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Welcome to the 3rd Asia Pacific Partnership Energy Regulatory and Market Development Forum.
It is a pleasure to be with you today here in beautiful Sydney.
As some of you might be aware while I am the Minister for Resources and Energy, I am also the Minister for Tourism.
In this context I encourage you to enjoy your time in Sydney and enjoy the wonderful tourism experiences Sydney has to offer.
Turning to the focus of today's forum, I want to share Australia's experience with you and talk about some of the challenges that lie ahead.
In Australia - as in other countries - we have come a long way in energy market development.
But a great deal remains to be done.
In one sentence, the goal for energy policy-makers globally is to reduce greenhouse gas emissions while also reducing poverty but at the same time delivering continued economic growth and energy security.
And all of this in the context of a rapidly growing demand for energy.
As regulators, you also understand these different demands.
The challenges being faced by Australia are no different to those being faced internationally.
Australia's demand for energy is projected to increase by one-third by 2030.
Over this period our electricity generation will rise from around 250,000 gigawatt hours a year now, to more than 350,000.
To put that into context, the Hazelwood power station in Victoria delivers close to 12,000 gigawatt hours per year.
This means that, in addition to replacing any retiring capacity, we need to deliver new capacity that is the equivalent of over eight times that of Hazelwood to meet growth in demand between now and 2030.
The investment challenge facing us is significant.
Australia will need to invest around $51 billion in new and existing generation and network assets over the next five years alone.
The situation we face was captured admirably, in my view, in a statement from the recent Deloitte publication, Energy Security 2010-20, where they said:
- Reliable electricity supply is not an optional extra in a modern economy.
Our economy simply cannot risk - and our community will not accept - unreliable energy supplies.
Across the Asia Pacific region, the growth in demand for energy will be even greater than growth here in Australia.
More than one billion people in the world still have no access to electricity - many of them live in our region.
Global energy demand will rise by nearly 50 per cent over the next twenty years.
Australia is only one of three OECD countries that are net energy exporters.
As a growing exporter of LNG, uranium and coal, Australia is ready to play its part in achieving our shared goals in promoting regional energy security.
Within twenty years, the volume of Australia's LNG exports is projected to increase by 600 per cent.
This is important not just in terms of energy security, but also in terms of cleaner energy sources for our trading partners, with natural gas offering about 35% lower carbon dioxide emissions than coal for the same amount of energy.
But it takes more than just resources to keep the lights on - it takes intelligent, dynamic, forward-looking energy markets too.
The progress so far
Before the 1990s, Australia's electricity industry was fragmented across the states and territories.
Each market was typically dominated by state owned integrated monopolies.
With the exception of the Snowy Hydroelectricity Scheme, there was little to no grid connections between the jurisdictions.
This meant competition was limited and lead to inefficiencies where the industry was characterised by:
- excess generation capacity;
- electricity prices that did not always reflect the costs of supply; and
- cross-subsidies between different classes of consumers.
Since then, through the interconnected south and eastern states, Australia has created a more national electricity market - one that is competitive.
This was confirmed by the International Energy Agency which in 2005 commended Australia's energy market reform as delivering:
- One of the most transparent and competitive electricity markets in the world and could well serve as a model for other countries
We've done this by:
- Separating generation and retail from networks;
- Privatising - or at least corporatising - government businesses; and
- Strengthening economic regulation of monopoly assets.
These reforms have meant lower costs for consumers than would otherwise have been the case, as well as adding at least $6 billion to Australia's GDP.
These reforms are designed to deliver the necessary investment to maintain reliable electricity supply.
At the same time, the Government is encouraging greater investment in renewable energy technologies.
Currently, 81 per cent of electricity in Australia comes from coal fired generators.
Our 20 per cent by 2020 Renewable Energy Target will provide a cross subsidy to the renewable energy sector in excess of $20 billion.
We have also:
- Committed to introducing new emissions standards for all new coal-fired power generators, including a requirement to be CCS ready;
- Committed $5.1 billion through the Clean Energy Initiative to drive carbon capture and storage, solar energy, geothermal energy and other renewable energy technologies;
- Founded the Global Carbon Capture and Storage Institute; and
Invested $100 million in more than 54 projects across the eight task forces of the Asia Pacific Partnership on Clean Development and Climate.
Energy efficiency also has an important role to play. This is especially important in light of the growth in demand forecast over the coming years that I referred to earlier.
Last month, the Australian Government signed the funding agreement for the $100 million Smart Grid, Smart City project, which is Australia's first commercial-scale smart grid trial.
Our Energy Efficiency Opportunities program is also producing results with big companies identifying savings and acting on them.
Today, I'm pleased to announce the latest results from this program.
As a result of mandatory assessments administered by my Department, Australia's biggest companies have identified opportunities to save eight per cent of their energy use, which is over 100 petajoules.
That's equivalent to nearly three per cent of Australian energy end-use.
And more than half of the identified energy savings are already being adopted by the companies.
This means that the opportunities being implemented are saving energy equivalent to that used by more than 1.1 million Australian households.
The success of this program has led to it being chosen by the International Energy Agency as a case study in its Policy Pathways initiative launched last month in Paris.
Climate Change Policy
While programs such as these contribute to reductions in Australia's emissions - more still needs to be done.
Without a clear carbon policy in Australia, uncertainty will continue to cloud investment decisions.
Fundamentally, that goes to questions around putting a price on carbon.
That's why the Government has set up the Multi-Party Climate Change Committee, to explore options for the introduction of a price on carbon.
Alongside this Committee, two roundtables have also been established to engage the business community and non-government organisations on the Government's climate change policies.
In Australia, we have historically taken reliable and affordable energy for granted.
Australians currently enjoy some of the lowest energy prices in the developed world - fourth lowest out of OECD countries in fact.
Despite this, our household electricity prices have risen by about 40 per cent since 2007 and this trend is expected to continue.
The biggest cause of these price rises is the high capital cost of more investment in electricity networks.
Substantial investment in Australia's networks is occurring to replace ageing infrastructure and to upgrade networks to ensure rising electricity demand can reliably be met.
I am not going to pretend that initiatives to reduce greenhouse gas emission in the energy sector will be without cost.
The very clear challenge for Government is to introduce reform in the most cost-effective way.
For instance, putting a price on carbon is a significantly cheaper way of reducing greenhouse gas emissions than prescriptive, technology specific solar feed in tariffs that have been introduced by different state governments.
Ladies and gentlemen, these are some of the challenges facing us here in Australia.
We all learn by sharing expertise across borders.
I know you, as regulators are often charged with operating within the environment set by policy-makers, and I hope that today you have been given some insight into the conflicting demands driving policy development.