Melbourne
E&OE
Subjects: Draft Energy White Paper, uranium exports to India, national radioactive waste management bill
FERGUSON: Victoria speaks for itself. These matters have been discussed at COAG previously. It’s now for the states to actually look at the outcomes of the success of privatisation in Victoria, look at the recommendations in this report and think about it. New South Wales is now actually determining actually to go a bit further. They had an opportunity last Parliament in New South Wales — it was lost. It’s now going to start [interjection regarding audio from teleconference participant].
We are dealing with the question of privatisation which has been discussed at COAG and I might say the Ministerial Council on Energy, now SCER [Standing Council on Energy and Resources], on a number of occasions. The results in Victoria speak for themselves, they are well known to Ministers because they actually see the comparative price increases from year to year which we now will released publicly on a regular basis. There is considerable pressure on governments of all state and political persuasions at the moment to be having a hard look at the drivers of the increases in electricity prices. These increases are not going to go away. If there is a chance the government will act, then they’re going to have to think about it and in some instances bite the bullet. New South Wales, the new Premier after the Tamblyn Review Report has now decided to actually go further in terms of selling electricity generation capacity — that is appropriate. Now, these matters are going to evolve and develop over time but the record speaks for itself in terms of the performance of the Victorian market.
QUESTION: It's a bit rich isn't it for you, the Commonwealth, to introduce a major price lifter in the carbon price and then say rising electricity prices are all due to the structure of the state system?
FERGUSON: Well there’s full compensation in terms of a lot of households and support for industry in the transition. But let’s be very clear, the cost impact on electricity prices potentially related to a carbon price is small compared to what is occurring in the market. You’re talking about 40 per cent increases over the last three years, and these increases are going to continue. You’ve got to maintain the existing network, the wires and the poles are ageing, you’ve got a growth in peak demand — and I refer to the impact of air-conditioners, which I might say was dismissed by some sections of the media in New South Wales over the last 12 to 18 months. When the New South Wales Minister gave that explanation, it was just dismissed by some sections of the media. Peak demand is having a huge impact on the cost of electricity in Australia because you’ve actually got to have that capacity in place all the time to be used for a small amount of the year. Hence, if we can work on demand side management, efficiency etc., which are also important, we can reduce the cost of electricity in Australia.
These are the issues that confront all of us and I’m not seeking to apportion blame or put pressure on state and territory governments or whatever. I regard my responsibility as the Chair of this Ministerial Council to actually lead the debate and work with state and territory governments, and I might say, I will stand side by side with them in defending the current increases in prices. Because if you don’t have this contingent investment, the system breaks down. You have blackouts, you have shedding, which is an even bigger problem. They actually saw this in New South Wales in the late 70s when the then Premier Neville Wran made huge investments in electricity generation capacity, which has now served New South Wales for decades. Well we’re getting to a point now where we need new investment and we’ve got to work out how we more efficiently manage the system.
Can I also say, in terms of price impacts, there’s a draft rule change by the Australian Energy Regulator currently before the Australian Energy Market Commission which goes to the basis of setting these prices in Australia. The consideration of that will be completed in about October next year and we’ll see what comes out of that process too because you’ve also got to continue to review your regulatory mechanisms to make sure that they are operating in the proper way.
QUESTION: Minister it's Louise Dodson from the Financial Review here.
FERGUSON: Yes Louise.
QUESTION: Can I just ask, the change to the CCS ready requirement, that was actually an election commitment wasn’t it?
FERGUSON: It was announced prior to election without a determination to actually put a price on carbon. So it was basically seen as what you do from a regulatory perspective when you’re not going to act on a price on carbon. The debate has completely changed because we now have moved to a market mechanism with one major form of intervention, that’s the renewable energy target for obvious reasons. Letting the market operate means on those proposed regulatory proposals you no longer act. The market will determine these issues, they’ll determine the form of investment, and if they’re going to be new coal-fired investment they will pay a carbon price.
