Senior executives from AGL Energy have given evidence that the main issue causing problems with reliable energy supply in South Australia is “dysfunction” in the gas market – not too many windfarms making the grid unreliable.



Executives from AGL told a Senate inquiry in Melbourne on Tuesday they would like to build a new gas-fired power station in South Australia to increase base load capacity in the state, but gas supply was chronically unreliable in the eastern states.

Richard Wrightson, AGL’s general manager of wholesale markets, told Tuesday’s hearing the problem was so dire the company was contemplating building its own LNG hub in Queensland to help secure reliable supply downstream.

“Dysfunction in the gas market is causing most of the systemic problems we are seeing in South Australia,” Wrightson told the Senate select committee into resilience of electricity infrastructure in a warming world. “We would love to be able to contract more in that marketplace but the main restriction on being able to do that is access to flexible gas contracts that we are able to trade in an out of.”

The Turnbull government has argued that ambitious state-based renewable energy targets are driving too large a share of low-emissions technologies, such as wind power, into the grid, and that is a significant factor behind the unreliable conditions in South Australia.

But a number of witnesses appearing before the Senate committee on Tuesday said the main problem afflicting Australia’s energy grid was not proliferating renewables, but a lack of a clear policy direction from Canberra. The policy vacuum had created a damaging investment strike in new assets at a time when old coal-fired power generators had reached their natural age of retirement.

Ross Garnaut, the economics professor who led the climate change policy review for the Rudd government and was the independent expert adviser to the multi-party climate change committee that developed the carbon pricing scheme subsequently repealed by Tony Abbott, said the political debate about climate and energy policy in Australia was “incoherent”.

“Without coherence, we won’t get a low-cost and secure path to a low-emissions future,” Garnaut told the committee. “The incoherence is delaying the emergence of a future that would be good for employment and incomes in Australia.”

He added: “While there’s extreme uncertainty about policy it raises the supply price of new energy.”

Danny Price from Frontier Economics, who advised Turnbull on the design of an emissions intensity trading scheme in 2009, told the committee if there were too many windfarms in South Australia that was entirely down to the federal renewable energy target, not any state incentive.

“When the prime minister is criticising those generators, they are there because of his scheme,” Price told the committee.

He acknowledged there were engineering issues associated with integrating intermittent technologies, such as wind and solar, into Australia’s energy grid, but he said the lack of a settled energy and carbon pricing policy was “making the situation much worse”.

Price pointed to the number of groups now out calling on the Turnbull government to adopt an emissions intensity trading scheme for the electricity sector, or some other market mechanism, to drive the transition from carbon-intensive power to low-emissions power at least cost.

An emissions intensity scheme is a form of carbon trading.

On Tuesday, the National Farmers’ Federation – a vociferous critic of carbon pricing when it was introduced by Labor – joined a host of other organisations calling for consideration of a market mechanism, including the network company Energy Networks Australia, the retailer EnergyAustralia, the electricity provider AGL, the Climate Change Authority, the Business Council of Australia and the CSIRO.

Price said the lobbying for a market mechanism associated with the Finkel review underscored how much generators and the businesses reliant on affordable energy supply now needed policy certainty after 10 years of political infighting. “Nobody can move forward at the moment beyond subsidised renewables,” he said.

He was asked by the committee to outline the costs to consumers associated with an intensity trading scheme for the electricity sector. “One of the great features of the emissions intensity scheme is the costs of the scheme fall on high-emitting generators.”

AGL used its appearance before the Senate committee on Tuesday to make it clear it would support an intensity trading scheme provided it was legislated on a bipartisan basis. “With any policy in this space, to drive a 30-year investment, you need bipartisanship,” Wrightson told the committee.

The chief scientist, Alan Finkel – the official leading the energy review – has already provided implicit support for an emissions intensity scheme in his preliminary report to the government, saying it would integrate best “with the electricity market’s pricing and risk management framework” and “had the lowest economic costs and the lowest impact on electricity prices”.

But the energy and environment minister, Josh Frydenberg, has already ruled out converting the government’s existing Direct Action scheme to a form of carbon trading after a brief internal revolt in the Coalition party room.