FRIDAY, 9 OCTOBER 2020
TOM CONNELL, HOST: Shadow Minister for Climate Change and Energy here in the studio. Thanks for your time, $20 billion in cheap finance to modernise the grid. What’s the problem being solved here that wouldn’t be otherwise?
MARK BUTLER, SHADOW MINISTER FOR CLIMATE CHANGE AND ENERGY: Well, we know we need to build a modern energy grid for the 21stcentury to unlock Australia’s renewable energy resources. This flows really from a recommendation from Alan Finkel in the Finkel Review that Malcolm Turnbull commissioned back in 2017. And in the intervening period the regulatory agencies, along with industry and all governments have worked up a plan, called the integrated system plan, which essentially will build that new grid over the course of the next 10 or 15 years. The challenge is to ensure it is made most effectively and most cheaply, so you don’t see the sort of gold-plating we saw 10 or 15 years ago which was reflected in people’s power bills going up and up and up.
And the best way to ensure it's built most cheaply is to leverage the Commonwealth government's ability to borrow finance at very cheap rates. Already the industry is complaining that they are having trouble accessing finance, and even if they do access finance, they're arguing for the revenue to be brought forward in relation to the New South Wales interconnector with SA for example that will be reflected in people's power bills.
So this will be lowest cost. It will save hundreds of millions of dollars every year on power bills, to build this integrated system plan. And we also think we can get some really good other dividends like make sure it's built by Australian workers, not workers brought in from overseas, which too often happens on those projects and built using Australian supplies like Australian steel.
CONNELL: In terms of this finance though, is there any evidence that some of these are big companies that can't get financing? Transgrid is backed by Canadian pension fund and Abu Dhabi Investment Authority, but they've got hugely deep pockets and these are projects with guaranteed revenue. It is there actually a problem with getting finance?
BUTLER: Transgrid is a good example that only said over recent days to the Energy Markets Corporation that they are having trouble getting finance and, as a result of that, they have applied for a rule change to be able to pull forward the revenue that they get back from New South Wales households and businesses. That's going be seen in higher power bills.
CONNELL: Wouldn’t that be higher initially but lower down the track?
BUTLER: But even if they do access finance in a way they'd hope to, on average, it's about 2 per cent per year higher than the Commonwealth’s borrowing facility. Now when you're talking about a $20 billion plan, which is what this integrated system plan is, that's hundreds of millions of dollars every year that otherwise would be put onto people's power bills. Commonwealth should be involved in this. This is a public good building this new modern energy grid and it should be done at lowest cost which it can if the Commonwealth gets involved. So it should be.
CONNELL: So what the government has said though is these projects can be, in-effect government backed because they get guaranteed revenue. Meaning these big companies which don't have you know liquidity issues if you look at the Abu Dhabi Investment Authority. Could still borrow at the government bond rate?
BUTLER: Angus Taylor has gone on the side of the private companies here. What we say is that the Commonwealth should be at the table leveraging its borrowing facility so that it can mean that the power bills are lower than they would be if the private companies that operate these systems through the privatisations generally driven by State Liberal Governments. It will reduce the risk of gold-plating and mean lower costs. Now I've seen Angus Taylor out this morning saying this is about building transmission lines to nowhere, which is astounding given that this is a plan commenced by Malcolm Turnbull, developed by the energy regulatory bodies under the COAG Energy Council and ticked off by all governments.
CONNELL: So the point on that the government makes as well as you both want to build this system that's been developed, integrated system plan and what you're talking about...
BUTLER: I’m not sure we do, Angus Taylor called it “transmission lines to nowhere.”
CONNELL: His claim is around whether or not Labor pumping all this money into the system would get additional transmission lines that aren’t in fact needed when we look back at the system, there was a gold plating issue because of this sort of guaranteed revenue format, so if you pump more and more money into it...
BUTLER: There was gold-plating when the distribution systems were upgraded, a process that started under the Howard Government. What our policy announcement last night reflects is the integrated system plan, not more, not less. It is the plan ticked off by all governments.
CONNELL: I mean you're both claiming the other side is doing something, but you both are on board with integrated system plan.
BUTLER: I thought we both were until Angus Taylor said this is about transmission lines to nowhere. We're very confident that this will mean lower costs to build the plan that we need.
CONNELL: So the government is adamant though, that these companies can essentially get government bond rates because they're government backed projects and that's outlined in its own transmission fund that was unveiled in the budget as well.
BUTLER: It's got about $250 million in the budget for a $20 billion build.
CONNELL: But that does the business cases and so on.
BUTLER: Exactly, so it is not bringing the Commonwealth Government’s borrowing facility to the table.
CONNELL: If It’s a Government backed project with guaranteed revenue. The government says then they'll be able to get the...