QUESTION: Right. Is there also a question of how expensive a measure this would be?
FERGUSON: Well in terms of the market, if companies are prepared to invest in CCS, or putting in place the necessary CCS ready capacity, then they’ll have to factor it into the price of electricity they can sell into the market and the appropriate price on carbon they will pay if they make those investments. So hence the whole approach is, we’ve had a huge battle post-election having now decided and completed a major argument about a price on carbon — let the market determine these issues. We should have minimum government intervention from a regulatory perspective with respect to trying to determine the energy mix in Australia. That means every energy opportunity will prevail in Australia under my government at the moment, other than nuclear.
QUESTION: So when the Prime Minister said at the last election and announced new emissions standards that there would be no new dirty coal-fired power, does that still remain the government’s position or now is that up to the market?
FERGUSON: Well the Treasury modelling basically said yes it’s going to be very difficult to actually get new investment in coal-fired power in Australia. And that modelling was actually ticked off by the Greens. So you actually go back to the modelling and have a look at what the assessment of the potential market outcomes is based on a price on carbon.
QUESTION: When you look at that, through the prism of what’s going to happen to east coast gas prices, CSG, what’s that mean – there’s going to be no signals for coal-fired power, but gas-fired power is also going to be very hard to bring on if prices rise? What needs to be done there?
FERGUSON: Well it will also be a question of reliability in our system. You know, potentially the gas price on the east coast is going to increase. So, we’ve got a variety of energy opportunities be it gas, renewables, etc., we’ve also got some baseload coal-fired capacity I think that have greater capacity than currently being utilised.
QUESTION: You’ve talked about energy productivity in that report, I’m just wondering, has your thinking on energy productivity evolved substantially over the long development process for this white paper? Has there been increased recognition that energy efficiency is incredibly important?
FERGUSON: It’s been part of our policy consideration as an office and department for some period. This Energy White Paper draws together all the different streams of the debate and tries to put them out there for public consultation and consideration. We think energy productivity, efficiency, and can I say from the cost point of view the productivity of the workforce between different states and territories does have an impact on the price of electricity. And it’s appropriate these issues be put on the table for debate. There’s no doubt some of them are going to be quite controversial. But my job is to put them out there and wear the fallout.
QUESTION: Minister, Sid Maher from the Australian.
FERGUSON: Yes Sid.
QUESTION: Let’s talk about air-conditioners. So every time someone puts an air-conditioner on the peak capacity has to rise — is there any argument for a policy response to that? Should the cost of air-conditioners reflect the cost of the network?
FERGUSON: Well what we’re doing is, in terms of all whitegoods including air-conditioners, going to a star-rating process in terms of requirements from a regulatory perspective to improve their performance. I think it’s fair to say some years ago our market was flooded with far less efficient air-conditioners and we’re actually acting in terms of the regulatory system through the SCER processes.
But it’s about better informing consumers, putting aside the performance of the different whitegoods including air-conditioners, about the cost of energy at a particular time of the day. And that’s why I raise, for example, at the peak time of the day when people are coming home from work, cooking a meal, the kids are doing their homework etc., consumers have got to be informed about the choices they make at that time of the day. It’s foolish to put on the washing machine or the clothes dryer. You’re actually paying peak electricity prices.
QUESTION: So Minister, in all you see time-of-use pricing actually being used?
FERGUSON: Obviously, look, in Victoria that was misunderstood with the rollout of the smart meters, but we’re testing smart grid capacities now —that $100 million [Smart Grid, Smart City] trial in places such as Newcastle, Scone, Newington and the Olympic Village area of Sydney. That’s all about trying to set up a system which enables consumers to know the price of electricity at a particular time of the day and to then make their consumer choices.
QUESTION: Minister, the draft talks about nuclear as a contingency option, sort of as a plan B I guess if renewables don’t deliver, how likely do you think it is that we will have to turn to that contingency?
