Wednesday, 4 March 2020

National Electricity (Victoria) Amendment Bill 2020

Second reading

Debate resumed on motion of Ms D’AMBROSIO:

That this bill be now read a second time.

Mr R SMITH (Warrandyte) (10:44): I rise to speak on the National Electricity (Victoria) Amendment Bill 2020, and may I at the outset thank the department for a very comprehensive briefing. In fact it was one of the most comprehensive briefings I have ever had. They are very knowledgeable departmental staff, and thank you to the minister’s adviser for putting that together and contributing in a very constructive way.

The purpose of this bill, as put forward by the government, is, as the government is saying, that they need to have a more resilient network and they need to cater for more timely investment in Victoria’s transmission network. I would be okay with that if the bill replaced the current regulatory regime with another one. The bill, however, does not necessarily do that. The bill in fact gives the minister the right to not have any regulatory regime whatsoever. The provisions in the bill allow, amongst other things, for the minister to either, as I said, replace the current cost-benefit analysis test along with the regulatory regime with a less vigorous test or indeed to apply no cost-benefit analysis test whatsoever. The provisions also allow the minister to refuse to open any of the augmentation or redevelopment or upgrade projects that she wishes without any competitive tenders—competitive tenders which in normal circumstances would actually contribute to driving down prices.

The bill essentially is a plan to make the network more resilient, to enable that more timely investment in the network by basically removing all the checks and balances that are currently in place that currently ensure value for money for the end user. Also, the bill will have the effect of removing Victoria from the national transmission planning framework that currently exists to ensure that we are part of an integrated network.

I am essentially in principle supportive more broadly of cutting through unnecessary red tape. I think most of our constituents would say that there is probably too much regulation, too much of government getting in the way of the things they are trying to do, but if the government is trying to remove a regulatory regime and red tape that actually is there to protect the end user, I think that is not a great thing at all. I think that when the government acts in this sort of way when there is not a framework to make sure that we are getting the best value for money then we will find that Victorians end up paying more, as they do on so many occasions under this government.

The reason for this bill is the government has found itself with a problem with renewable energy transmission. It is a problem that it has created itself. The problem is simply this: in order to prop up their own narrative on renewable energy, the government has actually allowed wind and solar energy generators to be introduced in areas of the state where the transmission network is unable to handle the load. Not only are the transmission lines unable to handle the load but the government has allowed these generators to set up in areas of western Victoria that are some distance from the end user, meaning we have significant energy loss through the transportation of that energy.

The government has been told on many occasions that the speedy introduction of renewable energy projects in western Victoria has been a problem. I went back to see on how many occasions there have been announcements or talk about the speed with which the renewable energy projects have been put into western Victoria, and I went back a fair way. There were a lot of examples, but I will just demonstrate some, starting from May 2018 when the Australian Energy Market Operator (AEMO) basically said:

With … wind farms connected, the (Ballarat to Horsham) line will, at times, be loaded beyond its thermal capacity.

That was AEMO that said that. They went on to say that:

Associated network constraints may result in limitations on the generating capacity of these wind farms.

In June 2019 Alex Wonhas, who is AEMO’s chief system design and engineering officer, said:

The growth of renewable resources in western Victoria means that the geographic diversity of generation resources is now shifting away from the Latrobe Valley into parts of the state where the network is less developed and able to cope with the new forms of generation.

In October 2018 AEMO said:

With a large number of new entrants unfamiliar with uniquely Australian conditions, we are seeing some proponents make commercial commitments ahead of confirming grid connection requirements—this has the potential to lead to suboptimal investment and power system performance outcomes.

In October 2018 AEMO said to us that the new solar plants, including the largest in the state, the Kiamal solar plant, were facing curtailment rates of up to 50 per cent. Curtailment is where the market operator pre-emptively stops an electricity generator from releasing all their energy into the system.

In February 2019 Dr James Prest of Australian National University energy change institute said:

The current electricity lines in some parts of regional Victoria can’t accept high volumes of electrical flow without becoming overheated.

