All-Energy-Australia-Conference-Oct-2017.pptx

Regulating a New Energy Future for Australia

1. Regulating a New
Energy Future for
Australia
Professor Samantha Hepburn
Director
Centre for Energy and Natural Resources Law
Deakin Law School

2. Governance for a New Energy
Landscape
Energy law is not static
Factors:
*Dynamic nature of energy
markets; technological
developments; *Convergence of
energy markets with other markets;
*Rising tension between energy,
environmental and climate change
policy.
Determine priorities
Evaluate Market Conditions
Global obligations
Domestic concerns
Use panoply of regulatory tools:
* benchmarking to incentivise
behavioural shifts;
*codes to frame standards;
*market mechanisms to drive and
support transition;
* rules to mandate and monitor

3. Existing Issues for Energy Regulation – Preliminary Finkel Report
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4. Existing Issues for Energy Regulation – Preliminary Finkel Report
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5. The Paris Agreement aims to align
international policy in an attempt to
limit global carbon emissions and prevent
global temperature from increasing above
2 degree Celsius. (UNFCCC Paris Agreement
*95% of Australian coal must stay in the
ground to stay within 2 degrees
*An energy mix is crucial
*Accelerate renewable energy production
*Shift to less carbon intensive methods of
energy production.
Moving towards sustainable energy
production that is coherent with our
obligations under the Paris
Agreement
To meet international obligations Australia must
now implement a coherent national framework
that maintains ‘reliability, security
and affordability of energy’. 
(Commonwealth of Australia, ‘Review of Climate
Change Policies’ (Discussion Paper, Department
of the Environment and Energy, March 2017) 11.
Global Climate Policy

6. Domestic Climate Change Policy
Direct Action
Safeguard
mechanism
– any
company
that emits
more than
100,000
tonnes of
carbon a
year will be
limited by
their
capacity to
emit further. 
Baselines
are lenient.
Established
at the
companies
uppermost
level in the
last five
years  - but
have the
capacity to
be
increased. 
The
mechanism 
does not
consider the
impact
of the
burning of
fossil fuel
emissions
70% of the
purchased
abatement
is derived
from
vegetation
sequestratio
n.
A significant
portion of
this
sequestratio
n is
susceptible
to return to
the
atmosphere.
Ineffective in
itself to
mitigate
emissions
from carbon
intensive
energy
production
or to
incentivise
renewable
energy
production

7. Renewable Energy Policy – Renewable Portfolio Standards
Renewable portfolio standards (aka renewable target/quota obligation) create markets by requiring electrical utilities to source a portion
of the electricity they sell from renewable energy.
Require electric utility companies to source a certain share of the electricity they sell to end-users from solar, wind, and other renewable sources
of energy..
Utilities comply with these requirements through "renewable energy credits" (RECs).
Eligible power plant operators receive one REC for every megawatt hour (MWh) of electricity generated from renewable
resources.
Independent power producers can sell their RECs to utilities to earn a premium on top of their income from power sales in the wholesale
electricity market.
In addition to buying RECs, utilities can also invest in their own renewable power generation facilities to earn RECs for the electricity they
produce.
Costs passed on to ratepayers.
RPSs may be technology-neutral and award the same amount of RECs for all eligible renewable energy technologies but some are technology
specific

8. Renewable Energy Policy – Feed in Tariff
Feed in tariffs attract renewable power generators with above market rates for their output and
guaranteed access to the electricity grid.
RPS policies call on the market's invisible hand to determine trading prices for RECs
FIT programs require regulators to set the rates for renewable electricity at a level that incentivizes
investment without offering windfall profits.
FIT policies allow utilities to pass the costs of premium payments for renewable energy on to their
ratepayers.
FITs tend to be technology-specific, offering different tariff rates for different strands of renewable energy
technologies based on their respective technological maturity and generation costs
FIT design can be size-sensitive in order to account for the different cost structures of large utility-scale and
small distributed-generation facilities.

9. Renewable Energy Target
The Renewable
Energy
(Electricity) Act
2000 (Cth)
(‘the REEA’) prescri
bes a system that
utilises tradable
certificates for
renewable energy
generation. 
If a
participant falls
short of their
target they are
required to
purchase
substitute
certificates to
ensure they meet
the RET and avoid
paying a  penalty.
(s5)
This helps
providers to
maximise
supplies of
renewable
energy thus drivin
g growth in the
sector.
The
mandatory RET m
akes renewable
energy more
commercially
viable whilst
incentivising
infrastructure
investment
and reducing
emissions 

10. Australian Domestic Gas Safety Mechanism (ADSM)
Pricing and supply in Eastern gas market a
concern
Domestic gas price rises
LNG a global commodity and going offshore - $200
billion investment in LNG has transformed the
framework.
Restricting supply to the domestic market
drives up prices
Regulatory impediments to development of onshore
unconventional gas – social, environmental factors to be
considered.
Permits not being developed
Increased demand – gas being used as a
transitional resource

11. Australian Domestic Safety Mechanism
The Customs (Prohibited Exports) Amendment (Liquefied Natural Gas) Regulations 2017 - new
Division 6 into the Customs (Prohibited Exports) Regulations 1958.
Division 6 establishes a framework for restrictions on the export of LNG where the Resources
Minister determines there is a reasonable prospect of a supply shortage in the domestic
market.
May require LNG exporters drawing gas in net terms from the domestic market to limit exports
or find offsetting sources of new gas.
Short term – 5 years.