FERGUSON: That’s going to be related to our success as a nation from the point of view of R&D and innovation. I must say historically we’ve been pretty good. I’m very upfront, we’re not going to get a mass growth in green jobs through manufacturing opportunities. Where we’re going to get the outcomes is in the high-skilled jobs around R&D and innovation - that’s the whole nature of the Government’s clean energy strategy with respect to investment in R&D and innovation. The ASI, the Australian Solar Institute, is a prime example — what they’re doing in our universities and CSIRO etc. Actually investing in technology, then seeking to improve its performance, improve its productivity. That then creates the export opportunities for Australia. The only reason solar PV in Australia is now far cheaper is because of the economies of scale and mass production in China. Australia can’t compete with China on the development of the solar PV panel. We’ll get jobs out of installation and wind farms, solar farms etc., but we’re not going to manufacture these economies — the size of us with a population of 22 million - we’re best to concentrate on our strengths, and the resource sector is a prime example. We are a high wage economy. We are a major exporter of commodities because of our investment in innovation and efficiency. Look at the Rio operation and the iron ore centre at Perth Airport operating the whole of the North-West iron ore province. That’s where our strength has come in the resources sector, that’s where it’s going to come in the renewables sector.
Now, nuclear I made it clear today, for Australia it’s always there as an option. We don’t have to invest in R&D and innovation on that front, other nations are the specialists. Korea is a prime example. The UAE is now developing three nuclear reactors. We’re having discussions with the UAE about selling uranium to the UAE. That’s been publicly announced. They’re continuing to invest in the capacity of those reactors, the size, the performance etc. We get to the end of this debate some years in the future and we haven’t made the necessary breakthrough on clean energy at a low cost outcome, then nuclear is there for Australia to buy off the shelf after a debate in Australia.
QUESTION: The white paper though talks about having to make those sort of nuclear investment decisions in the later part of this decade given the 15 year investment lead-in time, so isn’t that cutting it a bit fine then to have that kind of debate?
FERGUSON: Well you know I actually think we’ve got some immediate priorities in the next 3 to 5 years. We’ll actually seriously look at these R&D opportunities and the ASI solar operation - Newcastle’s a prime example we’re actually doing it. We’re currently in the process of trying to develop two major solar flagship programs. We’re working on CCS, we’ve made some grants available to ocean power, biomass etc.
We’re not alone in this. Other nations are also trying to achieve the same outcomes. Whoever makes the breakthrough on storage capacity is going to be on a winner. And our international cooperation, our collaboration including, I might say, some overseas investors wanting to be part of this process in Australia, that’s where we must concentrate our energies.
QUESTION: Can I ask, on the question of domestic reservation for gas supplies, you’ve said that what you’re going to do is closely monitor, can you explain what that actually means?
FERGUSON: Well, closely monitor, as we do, and we’re going to do it more intently now, the demand and also making sure the necessary supply is coming through. Only in the last couple of weeks Reindeer came on stream in Western Australia. More domestic gas into the market, and massive investment under construction. When does domestic gas kick in out of Gorgon? They’re the type of issues we’ve got to have a look at.
Similarly on the east coast we’ve got huge export investment at the moment. Historically, two of those major companies, Santos and Origin, were major suppliers to the domestic gas market. Making sure that some of that gas comes into the domestic market. I’ll also say, and the white paper reflects this, we’re going to allow third parties to make submissions in terms of the potential development of these gas fields about whether they are commercial from a domestic point of view.
QUESTION: Minister, a parliamentary inquiry just a couple of weeks ago found that Australia’s coal seam gas industry was a relatively short term prospect and might not even be worth the cost to the environment and agriculture, how crucial is that ..?
FERGUSON: I reject it’s a short term energy opportunity for Australia. The work of Geoscience Australia proves that it’s far from a short term opportunity. And in due course I’ll be releasing some more work which proves that our capacity from an onshore gas opportunity is far bigger than we originally thought. And this work establishes that we, as an onshore gas developer, have major opportunities in terms of domestic and export opportunities.
