A new report from the International Energy Agency (IEA) has found that Australia should rely on long-term policy and energy market responses to strengthen energy security, foster competition, and make the power sector more resilient.

In line with global trends, Australia’s energy system is undergoing a profound transformation, putting its energy markets under pressure. Concerns about affordable and secure energy supplies have grown in recent years, following several power outages, a tightening gas market in the east coast and rising energy prices.

Besides assessing progress since the IEA review of 2012, the Australian Government requested the IEA to focus on how Australia can use global best practices in transitioning to a lower-carbon energy system. This question points to safeguarding electricity supply when aging coal capacity retires, increased variable renewable energy comes on line and natural gas markets are tight.

IEA Executive Director, Dr Fatih Birol, said, “The government’s efforts to ensure energy security and move ahead with market reforms have been impressive. Australia can develop its vast renewable resources and remain a cornerstone of global energy markets as a leading supplier of coal, uranium and liquefied natural gas (LNG), securing the energy for growing Asian markets.

“A comprehensive national energy and climate strategy is needed for Australia to have a cleaner and more secure energy future. The National Energy Guarantee is a promising opportunity for Australia to integrate climate and energy policy.”

Along with the US, Australia is leading the next wave of growth in liquefied natural gas (LNG). As a major exporter of coal, Australia is also a strong supporter of carbon capture, utilisation and storage technologies. The report commends Australia’s efforts which can be critical globally to meeting long-term climate goals.

The IEA’s review points out that the sustainable development of new gas resources is critical for natural gas to play a growing role in the energy transition, satisfying a growing domestic gas demand in power generation and industry, and to honor export contracts at the same time. The report calls on Australia to continue efforts to improve transparency of gas pricing, boost market integration and facilitate access to transportation capacity

The Australian Petroleum Production and Exploration Association (APPEA) Chief Executive, Dr Malcolm Roberts, said the IEA review confirmed the urgent need to remove State bans and restrictions on gas operations.

“The message to policymakers from the IEA’s Executive Director, Dr Fatih Birol, could not have been clearer,” Dr Roberts said.

“Dr Birol identified the number-one step Australia can take to deliver secure and affordable energy – removing bans on unconventional gas projects.

“Coal seam gas from Queensland already supplies almost 60 per cent of the east coast gas market. States that have blocked unconventional gas projects are using more and more coal seam gas, but are paying a hefty premium to transport this gas from interstate.

“As Dr Birol stated this morning, more gas supply will put downward pressure on energy prices and smooth Australia’s transition to a low-emissions future.”

Dr Roberts said the IEA report made it clear that restricting gas exports was not a sustainable solution to concerns about domestic supply.

The report also welcomed the government’s energy security focus, including the creation of the Energy Security Board, the Energy Security Office, and Australia’s plan to return to compliance with the IEA’s emergency stock holding obligations, the IEA recommends regular and comprehensive energy security assessments to identify risks early on, and foster the resilience of the energy sector.  

In terms of power system security, the report offers a series of recommendations on how to improve the market design of the National Energy Market (NEM), one of the most liberalised and flexible power markets in the world.

To accommodate higher shares of variable renewables, the IEA recommends that the NEM prioritises measures to safeguard system stability, enhance grid infrastructure, including interconnections, and regularly upgrade technical standards.

As consumer choice and prices in retail markets are liberalised across Australia, the government needs to focus on wholesale competition and demand-side flexibility, in recognition of the changing ways energy is produced and consumed, thus contributing to reducing peak demand.

Energy Network Australia CEO, Andrew Dillion, said the IEA report has found that a lack of smart meters is a barrier to consumer choice, and many consumers are paying more than they need because of Australia’s low uptake.

“It’s essential we orchestrate all the small- scale solar and batteries connecting to the grid so we can keep the lights on, maximise returns to their owners, eliminate avoidable network upgrades and deliver affordable energy for Australian communities,” Mr Dillon said.

“We welcome the finding that greater penetration of smart meters is essential to increase transparency for customers, leading to better understanding of energy use, greater efficiencies and flexible options to save consumers money.”

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