Sydney
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Introduction
Distinguished guests, ladies and gentlemen.
It is a pleasure to be here today at the University of Technology Sydney for the launch of the Institute for Sustainable Futures' Decentralised Energy Roadmap.
This Roadmap is timely as it touches on some key issues raised in the Australian Government's draft Energy White Paper which I released on Tuesday.
The Energy White Paper set outs priority challenges faced by our energy sector.
Chief among these is the need to manage Australia's growth in peak demand and accelerate clean energy outcomes.
On Tuesday, I noted the simple but nonetheless true fact that clean energy is more expensive.
I also acknowledged the imperative to reduce greenhouse gas emissions by transitioning to cleaner energy sources – something that as you would be aware has been a primary focus of the Government over the last twelve months in particular as we have gone about resolving the issue of a price on carbon.
Both the Draft Energy White paper and the roadmap launched today recognise this tension between price and greenhouse gas reductions.
The roadmap calls it "an unproductive stalemate" and puts forward distributed energy as a potential solution.
I recognise the years of research and consultation that have gone into producing this roadmap and I welcome the contribution it makes to our thinking on energy policy.
So let us now canvass some of these energy challenges in more details, starting with the issue of rising peak demand.
Peak Demand
This is largely because consumers' use of energy is changing.
There are a greater number and range of modern energy-hungry appliances available to Australian households.
The use of such appliances has seen peak demand rising faster than average demand.
Over coming years, that upward trend is set to continue.
One example that I am sure you can all relate to is turning on the air-conditioner on a hot day.
I will repeat what I said at the launch of the Energy White Paper on Tuesday, which is that a $1,500 air-conditioner when used at peak times can impose a cost of $7,000 on the electricity system.
In the Sydney suburbs, demand for electricity nearly doubles as the temperature rises from 29 degrees to 44 degrees.
Now I'm not saying that Australians shouldn't have access to airconditioning, but I am making the point that the widespread and prolonged use of airconditioners does significantly increase capacity requirements for our network.
This means that capital – significant capital – is being spent to build and maintain capacity that is used only a handful of times each year.
These costs are paid by all consumers.
Reducing the peaks could involve simply turning the air conditioner down, or perhaps turning off something else.
It is estimated that 25 per cent of retail electricity costs are derived from peak events that occur over a period of less than 40 hours per year – clearly this is an inefficient utilisation of capital with resulting consequences for energy bills.
The cost of infrastructure to meet peak demand is one of a number of factors in rapidly-rising electricity prices.
If it is possible to reduce our energy use at these times, less supply infrastructure would need to be built.
This would consequently improve capacity utilisation and reduce costs for consumers.
Improving energy productivity – entailing things like capital utilisation and energy efficiency – is one of the key challenges identified in the draft Energy White Paper, and this includes addressing the pressure on prices from peak demand.
The challenge is finding effective ways to do this.
Empowering consumers to manage energy is a critical part of any potential solution.
The period ahead needs to include much greater engagement by consumers in how they use energy.
This means more informed consumers, making conscious decisions about their energy use.
So let's examine some of the potential actions to address peak demand.
Action to address peak demand
Firstly, market-based pricing.
More equitable and efficient pricing means customers who use significantly more energy at peak times pay for the true cost of producing and delivering that energy at that time.
Other consumers who prefer to shift some of their consumption outside peak times should pay less.
As well as being fairer, this will encourage a more productive use of electricity infrastructure.
Time-of-use pricing is a key way to deliver this.
Time-of-use pricing can only be fully realised with the adoption of more advanced meters that can record the time of consumption – such as smart or interval meters.
I note the decision yesterday from the Victorian Government to continue rolling out smart meters.
We must learn from the Victorian experience, and provide for appropriate deployment models if smart meters are to be rolled out at scale to the benefit of consumers.
Ensuring consumers are able to realise the benefits of smart meters will be essential if overtime the tide of public opinion towards them is to change.
In terms of pricing, Queensland is planning to introduce voluntary time-of-use pricing arrangements from next year, and parts of New South Wales already have voluntary time-of-use tariffs.
These are important steps towards giving consumers that want to participate and better manage their energy consumption access to alterative pricing structures.
As the White Paper makes clear, the Commonwealth supports fully deregulating retail energy prices where there is effective retail competition.
This is because price deregulation offers greater choice to consumers.
And as we’ve seen in Victoria, price deregulation does not mean stripping away consumer safeguards.
Fundamentally, enhanced competition is to the benefit of consumers.
Network regulation can also provide balanced incentives to encourage investment in supply-side infrastructure and demand-side capacity.
While reforms have been made in this area, it’s important they provide for the most cost effective outcome.
This is a key area to get right, given network costs have been a significant part of recent price rises.