QUESTION: But with all of the controversy surrounding coal seam gas, do you think that that’s affecting investor confidence?
FERGUSON: Well firstly, it’s about time we dealt with a few facts in an honest way. Coal seam methane gas is not new to Australia. It is an old industry. 30 per cent of the east coast gas market actually comes from coal seam methane activities and 90 per cent of the market in the south eastern division of Queensland. We’ve had a huge growth in this industry over the last two to three years - $45 billion in investment – huge expansion. The water regulatory requirements put in place by the Commonwealth are best practice. That’s why we’re involved in detailed discussions at a state and territory level at the moment about the harmonisation of our approach to water, the use of chemicals and how we engage with the community. I think it’s fair to say that with the focus absolutely on investment and the expansion of the industry, in some instances, proper attention has not been paid, for example the community engagement, which has created disputes in some communities.
But alternatively can I say in the communities I visit, there is huge support for this in regional Queensland. You go to Biloela for example where we’ve now got a major local apprenticeships centre which would not have been built without the development of this industry. Young men and women are now being trained locally and they’ll be employed locally and this is reviving local communities.
Our job is to make sure that through cooperation and through SCER, the process that I lead and supported by my department, we get harmonisation at the state and territory level and all I can say as last Friday, as reflected in the communiqué, there’s absolute support by all state and territory governments to support this process.
QUESTION: You might have just touched on this, (inaudible) potential for projects to supply the domestic gas market considering granting production licences, if they can supply the domestic market will the industry get a leg up?
FERGUSON: We’ll be having a look at sometimes from time to time potential gas developers say that you know we don’t need to supply our domestic gas markets etc., we’ll be having a look at our demand projections and our capacity to actually bring on domestic gas production in addition to the export opportunities. That’s what the WA Government is committed to, that’s what was considered by the Queensland Government about two and a half years ago. They came to the conclusion that the market as it is, is currently meeting our domestic gas requirements on the east coast. So we’re going to have to further consider this because as was my response to that previous question, we have huge onshore and offshore gas opportunities for development and the resource assessment that I will release in the near future establishes that beyond any doubt.
QUESTION: Minister, on the offshore, you mention the Government’s going to take a more active approach to make sure that’s being developed, what does that mean for Browse at the moment? Are you getting any indications from the partners that they may not be keen to develop at James Price Point (inaudible)?
FERGUSON: Browse is a prime example of where we have actually exercised our legal rights, existing legal rights that were not previously activated until in essence I became the Minister. There is a ‘use it or lose it’ concept within the existing petroleum legislation. They are now assessing the potential to develop the Browse field commercially. As part of that, they have gone through the necessary indigenous processes, and they have and ILUA in place. That has been tested in the courts and the native title process is established to be correct. There was a legal outcome the other week with respect to government regulatory decisions not being correct, that will be easily rectified. In addition to the outstanding commercial considerations, there is an environmental process. If the Browse stacks up from a native title, environmental and commercial scale it will go ahead.
QUESTION: If they take it as not commercial, what do you do?
FERGUSON: Well, we have our own processes of individual assessment of what is put in front of us. And I have a very good team at the department who understands the responsibilities and I’ve got absolute confidence in them.
QUESTION: But their deadline for that is next December right? 2012 December? There’s been talk that they’re not going to make that deadline would you be willing to extend it?
FERGUSON: I’m not going to express any view until I see what’s put in front of me. At the moment I continue to talk to them and they’re doing the necessary work. They’re spending the money. They’re actually making good progress. I’ll wait and see what comes at the end of this process.
But I must say, over the last couple of years, the speed of development and investment in Australia has actually surprised all of us. If it hadn’t been for the technical setback on Pluto which related to a stack, that would have been the fastest ever development of an LNG project in the world. That occurred effectively on my watch over four years as a Minister. Alternatively, Gorgon, the first discovery over West Trial Lakes was in 1977 by Geoscience Australia. Some of them take a long time, others because the demand in gas are going exceptionally quick today because of the demand for gas. The coal seam methane gas industry on the east coast is a prime example of that. When I became Minister in December 2007 that was a pipe dream. All of a sudden British Gas arrived in Australia, sought to buy up capacity, put the pressure on the others — we’ve now got $45 billion in investment in about two and a half years.
