Australian governments have agreed to set up a new gas storage reserve, proceed with plans to build up spare electricity capacity, and develop a national transition plan to reduce greenhouse gases.
The changes were among 11 agreements reached during the first meeting of energy ministers since the election of the Albanese federal government.
The gathering of state, territory, and Commonwealth ministers on Wednesday came about a week after a gas shortage in several states prompted the market operator to cap prices. A deep cold snap also helped send wholesale electricity prices soaring in the National Electricity Market.
The video-linked meeting was described by participants as “very collegiate” and “very different” from previous meetings held during the Morrison government.
Among the priorities was an agreement to order the Australian Energy Market Operator to begin work on buying and storing gas “for situations exactly like the ones we faced last week”, federal climate and energy minister Chris Bowen said.
“Australians might be surprised to learn that that power did not exist, that [Aemo] could not procure some gas and keep it in reserve to be released for urgent and crises,” Bowen said, adding it was technically possible with storage facilities “around the country”.
No timetable was given, but Aemo had the power to act “expeditiously”. It won’t be immediate, “but it will give us the capacity and the tools necessary to manage this crisis going forward and to avoid crises like this into the future”, Bowen said.
The Energy Security Board, and the Australian Energy Markets Commission, were also asked to develop a brief “at pace” on plans for a so-called capacity market for the electricity supply in the eastern states. Western Australia has operated a similar backup reserve of power generation capacity since 2006.
“From opposition, I said that we supported the principle of a capacity mechanism provided it was consistent with net zero and encouraged new technology,” Bowen said, adding ministers had “endorsed effectively” that approach, a draft of which should be produced by regulators “within coming days”.
In a nod to the new government’s emphasis on climate change, the ministers also agreed to work on a National Transition Plan on how the economy would be weaned off fossil fuels. They would prepare more work on this scheme in time for their next meeting planned for July.
Another agreement involved enhancing the powers of the regulators to ensure full transparency, particularly in the gas market, and to ensure that all behavior is in the best interest of the market and consumers, Bowen said.
He said there were, however, “no silver bullet, no magic answers” to lowering energy prices, adding that a lack of planning in the past had led to the sector’s crisis.
“We need more transmission, more renewables, more storage,” Bowen said.
Before the meeting, senior energy policy adviser for the Ai Group, Tennant Reed, said Australia was facing an “acute crisis”.
Last week, market regulators had to intervene to limit gas prices in Victoria and the Sydney market at $40 a gigajoule, or about four times the standard price.
Russia’s invasion of Ukraine triggered a jump in global energy prices. In late May, the exit of a gas retailer, Weston Energy, sent companies scrambling for supplies, propelling local prices higher. With electricity prices partly set by the cost of gas, wholesale power markets have also risen several times the $87/megawatt-hour average during the March quarter in the eastern states. The lengthy cold weather snap has also elevated demand.
Ahead of the meeting, scheduled for 4 pm AEST, Victoria’s energy and environment minister, Lily D’Ambrosio, highlighted the need for changes to federal settings on gas, saying not enough was being reserved for Australian use. Western Australia sets aside 15% of production for domestic use, but there are no formal limits for the eastern states.
Discussions of gas reserves, however, were a national responsibility, Bowen said, indicating the subject was not subject to energy ministers’ approval.
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Ai Group’s Reed said the federal government change should usher closer coordination across states, territories, and the Commonwealth.
“The early signs are that there’s a good new set of relationships,” he said. “And that is promising.”
The ESB had already begun work on post-2025 energy market design, including the proposed development of a capacity mechanism.
Reed said, “you could make a case for a capacity mechanism,” but it was important that the design not lock in high-cost and potentially high-emission energy sources.
It would also not provide any near-term benefit to the market and would have to be designed to minimize disruption and avoid scaring off investors.
Bowen’s comments on Wednesday echo those he made at a conference last October, where he said an Albanese government would set several tests for any proposal to lock in extra capacity and improve grid reliability. This implied it would not support a system that extended the life of coal power plants.
“Firstly, it must be consistent with our emissions reductions ambitions, including net zero by 2050 and a strong roadmap to get there,” he said.
“Secondly, it must encourage investment in renewable energy rather than chilling it as many fear.
“Third, it must be a bridge to dispatchable technologies like hydrogen, batteries, and pumped hydro, not an indefinite subsidy for old technologies,” Bowen said. “And fourth, it must ensure that generators dispatch when needed.”
Bowen noted that commonwealth-owned Snowy Hydro had recently refused to dispatch electricity from its Colongra gas plant below the market price cap of $15,000, an act he said was “reprehensible”.
New National party leader, David Littleproud, meanwhile, earlier renewed his calls for the Albanese government to consider support for nuclear energy and even convene a national energy summit – issues not expected to get much heed at Wednesday’s meeting.
“Small-scale modular nuclear power should be included in that conversation as a source of reliable energy and a way of reducing the emissions,” Littleproud said.
“A national energy summit that convened pre-eminent scientists, energy experts, economists, as well as political leaders, would be a positive contribution for policy development,” he said.
Littleproud said his party was “not advocating large scale nuclear power plants”, rather smaller ones, but wanted “an agnostic debate on all energy sources available to Australia”.