A sound regulatory framework needs to allow a range of technologies and services to be adopted.
One such technology is direct load control, which is already common in Australia for electric hot water systems.
Direct load control provides the opportunity to reduce peak demand through load control with little, if any, disruption to consumers.
This is just one of a range of technologies that will be needed to tackle peak demand.
The role for Government therefore is to provide a framework that allows all technologies and services the opportunity to prosper so ultimately consumers can decide what works for them.
Energy efficiency is another key measure to reduce peak demand.
It can help consumers from a cost perspective, while maintaining our economic output and lifestyle.
Australian companies are increasingly recognising the strategic benefits of energy efficiency to their bottom line.
Through the Government's Energy Efficiency Opportunities program our largest energy-using companies are gaining a far greater understanding of their energy use.
As of last year, corporations identified potential energy efficiency opportunities of 141 petajoules a year – that's 2.5 per cent of Australia’s total energy use, and represents a potential financial saving of $1.2 billion per annum.
Meanwhile access to better information on energy use is needed if all consumers are to make informed decisions.
To this end the Australian Government is working to introduce bill-benchmarking, which will allow consumers to compare their energy use with the average.
Similarly, the Australian Energy Regulator will soon introduce a price-comparator website.
Appliance labelling and disclosure of the energy efficiency of buildings are other examples of how the Government is increasing energy use information for consumers.
Furthermore, my department is looking at what work could be done to develop an information hub to help consumers gain greater control of their energy use.
The success of water-conservation messages during the drought provides insight into how an effective campaign can raise consumer awareness and engagement in their use of an important resource.
I think the energy sector could learn from this success.
Finally, distributed generation provides opportunities to reduce peak flows by generating power where it’s used.
A range of technologies are possible – cogeneration, trigeneration, fuel cells and solar power among them.
To reduce peak flows, distributed generation needs to be producing power in the right place at the right time.
This will be a challenge for solar, as the sun starts to get low in the sky not long after people come home from work and turn on their air conditioners on those hot days.
But it is critically important that we test these new technologies and services.
The Government's $100 million Smart Grid, Smart City project is designed to do just that.
By gathering and analysing robust information on the costs and benefits, it will inform future decisions by government, electricity providers, technology suppliers and consumers.
The $94 million Solar Cities program has a similar role.
One of the stand-out results of Solar Cities is that Ergon Energy has successfully deferred the need to build a third cable to Magnetic Island out to at least 2015.
Above all, by investing in the testing of technologies such as smart grids the Government is helping to keep Australia at the forefront of new clean energy development.
Renewable Energy Venture Capital Fund
And that brings me to an important announcement on renewable energy.
Investors have been – and still are – reluctant to finance early stage renewable energy projects, perceiving the technologies as too risky.
In direct response to this challenge I am today launching the Government’s $200 million Renewable Energy Venture Capital Fund – Australia’s largest renewable energy venture capital fund.
This will help Australian companies take advantage of growing global demand for renewable energy.
The importance of access to venture capital can not be understated.
Some of the greatest medical and pharmaceutical success stories in particular would not have been possible without it.
Cochlear's access to venture capital in the development of the bionic ear is a prime example.
We want to see these successes replicated in renewable energy ventures.
So I congratulate Southern Cross Venture Partners, on being appointed fund manager for what will be known as the Southern Cross Renewable Energy Fund.
With offices in Sydney, Shanghai and the Silicon Valley, Southern Cross brings experience, diligence and enthusiasm to the table.
The fund will be actively managed, and will leverage significant investment from the private sector along the way.
Not only will the fund manage the Government’s $100 contribution, it will also bring an additional $100 million to the table from Softbank China Venture Capital, which has experience in venture capital cross the Asian region, taking the total funding to $200 million.
By doing so, the size of the new fund has surpassed the Government’s expectations in terms of the up-front private sector contribution.
Matching our contribution dollar-for-dollar means twice as much scope for investment in renewable energy.
This investment is great for Australian companies, giving them access to capital to help drive down the costs of renewable energy.
We expect the fund to be operational early next year, and the fund managers will actively seek further non-Government funding to support its portfolio of companies across a range of technologies.
The fund is part of the Australian Government strong commitment to renewable energy as part of the $3.2 billion Australian Renewable Energy Agency's portfolio of Government support for renewable energy technology development.
The $10 billion Clean Energy Finance Corporation and the introduction of a carbon price will further drive investment in clean energy technologies in Australia.
Conclusion
Ladies and gentlemen, renewable energy is a sector with a strong future.
And through better management of energy use, we can not only integrate more sources of renewable energy into the electricity grid, but also take some of the pressure off demand – and prices.
That’s good for the environment, good for the economy and above all else, good for all Australians.
Thank you