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Speech at the launch of the inaugural National Transmission Network Development Plan and 2010 Gas Statement of Opportunities



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Martin Ferguson, MP Minister for Resources and Energy Minister for Tourism

Launch of the inaugural National Transmission Network Development Plan and 2010 Gas Statement of Opportunities

15 December 2010

Introduction

Good afternoon ladies and gentlemen.

Last year I launched the first Gas Statement of Opportunities and the National Transmission Statement.

At the time, I acknowledged the major challenges facing the energy sector.

Both documents were the first of their kind for AEMO’s national gas and transmission planning responsibilities.

Today I am pleased to launch the second Gas Statement of Opportunities, and a new document - the inaugural National Transmission Network Development Plan.

The Council of Australian Governments committed to these revised national planning arrangements in April 2007, reflecting the need to take a more national approach in examining investment needs in the energy sector.

The creation of AEMO in 2009 was designed to facilitate this approach.

Together, these documents help us understand the size of the challenges, and also allow us to identify new opportunities.

Challenges

Reliable energy is fundamental to the prosperity that Australia enjoys.

It underpins our economy and our way of life.

As Ian correctly pointed out, I have said previously the energy sector - not just here in Australia but globally - is changing at an unprecedented rate.

What this means for us is that Australia's energy sector faces an environment of rising fuel costs, increasing demand and scarce capital.

The energy sector must also over time reduce emissions to meet climate change objectives.

These are very real challenges and they require a practical, coordinated response from industry, regulators and government.

The challenge for Government is getting the policy setting right so as to create the best possible environment to encourage ongoing and appropriate investment.

That is why the Government remains committed to putting a price on carbon as the most cost-effective way of reducing our emissions and - alongside the Renewable Energy Target - driving investment in renewable and clean energy technologies.

As is further evidenced in AEMO’s work today, a price on carbon and the Renewable Energy Target go hand in hand and are complemented by our direct investment of $5.1 billion through the Clean Energy Initiative.

The Government is conscious of the need to maintain energy security for households and industry as we implement our climate change policy.

We want to make sure that investment is efficient, effective and appropriately targeted.

Access to quality information helps inform investment decision making and helps attract investment.

The National Transmission Network Development Plan and the Gas Statement of Opportunities make an important contribution to this by informing the market about potential future opportunities.

They help us to identify where investment may be needed in the future.

The Development Plan and the Statement of Opportunities also remind us that the size of the task is large, and there is a lot more work to do.

The Development Plan predicts that investment of between $40 and $130 billion in generation and transmission may be needed by 2030 to continue to meet the expectations of consumers for reliable supply.

This huge investment requirement - driven significantly by the need to replace old assets and meet rising demand - will have unavoidable implications for electricity prices.

So it is essential that proper consideration of future needs informs this investment decision making.

National planning benefits

Proper planning requires big picture thinking, and the courage to make tough decisions and pursue difficult reform on occasions.

Australia has had an enviable record on energy market reform over the past 15 years.

Working cooperatively across jurisdictions we have established the National Electricity Market and been able to:

· deliver competition to the generation sector

· improve regulation of monopoly networks; and

· harmonise non-economic regulation.

Nationally-focused planning is the next logical step.

Given the new investment required, it is the right time to look to nationally-focussed planning.

Energy infrastructure investment takes at least five to ten years to plan and develop.

Once built, transmission assets are with us for at least 20 years.

So it is critical to make the right investments.

This is where the Development Plan will be such a useful tool by helping to identify investment opportunities.

This process includes dialogue between industry, jurisdictional planning bodies, Transmission Network Service Providers and AEMO as the national transmission planner.

The Development Plan moves us from a world of jurisdictional-focussed planning, to one which considers the opportunities and benefits on a more national basis.

It will be a living document that continues to evolve in line with further developments in energy and climate change policy.

This currency will ensure the continued value of the Plan into the future.

Gas Statement of Opportunities

Turning now to the Gas Statement of Opportunities, it is clear that we are talking about an area of rapid and significant expansion.

Much of this expansion is related to the development of Australia’s coal seam gas reserves and the ramping up of our coal seam gas to LNG export industry.

It is clear that as a cleaner burning and readily available base load fuel source, gas will have an increasingly important role to play in the future global energy mix.

It will also play a bigger role in Australia's energy mix, including our electricity generation mix.

The outlook for gas is clearly related to investment decisions taken in the electricity sector, so it is appropriate for AEMO to release both of these reports today.

Combined-cycle gas turbine technology could see a five-fold growth in the use of gas for electricity generation, even in a medium-growth scenario.

This signals a shift in our generation mix, away from our historical reliance on coal.

Fortunately, the Statement of Opportunities reaffirms that Australia has enough gas to meet projected domestic demand and LNG export demand in the decades ahead.

It also identifies a number of promising future investment opportunities.

These include:

· the expansion of pipeline infrastructure;

· gas processing; and

· new production facilities across Queensland, New South Wales, South Australia and Victoria.

National Energy Scenarios Modelling

Another important piece of work undertaken as part of the Energy White Paper process underpins both of the reports I am launching on behalf of AEMO.

That is the National Energy Scenarios Modelling and it will provide a basis for further important work in this sector, which is why I am also taking this opportunity to publicly release this modelling today.

We know our energy market will change as we transition to a low-emission economy.

To maintain energy security, it is important to understand how different policy and economic outcomes could affect the energy sector.

The modelling examines the sensitivity of electricity generation technologies to long term changes in key factors such as economic growth, population growth, global fuel prices, and climate change policy.

It is important to note that this work is not predictive, instead it provides an insight into a range of potential outcomes over the next 40 years.

The modelling, along with the two reports, is available on the AEMO website.

Energy White Paper

The Development Plan, Statement of Opportunities and modelling are important, but they do not paint the whole picture.

Delivering an effective long-term response to energy market challenges and opportunities, while ensuring prosperity and energy security, demands more.

So I remain committed to an Energy White Paper - a proper strategic review of the energy sector to identify potential gaps in our thinking.

This will give us policy direction to ensure we maintain a competitive, efficient, accessible and secure energy sector to 2030 and beyond to provide for our continued prosperity.

Conclusion

Ladies and gentlemen, planning for our energy future has never been more important.

We need a carbon price to give investors greater certainty.

We also need the right decisions for continued economic prosperity and energy security.

And getting this right depends on having access to quality information on which to base decisions.

The reports being released today help industry, investors, policymakers and governments anticipate our future energy needs and respond as needed.

I look forward to working with AEMO and all our stakeholders to ensure that energy market frameworks allow for proper planning that delivers necessary investment to provide energy security and prosperity.

Thank you.