QUESTION: Minister, you talked about feed-in tariffs as being a dog’s breakfast, is there consensus with your state colleagues on how to fix that, is there general agreement on what needs to be done?
FERUGSON: I understand that at a state and territory level now, generally there’s understanding that we’ve got to have a look at this because you’ve got a price on carbon, you’ve got a RET. Let the market processes determine it. And these matters will be discussed over the next 12 to 18 months but the view of the Commonwealth is, you need to rationalise the existing schemes — and in essence have a common national approach, which was our endeavour previously through COAG processes, we couldn’t achieve it. One of the reasons we couldn’t achieve it was the debate on the price on carbon had not been finalised. Now, with continued increases in electricity prices, clearly we can establish what the impact of a carbon price is. We’ll be held accountable, hence we’ve got compensation. The state and territory governments also then have to explain the impact of their separate regulatory outcomes on feed-in tariffs or whatever other initiatives they have taken.
QUESTION: Does that mean that you support a national tariff? Albeit much reduced or very small?
FERGUSON: We sought to develop a uniform approach some time ago. Let’s just see where this debate ends up because I think more and more we’re moving to a system by which the states understand, effectively, the type of tariff paid is effectively what you purchase power out of the market for at the time.
QUESTION: Can I ask about the International Energy Agency, in their inaugural energy outlook report they canvassed some scenarios of what they called 450 scenario, which is mentioned here. Particularly the delayed response to climate policy which seems quite likely now. What they forecast globally is quite a dramatic transformation in energy use, energy sources, electricity grids. How is Australia positioned to cope with that sort of dramatic change which may happen towards the end of the decade?
FERGUSON: I think we’re pretty well positioned, and this Energy White Paper will contribute to it, about how we maintain the system and also look to develop new options.
QUESTION: Are we in a position to institute such a radical change that the IEA actually canvasses in the source of our own electricity? Which basically means a whole lot more renewables than we’ve seen in this paper, a lot less demand for coal and gas (inaudible).
FERGUSON: Well firstly, the demand for gas is going to continue to grow in Australia. Big growth is going to be in wind and gas. That’s what’s going to occur between now and 2020. Our demand for energy is going to be basically met to a large extent by wind and gas. And our system provides for meeting the necessary cost for example of feeding a wind farm into the national system — a regulatory process is already in existence.
That's about it I think?
QUESTION: If I could just ask a question about export of uranium to India — how long do you think it will take to draw up an agreement with India?
FERGUSON: Look, you couldn’t put a timeline on that. The Foreign Minister and the Minister for Trade have indicated they’ll seek to commence negotiations as soon as possible in the New Year. That’ll be very much related to the progress of those negotiations and the capacity of both countries to resource those detailed negotiations. I’m not going to put a timeline on it. You can’t. Some are done very quickly, others take far more time.
QUESTION: What’s the latest with the proposed nuclear waste facility at Muckaty Station?
FERGUSON: That will return to the Senate in the New Year. But let’s also be very clear about that. That only establishes a framework to have detailed consultations with the local indigenous community that they can’t have at the moment because I don’t have a legal capacity to actually take those negotiations forward. But contrary to what some people would have you believe, there are currently legal proceedings on foot. The passage of that legislation by the Senate has been acknowledged to me as merely creating a legal framework. I will not seek to engage or to take forward the proposal by the Muckaty land owners until the outcome of the legal proceedings. And I cannot be expected to give any other undertaking. And as the legal representative of the break-away group has said publicly, they acknowledge the Government’s undertaking to respect the legal process and the passage of the legislation does not intrude upon those legal proceedings and therefore the passage of the legislation is not a problem.
Thank you very much for your attendance.