Former carbon pricing mastermind Greg Combet backs proposed fix for Australia’s energy crisis

The former federal minister who oversaw the introduction of a carbon price in Australia has backed calls for an insurance-like policy to help fix the crisis plaguing the nation’s biggest power grid. 

Greg Combet, a former union leader who served as climate change minister in the Gillard government, said ideology needed to be taken out of the debate about how to solve the problems affecting the national electricity market.

Mr Combet said businesses and households – particularly vulnerable ones – were suffering amid skyrocketing prices and warnings of rolling blackouts as the system struggled to cope with demand.

While he laid the blame for the “chaos” at the feet of the previous Coalition government, he said opposition to a proposed capacity market for energy would only prolong the problems.

The Coalition dismissed the comments, saying Australia became a world leader in renewable energy investment under the previous government.

Under a capacity market, energy providers — including generators and storage owners — are paid to be available when the system needs them, typically during times of stress on the network.

power station in Victoria's La Trobe Valley.
The abrupt exit of Hazelwood power station in 2017 sparked upheaval in the national electricity market.(AAP)

Big users, such as manufacturers, can also be paid to pare back demand or switch off entirely when required.

Those providers who fail to provide capacity when called on can face huge penalties.

Policy needed to fix ‘chaos’

Despite the support of Federal Energy Minister Chris Bowen, the proposal for a capacity market has come under fire from renewable energy advocates who say it will prolong the life of coal-fired assets.

Mr Combet, now chairman of industry super fund IFM Investors, said a properly designed capacity market would help keep the lights on during the transition to renewable energy.

He also said such a policy would not stop the eventual demise of coal-fired power, which was ill-equipped to deal with surging levels of intermittent renewable energy.

Brown dusty road with wind turbines in distance
Wind turbines from the Silverton Wind Farm.(AAP: Mick Tsikas)

“Ultimately, governments, regulators, everyone involved in the industry, has a responsibility to ensure businesses and households have security of access to their energy needs,” Mr Combet said.

“And that’s what the capacity mechanism is designed to achieve.

“In some respects, it’s not an ideal policy requirement because it reflects years of failure.

“However, it is a mechanism now that can ensure that there is a far better reliability for security of supply.

Capacity market ‘not the solution’

Tristan Edis from research and advisory firm Green Energy Markets said changes were needed to the NEM but he argued a capacity market was not the solution.

Mr Edis said a capacity market risked extending the lives of coal-fired power plants and wasting money on assets that would make it harder for governments to meet their targets for net zero emissions.

Aerial shot of large-scale battery facility, which dozens of big white containers in a field
Renewable energy advocates say schemes to encourage the uptake of batteries must take precedence.(Supplied: Victoria Department of Energy, Environment and Climate Change)

Longer-term, he said governments needed to think “more broadly”, for example by improving the energy efficiency of Australian homes that required significant amounts of power for heating and cooling.

But in the short term, he said measures should focus on ensuring certainty around the time-frames in which coal plants would exit to give a clear signal to investors wanting to build replacement capacity.

“We’re suffering from a situation of deep uncertainty and we’ve been suffering from this since Tony Abbott came on the scene,” Mr Edis said.

“But the issue is it’s become a lot more pressing now because we’re 10 years down the track and the coal generators have got older and less reliable and gas has got a lot more expensive.”

Mr Edis said a capacity market would require a major and expensive redesign of the system, arguing there were “cheaper and less disruptive” options available.

He said batteries would be able to deal with most of the challenges associated with renewable energy by discharging their output during the evening peak when solar power fell away.

For longer periods, he said specific policies or incentives could be put in place to encourage investment.

‘Take the ideology out of it’

According to Mr Combet, Australia is destined to become a renewable energy superpower, given its abundant supplies of wind and solar power, its vast land resources and its skilled workforce.

But he said switching to an electricity system that ran on 100-per-cent renewable energy would take time and it was imperative not to let ideology get in the way of pragmatism.

On leaving politics in 2013, Mr Combet lamented the downfall of Labor’s carbon pollution reduction scheme in 2009, when the Greens voted with the Coalition to torpedo the policy in Parliament.

Smoke haze from bushfires with sun in bright red silhouette hangs over Gladstone with aluminium smelter stacks in view.
Big energy users such as a aluminium smelters are crying out for a solution to Australia’s energy woes.(Supplied: Wezley Pitt)

He said there were parallels between the choices facing politicians today and those from his time in office.

“You’ve got to take a bit of the ideology out of it, I think,” he said.

“That’s what the capacity mechanism should attend to.

“Clearly, we want to decarbonise.

“Clearly, it would be great if we had 100-per-cent renewable energy that was cheap today, backed up by storage and stability of supply, (at) lowest cost to consumers.

“That’s the ideal world we want to be able to get to. But that’s going to continue to take a transitional period.”

Call to focus on consumers

With Mr Bowen eyeing 2025 – or earlier – as a starting date for a capacity market, debate has also been raging about the role gas will play in the energy transition.

Authorities including the Energy Security Board and the Australian Energy Market Operator are pushing for gas to be included in any policy fix, saying the fuel can provide the firm and flexible generation required to accommodate variable sources, such as wind and solar.

They also point out that, unlike batteries, gas turbines can run for days at a time and help deal with so-called renewable energy droughts when there is a lack of wind and solar power.

Despite this, the Victoria government is among those calling for gas to be barred from any capacity payments and for the money to instead be directed at storage providers, such as batteries and pumped hydro.

Mr Combet was philosophical about which technologies should be considered for the policy, saying it would preferably be “agnostic”.

Above ground power lines run along timber poles. Birds sit on the wires.
There have been warnings that Australia could run short of power unless the switch to green energy is handled carefully.(ABC News: Leigh McDonald)

And he noted that while capacity markets were aimed at safeguarding supply, other “complementary” policies could help cut emissions.

He said the most important consideration should be the protection of consumers, claiming the current market was a “shemozzle” that was letting down everyone.

“And it hurts lower-income people the most,” he said.

“When there’s policy chaos – basically wilfully ignoring reality is what the Liberals and the Nationals did for nine-and-a-bit years — that hurts businesses, and that hurts retail consumers of energy, but especially lower-income people.

Shadow Climate and Energy Minister Ted O’Brien rejected the criticism.

“The development of a capacity mechanism was initiated and funded by the former Coalition government,” Mr O’Brien said.

“Labor is back and so too are higher prices, despite Chris Bowen promising that prices would be cheaper under an Albanese Labor government.”