BUTLER: Where’s Angus Taylor's plan to do that? We outlined a plan last night to do that, to make sure that the Commonwealth borrowing facility was actually able to deliver lower costs for consumers, households and businesses. What we've seen over the last five years is an average return to these largely private transmission operators of over 6 per cent. When you're talking about the sort of build that we're talking about that translates into very substantial hikes in power bills. We’re confident we can get that return right down by the Commonwealth Government being at the table. Actually being at the table.
CONNELL: If these same companies can access the same bond rates?
BUTLER: That’s not been the experience.
CONNELL: If it were though does that bring these plans into line? I mean they're still going to get the same return, right?
BUTLER: That has not been the experience. The experience has been that these private companies borrow at private borrowing rates and that translates into higher bills for households and consumers. That has been the experience. It's demonstrated in all of the material you see from the Energy Regulator and it's demonstrated in people's power bills.
CONNELL: But if you have a system by which the initial work is done by the government business case and so on. Perhaps even some initial buying of the land and then the private company comes in and gets a government...
BUTLER: They're still borrowing at private borrowing rates. They're still injecting equity at private equity rates. What we want to do is make sure that the Commonwealth's super-low borrowing capacity is translated into low power bills.
CONNELL: This whole plan, does it mean an increased renewable energy target? You had a 50 per cent by 2030. RepuTex says we'll get there without any additional government policy.
BUTLER: I notice that and the government has itself said that we're on track to a 50 per cent renewable penetration by 2030. What the Energy Market Operator has made clear is we need to build this grid on every scenario. Whatever scenario ends up rolling out in terms of the penetration of renewable energy in the system, how quickly it's built at, what percentage you get by 2030 or 2040, we need to build this modern energy grid. Out plan makes sure it's built most effectively and most cheaply.
CONNELL: So this doesn't impact anything to do with renewable energy, and what plan you would have?
BUTLER: This is a grid that has to be built whatever happens, in terms of the speed with which renewable energy gets rolled out. What we do know is because the government has no plan to support renewable energy, investment is likely to start to taper off. It already collapsed by 50 per cent last year and we're going to see it drop off even further.
CONNELL: If the Government building the same grid, that is support for renewable energy.
BUTLER: You can build a grid but you then also need a policy that drags through investment in generation and that is what everyone, the Reserve Bank, the industry and everyone else has said is lacking from the Government.
CONNELL: But if renewables are the cheapest, once it has that infrastructure, it doesn't need to get dragged through?
BUTLER: That's part of the jigsaw puzzle. It's an important part of the jigsaw puzzle, but it's not the whole thing. You also need an energy policy that underwrites certainty of investment in the generation itself. That's what the Renewable Energy Target had. Frankly, that's what that's would have been delivered by Malcolm Turnbull's national energy guarantee. But at the moment we have a vacuum.
CONNELL: So what about the ISP report you mentioned? Also it says we need 19 gigawatts of dispatchable generation by 2040. Is there any plan yet by Labor on that?
BUTLER: We’ll talk more about our energy policies both in generation and in storage over the coming period between now and the election.
CONNELL: So not yet on that?
BUTLER: But this new grid is also developed by the energy market regulators and by the state governments to link up not only renewable energy generation but new storage like Snowy 2.0, like other pumped hydro and battery opportunities all around the system.
CONNELL: Is it fair to say this overall plan and whatever Labor comes up with will involve extra gas as well?
BUTLER: Well, I think the issue of new gas generation or upgrades of existing gas generation is already accommodated within the existing grid. I mean I have 5 gas generators in my electorate for example, I don't think any electorate has more. Some are being upgraded. There's been a new one that was opened only last year, playing a really important role in supporting the renewable energy generation in South Australia, but that's already on the existing grid. So new thermal generation, or upgraded thermal generation doesn't need a new grid. It's already able to connect to the grid that's been in place for decades.
CONNELL: But Labor’s plan, you've been looking at this. I understand you're not going to roll out the document right now, you're always free to, of course, but is it likely to involve more gas? When we’ve seen what the government has just rolled out. You're talking about the grid you're talking about renewables in there more gas as well would be needed?
BUTLER: Well, we think there is an important role for gas going forward. It provides an important peaking role and firming role for renewable energy generation. Ultimately, that will be a matter for the market. Investment decisions in the future, whether there's more peaking gas, whether there's battery technology, there will probably be a bit of a mix of both. We want a policy in place that gives investors the confidence to make that decision.
CONNELL: Agnostic like the government is?
BUTLER: Well, we think the investment future is undoubtedly renewable energy generation. It's the cheapest. It's the cleanest generation.
CONNELL: You think that, but gas has a role?
BUTLER: There will be a need for firming generation as well and that will be a mix of pumped hydro, battery and gas generation.
CONNELL: Mark Butler, appreciate your time today. Thank you.
BUTLER: Thanks, Tom.