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Delivering energy security while transitioning to a cleaner energy future demands careful and balanced policy.
As policy makers we are seeking over time to reduce global greenhouse gas emissions at the same time as ensuring economic growth continues.
This means ensuring energy security is maintained, which relies on investment to develop our energy resources.
I believe the Australian Government’s policy approach is the right one for energy security in a cleaner energy future.
A global context
Energy security is fundamental to the modern economy.
Reliable, affordable energy underpins almost every economic and social activity.
The world’s growing population – perhaps 8.5 billion people within 25 years – will not give up aspiring to greater prosperity.
More than seven billion of those will be in emerging economies, while the number living in cities will double.
The International Energy Agency expects demand for electricity to rise faster than any other final form of energy.
More than 80 per cent of that growth will be in non-OECD countries with Asia, its epicentre.
This expected increase the amount of electricity generated will drive nearly all the incremental demand for coal in the next 20 years. It will also be a significant factor in an increasing requirement for LNG.
To meet demand, Australia’s capital expenditure on advanced energy projects rose by a quarter in the six months to April.
We expect new capital expenditure this year to be the highest on record.
New technology, such as floating LNG, will unlock huge resources and boost this major industry.
We’re on track to be the second-largest exporter of LNG in the next few years.
Events at Fukushima will have an impact on the global nuclear power industry but they are unlikely to prevent demand from increasing as the engineering and other lessons learned are assessed and incorporated into the future energy plans of places such as Japan, China and Scandinavia.
If production meets predictions, Australia’s uranium tonnage will double within four years.
The domestic context
So what does energy security mean in the domestic context?
Need for capital
While Australia’s superannuation system assists in providing the capital needed if Australia is to fully capitalise on the growth in global energy demand, the required investments are so great that overseas investment will be essential.
So right across the board, an open and transparent framework for foreign investment is crucial.
And not just for export-orientated projects.
More than half of all loan commitments in our energy and utilities sectors come from foreign banks.
Skills and labour
At the same time as Australia is competing internationally for capital, we also need to ensure we have sufficient skilled labour, and this includes skilled migration.
The 75 major resources projects at an advanced stage of development will need 65,000 skilled workers.
This in an environment where Australia’s unemployment rate is very low – 4.9 per cent in May this year.
In March this year the Government announced the first stage of the National Resources Sector Workforce Strategy.
In the Budget we expanded on this with a $3 billion Building Australia’s Future Workforce package to train and skill more Australians and open the door to real career opportunities in this growing sector.
To complement this the Government is also introducing for the first time ever in Australia Enterprise Migration Agreements, targeted at projects with capital expenditure of more than $2 billion and a peak workforce of more than 1,500 workers, allowing skilled migration to make up the local shortfall on big projects.
But delivering energy security is about more than just access to investment, skills and labour.
It is also about the right regulation and continuing reform.
This is something that historically Australia has done very well – providing reliable, affordable electricity and domestic gas.
Energy market reform – including the National Electricity Market (NEM) – is something all Australians can be proud of.
In the 1990s, we disaggregated the electricity industry - separating generation, distribution and retail.
Several large players were privatised and the NEM established. All of which has gone on to create a more efficient electricity system.
This reform has served Australia very well.
However, in recent years we have seen rising electricity prices that have lead some to question the benefits of reform.
But we must not let short-term concerns undermine the long-term efficiency of Australia’s energy supply system.
The cost of replacing ageing network infrastructure is the major driver of increased prices.
Some electricity networks, after all, are half a century old.
And building extra capacity to meet demand for things like air conditioners needs to be paid for.
As history has shown, artificially holding prices down will only lead to sharp pain, when eventually prices are reset to reflect costs.
In comparative terms internationally, even though bills have risen by more than one third in the past three years Australians continue to enjoy some of the lowest electricity prices among richer nations.
That is not to say the current framework cannot be improved.
That is why the Standing Council on Energy and Resources – formerly the Ministerial Council on Energy – and the energy market institutions are continually reviewing and refining our regulatory frameworks.
Energy security work
Longford and, more recently, Varanus Island both illustrated the severe impacts, not just on industry but also on people’s daily lives, that unplanned and lengthy energy disruptions cause.
These incidents also illustrate why energy security should never be taken for granted.
The National Energy Security Assessment two years ago found that Australia’s energy security was more than adequately meeting our economic and social needs.
