowledges that the transition to renewable energy ‘will have implications for communities that currently rely on fossil fuel generators’, and that Government has a role to play in supporting communities through this transition. The Report finds that Government is in a position to manage this transition, given that it owns most large generators in the state.
The work done in the Draft Report runs in parallel with a significant body of work being undertaken at the Federal level, in this case by the COAG Energy Council and by market regulators (including the Australian Energy Market Operator) in relation to the future of the energy sector and the integration of additional renewable energy capacity into the National Electricity Market (of which Queensland forms part). The Draft Report, and those making submissions to the Draft Report, have highlighted the need for any policy action taken by the Queensland Government to recognise and operate within this national framework.
The Draft Report has been the subject of some criticism from the Federal Government and sections of industry. The Federal Energy Minister described the finding that a 50% target will be ‘cost neutral’ as ‘unrealistic’. The Business Council of Australia meanwhile has stated that potential implications of the policy are ‘very difficult to predict’, and has described the finding that a 50% target will be cost neutral as being one based on a ‘heroic assumption’ of no coal plant closures. According to the BCA, the finding ignores the fact that if generators are forced to close because of reduced profitability, prices may rise significantly. The BCA also says the finding ignores the fact that reduced profitability of Queensland Government-owned generators will result in reduced dividends and tax equivalence payments to the Queensland Government – and this may lead to higher taxes.
The period for submissions on the Renewable Energy Draft Report has now closed. The Final Report is due to be released by the end of 2016.