…

It’s really a bit like building a high-tech modern greenhouse for agricultural production and then attempting to get the produce to market down a one-lane bush track which frequently becomes flooded.

There is no shortage of warnings that have been given to this government by the industry and by the market operator.

The marginal load factor is basically the difference between electricity produced by a generator and how much they are credited for it on reaching customers. The government was advised in March 2019 that the ratings of the Karadoc solar farm were slashed by almost 20 per cent, and many of the other solar farms had their MLFs slashed as well, with AEMO again saying:

As more generation is connected to electrically weak areas of the network that are remote from the regional reference node, then the MLFs in these areas will continue to decline.

In March 2019 energy security board chairwoman, Kerry Schott, described the problem, saying that:

… economics were pushing more and more wind and solar energy on to a constrained grid in an unco-ordinated way …

And I make that point again that the government has allowed the headlong rush of renewable energy generators to be pushed into an area that just simply cannot handle it.

Ms Thomas interjected.

Mr R SMITH: If the member for Macedon listened, it is actually not the opposition saying this; it is actually the market operator and industry experts who are saying that the headlong rush into introducing renewable generators into areas that cannot transmit it—why would you be putting generators into an area where you cannot get the energy out of the area because the transmission lines have not been looked after? It just seems absurd that the member for Macedon would think that she knows more about this issue than the market operator or indeed market experts.

In July of last year AEMO regularly advised that the exponential renewables growth plus closing some coal-fired power stations in the Latrobe Valley put Victoria’s transmission system under pressure.

Upgrades are important, absolutely, and better transmission is important, absolutely. We need to get some serious investment into the transmission network, and I have said that in this house before. There has been a chronic underinvestment in the transmission system for some time. But a smart government would have done that first. A smart government would have recognised the limitations of the grid. A smart government would have understood that while new renewable energy generators make for great media releases, bedding down the foundational infrastructure so that generated energy can actually be used is probably far more important than just putting out a glossy press release about renewable energy generators. The lack of planning is clear. The lack of planning by this government means that the transmission lines that we have are simply unable to handle the amount of energy that has been put into the system in this unregulated way.

The unregulated introduction of these generators has also put financial stress on a number of the operators. I turn to a Financial Review article from February of this year, which basically reports that Mr Shapero, who owns the BayWa Karadoc solar farm, said:

We’re an international renewable energy company that has decided to bring our capital and expertise to Australia, and obviously we expect a stable process and a reliable investment environment: this situation is a long way from ideal.

He went on to say:

Some of the other constructed projects now waiting in a queue are even larger than ours. They have bank finance and commitments to provide energy by certain dates, a situation that undoubtedly creates enormous financial stress.

I have said in this house before that we do need to invest in our transmission network, but as I have said the government has been unplanned in the way that it has put its generation network together and the transmission system is unable to handle it. They have acknowledged the problem, although in typical fashion it is always someone else’s fault if you listen to those opposite. If you listen to those opposite, there has never been a misstep by this government, there has never been any harm given to any Victorian and there has never been any problem—no disadvantage has ever been produced as a result of this government’s policy. If we really listened to those opposite, we would be living in Utopia, from what this government has put forward.

Anyway, as I said, having acknowledged the problem, the government has taken action in what has been described as ‘audacious intervention’. One definition of ‘audacious’ is ‘showing an impudent lack of respect’. Another of Webster’s definitions of ‘audacious’ is ‘contemptuous of law’—this is usually your bailiwick, member for Essendon. Both these definitions are apt as descriptions of the government’s proposed legislation, because in seeking to bring in any augmentation that is needed they are also asking people to allow the minister to sidestep the processes that provide cost recovery protection for Victorian consumers. The government is basically saying to the energy consumer, ‘Trust us; let us do whatever we want’. Although the record is there for all to see, the government is saying, ‘We can make decisions about the transmission network infrastructure as well as removing the process that ensures that augmentation upgrades are the ones that deliver the best outcomes’. In doing so the government are asking us to trust that they know best when it comes to determining what infrastructure is needed and where it is needed, and to further trust that they will achieve this with the best value for money, with no need for a competitive tender process. On that test Victorians would be very well justified in being very sceptical, because this government has ticked off—

Members interjecting.