The second assessment is currently being undertaken and will feed into the Energy White Paper process.
Amid the policy detail it is important not to lose sight of the bigger picture: with abundant resources, Australia’s energy security is high, provided we have the means to deliver it to consumers, when and in the form needed.
Carbon pricing
Carbon pricing will be a key driver in transitioning our electricity generation sector in the years ahead.
Uncertainty on carbon pricing can hold up investment, which is why the Government tasked Deloitte with an assessment of the implications.
Costs, they found, will only get worse while uncertainty remains.
Already, investment in baseload generation has stalled.
Already, uncertainty is driving up costs to consumers.
The assessment of the Investment Reference Group of leading experts is equally clear.
They warned that policy uncertainty may weaken the security and reliability of electricity supply.
They also highlighted the importance of getting the policy right as we introduce a carbon price to ensure we maintain energy security and market stability.
The Investment Reference Group put a figure on the investment challenge for electricity and gas – up to $240 billion within 20 years.
Once we resolve a carbon price, we all – including investors and financiers – have a role to play in delivering energy security and making the significant investments required to transition our energy sector over time.
This means that with a market mechanism in place, financiers may have to stare down NGOs seeking to disrupt financing of important resources and energy projects.
I remind you that it has been the banks for some years that have vocally encouraged Governments to introduce a carbon price.
Australia’s banks received significant support from the Australian community and the Government during the Global Financial Crisis.
Given the support the Australian community has shown the banks, I hope that the banks reciprocate this by participating in financing investment in necessary infrastructure once the carbon price is resolved, and by supporting the transition as existing loans are refinanced.
Clean energy
On the journey to a low-carbon future, only market-based approaches will deliver the most cost-effective solutions.
A carbon price will help bring on investment in clean energy technologies.
But Government has also always had a role funding research and development into new technologies and that’s what this Government is doing through our $5 billion Clean Energy Initiative.
Investing in technologies of the future to support more low-to-zero-emissions generation technology options while maintaining affordable energy security.
Our investment will help drive down costs then the market will choose the most commercially viable options for large-scale deployment.
Only this month, I announced the Government’s $770.5 million commitment under our Solar Flagships program to the Solar Dawn project in Queensland and the Moree Solar Farm project in New South Wales.
On top of the clean energy benefits, these projects create jobs.
That said, we are realistic about “green jobs” and where we need to focus our attention in terms of future opportunities.
Australia cannot compete with the likes of China in manufacturing.
Innovation, research and development and project management – that’s where opportunity most likely lies for Australia.
China may be home to four of the top five producers of solar PV, but Australian researchers helped develop them.
We expect projects supported by the Australian Solar Institute to attract millions of dollars in licensing fees.
Our solar innovation is feeding the global supply chain, including for example ANU's solar project with Chinese company Trina Solar.
We don’t want to lose Australian technologies overseas; we want to develop them here and export them.
That’s why the Government is investing $100 million in the Renewable Energy Venture Capital Fund.
Fund managers will help renewable energy companies to get access to capital and leverage private investment.
Elsewhere, the new $1.8 billion R&D Tax Credit will encourage more companies to innovate, while Commercialisation Australia is helping turn Australian innovations into commercial realities.
Just as we have created a vibrant mining technology services and equipment sector worth around $9 billion annually, we are working to position Australia as a world-leading exporter of renewable energy services.
Energy efficiency
Improving the way we use energy is also an important part of addressing energy security.
Today, I’m announcing good progress on the Government’s Energy Efficiency Opportunities Program, which shows what can be done.
The companies in the program use more energy than all of Australia’s households, cars and buildings put together.
They have identified annual energy savings equivalent to the energy consumed by 2.8 million households.
If adopted, these savings would deliver financial benefits of $1 billion and cut emissions by 11 million tonnes.
That’s two per cent of Australia’s total emissions and a 25 per cent increase on the previous year.
I commend the efforts of the 280 corporations involved in this program look forward to more good results.
As of tomorrow the EEO program is also being expanded to all existing electricity generators, including all coal-fired power stations.
This delivers on our election commitment from last year and increases the potential to identify even more savings under the program.
Conclusion
Maintaining energy security as we move to a cleaner energy future is complex and challenging but it is achievable with the right policy frameworks.
The Government is working to put these frameworks in place and in partnership with business and the community together we can realise our goals and turn the challenge of growth into opportunity.