12. Australian Domestic Gas Safety Mechanism
Export controls can only be triggered where the Minister has reasonable grounds to believe there is
sufficient supply of gas available for the Australian domestic gas market over a forthcoming calendar
year.
Minister will issue a permission to control exports (may have conditions)
Volume of gas that LNG exporters will be allowed to export (as set out in permission) must take
account of expected market needs.
Once permissions are issued, it will not be possible for the Minister to vary permission
conditions (including export volumes) without the agreement of the licence holder.
Penalties for non-compliance, including revocation of export permissions,

13. The Finkel Report – Preliminary Findings

14. The Finkel Report – Preliminary Findings
Solutions are available to effectively integrate variable renewable electricity generators into the electricity grid: intelligent wind
turbine controllers, batteries and synchronous condensers, open cycle gas- red generators – all are well-placed to complement
variable renewable electricity generators
This will contribute to system security.
The NEM does not currently encourage the adoption of these solutions.
Emerging markets for these ancillary ‘system security’ services are lagging.
New and updated frameworks, technical standards and rules may be required.

15. The Finkel Report: Final Recommendations
The adoption of a clean
energy target (CET) to
drive investment in low
emissions generators
across Australia;
The introduction of a package of
energy security obligations, including
inertia requirements in each region or
sub-region of the NEM, generator fast
frequency response capabilities, and a
wholesale update to connection
standards; 
A shift to a market-based
mechanism for procuring fast
frequency response services
where there is a
demonstrated benefit in doing
so; 
Implementing a generator
reliability obligation to
ensure the each region of
the NEM retains adequate
dispatchable capacity; and

16. Clean Energy Target (CET)
CET by 2020
To have a similar operation to the
existing renewable energy target
(RET).  
CET is pragmatic policy. Not an emissions
intensity scheme or an emissions trading
scheme because of previous rejection of
these options.
CET will permit eligible generators
to create certificates for each MWh
of electricity produced in
proportion to how far the
emissions of the generator fall
below an emissions intensity
threshold;

17. Clean Energy
Target and the RET
RET runs until
2030.
CET begin in 2020
Careful development to ensure interaction
between RET and CET 2020-2030 – esp to make
sure investments under the RET are not affected
by the CET.
CET facilitates lower emissions: Generators allocated a
proportion of a certificate based on their actual emissions. EG A
gas generator would be allocated around half a certificate for
each MWh of energy generated because it might produce
emissions at around 0.3 tonnes/MWh. Alternatively, a wind
generator would receive the full certificate value because it
produces zero emissions.

18. CET and Energy Prices
Cost of low emission certificates passed on to consumers by electricity retailers.
Offset by lower wholesale power prices bc –
increased supply from renewable energy generators,
reduction in risk as a consequence of policy certainty and
more competition in the wholesale electricity market.
Lower wholesale power will offset the additional cost of certificates.
Affordability under the CET policy.  

19. Energy Security
Develop: Transmission network service providers will
need to provide and maintain fixed levels of inertia in
each region or sub-region of the NEM, which could
include a portion substituted by fast frequency
response services;
Develop: New generators must
have fast frequency response
capability;
Review: The Australian Energy Market Commission (AEMC)
must review and update existing connection standard and
take account of: system strength, reactive power and
voltage control capabilities, performance during and after
contingency events, and active power control capabilities.
Transparency: New generators must fully
disclose software or physical parameters
impacting security or reliability.  (SA Blackout
concerns) 

20. Market – Fast
Frequency Response
Mechanisms
The Report supports measures requiring new wind and large-scale solar generators to have
“capability” to provide fast frequency response services: including "synthetic inertia", to
compensate for decreases in physical inertia from traditional synchronous generators across
the NEM. 
AEMC's proposal to establish a market for fast frequency response services needs to be
developed - require evidence that a market mechanism would procure sufficient services to
avoid impacting power system security. 

21. Generator reliability obligation
 
New renewable generators be regulated to ensure that adequate dispatchable capacity is
retained in all regions of the NEM. 
If dispatchable capacity falls below a predetermined minimum acceptable level, new renewable
generators must bring forward ‘new’ dispatchable capacity in that region (cost issue for new
renewable projects).
Geographical location of new capacity – not on site.
Renewable projects could join with one new large-scale battery or gas-fired generation project
to satisfy new capacity.
Battery Storage Issues : eg how to regulate the interaction between renewable generator and battery connection
arrangements into the national grid; registration requirements under the National Electricity Rules;  

22. Last Resort Power for Gas-Fired Generators
Recommendation that AEMO be granted a ‘last-resort power’ to procure and enter into commercial arrangements
with existing gas-fired generators to make them available to maintain reliability in the NEM. 
AEMO may only exercise this right if "certain conditions" are met (no clarity on what those conditions
might be). 
Rejection of reform proposal for NEM to become a competitive capacity market - too costly and a inefficient because departs substantially from
existing framework. 

23. Why the CET is Important

24. Conclusions
Successful climate change
mitigation requires a timely
decarbonization of the
electricity sector – the largest
source of greenhouse gas
emissions
Accelerating renewables
within this context is
critical – as is
supporting fossil fuel
transition.
Regulatory tools
utilised to
achieve different
tasks –
Incentivising and
supporting
market
transition,