The DEPUTY SPEAKER: Order! The member for Macedon and the member for Eildon!

Mr R SMITH: This government has ticked off on generational infrastructure to be developed in areas where generated energy actually cannot be officially transmitted. If we want to give a green light to uncompetitive tenders, we need look no further than the West Gate Tunnel, which has brought a stalled project, a budget that has run well over, and it is questionable as to—

Mr Pearson interjected.

Mr R SMITH: Well, what we are talking about, if the member for Essendon is listening, is that this legislation will allow the government to have—

Ms Thomas: On a point of order, Deputy Speaker, we are speaking on the National Electricity (Victoria) Amendment Bill, and the member has strayed away from that. The West Gate Tunnel has absolutely nothing to do with the bill that is currently before the house, so I would ask that you direct the member to come back to talking on the bill and stop wasting the house’s time.

Mr R SMITH: On the point of order, Deputy Speaker, the bill allows the minister to remove the option of competitive tenders from major infrastructure. Drawing comparison to a current project, where the government has done likewise, I think is perfectly in keeping with the tenor of the debate, and as lead speaker the precedent is that I am allowed some latitude in these cases.

The DEPUTY SPEAKER: I do not uphold the point of order. The member for Warrandyte is able to make some comparison, but I do ask that he does come back to the bill.

Mr R SMITH: In continuing to make the comparison, the uncompetitive tender that has given us the West Gate Tunnel has given us a project that has stalled, is over budget and is questionable as to to what degree it will actually deal with congestion. It has given windfall gains to a private operator, and it charges motorists additional tolls to pay for a road they are not even using. So if that is what we get out of uncompetitive tenders from this government, I think Victorians should be very worried. They also should be further worried that this piece of legislation actually forms part of the government’s overall energy policy, which by any measure has only delivered us higher prices and less certainty of supply. So I can understand why Victorians are not going to trust this government to deliver what it says it will.

Let us look in detail at some of the regulations the government wants to do away with, principally the regulatory investment test for transmission, which is known as the RIT-T. The RIT-T is defined by the Australian Energy Regulator, which said:

The purpose of the RIT-T is to identify the transmission investment option which maximises net economic benefits and, where applicable, meets the relevant jurisdictional or Electricity Rule based reliability standards. The RIT-T provides a single framework for all transmission investments and removes the distinction in the regulatory test between reliability driven projects and projects motivated by the delivery of market benefits.

Energy Networks Australia said that the purpose of the RIT-T:

… is a transparent process for identifying the most efficient solution to meeting an ‘identified need’ for projects above a certain financial threshold.

If we go to the guidelines for the application of the RIT-T, we can see that the RIT-T is described as:

the amalgamation of the reliability and market benefits limbs of the regulatory test will or is likely to optimise the decision making process in relation to transmission planning by promoting dynamic and allocative efficiency. By including the assessment of market benefits, the RIT-T should promote more efficient investment over time.

They go on to say the RIT-T is there to promote more efficient decision-making, it promotes more efficient outcomes over time and it unearths a greater number of efficient investment options.

The two words that keep coming out of that are ‘transparency’ and ‘efficiency’, which are two fundamental tenets of any government—tenets which this government has demonstrably avoided over five years and tenets which the minister is actively, brazenly and even audaciously removing from this process to approve infrastructure worth hundreds of millions of dollars which, if the minister gets it wrong, will cost the end user on their bills and continue to add to those cost-of-living pressures that Victorians are facing even now. So every Victorian business, every Victorian household and every Victorian family will pay for the situation where the minister has got it wrong, and we cannot afford to allow the minister to have that sort of power.

Business interrupted under sessional orders.