If you’re not a long-term energy policy news junkie, you’d be forgiven for thinking that today’s crisis came suddenly.
Indeed, Liberal leader Peter Dutton describes it as a recent catastrophe and says it was caused by Labour’s “switching too quickly to renewables. […] they are chasing the market.”
But this crisis has not come out of nowhere.
We got here thanks to a series of policy decisions under previous state and federal governments that left Australia’s energy system ill-equipped to meet its demands.
Here are five key policy moments that partly led to today’s power crisis sweeping Australia.
1. Privatization of the electricity sector
In the 1990s, there was a trend toward privatizing state property, assuming the industry would manage assets more efficiently.
The Kennett government in Victoria had a strong policy of privatizing generators and transmission assets, while South Australia and NSW also privatized energy assets.
However, the real focus of the industry is not to be efficient but to maximize shareholder profit (which may mean they need to be more streamlined, but not necessarily). So the primary role of the energy sector in providing overall benefits to Australian residents and businesses has been lost.
The current crisis in the energy market does not come out of nowhere. Photo: Getty
2. The agreements about the Gladstone gas terminal
During the Abbott-Turnbull-Morrison era, liquefied natural gas exports began in 2015 from the Gladstone LNG gas terminal in Queensland, linking the eastern states’ domestic gas markets with international prices.
But the journey started long before that, with the construction of this terminal beginning in 2010 (in the middle of the Rudd-Gillard-Rudd era). It involved years of strategy discussion, policy design, and agreements.
Forged between the industry and several states (particularly the Beattie Queensland Labor government) and federal governments (going back to the Howard era), these agreements created an LNG export industry.
Unlike Western Australia, no domestic gas reserve had been set up as part of the agreements. So on the east coast, we are now exposed to international gas prices.
Of course, in the lead-up to the creation of the LNG export industry, federal governments might not have been expected to predict Russia’s invasion of Ukraine more than a decade later, driving gas prices up.
But the decisions surrounding the Gladstone gas deals have allowed Australian gas to be shipped offshore, resulting in extremely high gas prices inland.
3. Abolishing the price of carbon, watering down the renewable energy target
Under former Prime Minister Tony Abbott, the then coalition government removed the price on carbon created by the Rudd-Gillard-Rudd administration. This was arguably one of the most backward steps in efforts to curb Australia’s carbon emissions and did nothing to boost renewable energy production.
It also tried hard to scrap the renewable energy target, settling to significantly lower it.
The RET required energy retailers and large customers to ensure that some of their energy came from renewable sources.
An earlier form of the target was established in 2001 by the Howard Coalition government. The Rudd Labor government increased the ambition of the mark in 2009.
In 2015, the Abbott Coalition government slashed the target, and it was easily met in 2019. Since then, there has been no extra hard incentive to build more renewables.
Renewables are still being built today, and they are cheaper than coal.
Investments would continue faster, saving for renewable energy producers’ difficulties in getting their power onto the grid (more on later).
Wind farm development calls for policies that encourage investment. Photo: Getty
4. An effective stop on investment in wind farms in Victoria
In 2011, the government of Victoria’s Baillieu ended investment in wind farms by creating a two-kilometer exclusion zone around existing homes.
As researchers Lisa Caripis and Anne Kallies wrote in The Conversation in 2012, these laws: Give the owners of any home within a two-mile radius of a proposed wind farm the power to decide whether or not development should proceed.
This decision and the reduced RET have slowed down renewables investment.
These laws were reformed in 2015 by the Andrews government in Victoria.
5. Lack of investment in transmission infrastructure
This is not a policy moment but a lack of it.
Transmission infrastructure consists of the wires, poles, and other system parts needed to get electricity from power generators to households and businesses.
Most of Australia’s major transmission projects connecting coal, gas, and hydropower projects to the grid were built by governments and later privatized. Under the current privatized system, creating new transmission lines is a complex process.
Renewable energy generation projects are often built on a smaller scale in remote locations and require new transmission infrastructure to connect them to the grid.
Many renewable energy projects cannot be connected to the grid because the transmission infrastructure cannot safely absorb the extra capacity.
The federal and state governments have failed to enact policies encouraging investment in transmission projects that can serve renewable energy generation. This set the system up for the failure we see today.
A tough job ahead
Of course, other policy decisions have also led to the current crisis. For example, there has been limited government policy to encourage the construction of batteries and pumped hydropower to store renewable energy produced during times of lower demand.
The exception here, of course, is the taxpayer-funded Snowy 2.0 scheme, which has recently been found to be running out of time and budget.
Without government intervention, an orderly transition to renewables seems unlikely.
Roger Dargaville, Senior Lecturer and Deputy Director Monash Energy Institute, Monash University
