Seizing the opportunities from major changes in the NSW energy sector

By Richard Bolt and Mohamed Daif

The New South Wales energy market is approaching a pivotal moment. Over the next 15 years, four of the state’s five coal-fired power generators are set to close. Given coal comprises 80 per cent of the state’s power generation, the closures give the state an opportunity to move to more reliable and sustainable energy generation.

Getting this right will have significant impacts for the people of NSW and will also impact national energy security and the National Electricity Market.

We have identified priorities for the NSW Government and the private sector to seize these opportunities.

The NSW Government has outlined its vision for energy

The NSW Government recently released two landmark documents that outline its plan for energy.

The NSW Electricity Strategy targets an affordable, reliable and sustainable electricity future.[1] It seeks to reduce risk for investors and increase the ease of private investment. The Strategy targets long-term system reliability through establishing an Energy Security Target and new emergency response powers and processes.

The strategy is supported by Net Zero Plan Stage 1: 2020-2030, which seeks to deliver a 35 per cent cut in emissions by 2030 compared to 2005 levels.[2] The plan seeks to drive the uptake of emissions reduction technologies, empower consumers and businesses to make sustainable choices, invest in the next wave of emission reduction technologies and ensure the NSW Government leads by example through its purchasing power.

The strategy is supported by Net Zero Plan Stage 1: 2020-2030, which seeks to deliver a 35 per cent cut in emissions by 2030 compared to 2005 levels. The plan seeks to drive the uptake of emissions reduction technologies, empower consumers and businesses to make sustainable choices, invest in the next wave of emission reduction technologies and ensure the NSW Government leads by example through its purchasing power.

Jointly, the Electricity Strategy and Net Zero Plan are expected to deliver more than $11.6 billion of new investment for NSW, including $7 billion in regional NSW. Additionally, they support the creation of almost 2400 new jobs, including 1700 jobs in regional areas.

How can the NSW Government best achieve its ambition?

The NSW Government faces many challenges in activating the Electricity Strategy and Net Zero Plan. Success requires simplifying the statutory landscape, overcoming differences in regulation between jurisdictions, improving engagement from energy consumers and restoring investor confidence.

By leading the engagement with key stakeholders, the NSW Government can help resolve these issues and pave the way for a successful implementation.

Priorities should include:

• Providing guidance and long-term regulatory certainty. Energy infrastructure investment over the coming decade depends on regulatory certainty, including carbon, economic and consumer protection regulation. The Government could provide a clear mechanism to synchronise closures of existing power stations with establishing new capacity, provide certainty around the cost and availability of grid connections, ensure the Energy Security Target is not subject to the vagaries of electoral cycles and look at how the energy mix might change in the context of a net zero target.
• Driving national alignment. A national approach to policy and transition roadmaps depends on federal and state governments and peak regulatory bodies engaging with each other. NSW can help to achieve this by collaborating with other state governments to share policy thinking and establish a community of practice and by playing an active role in the Energy Security Board’s post-2025 electricity market review to drive practical national reform.
• Taking a robust approach to implementation. To most effectively implement its plan, the NSW Government could cut red tape and streamline approvals, compile a list of priority projects, support commercialisation of new technologies and determine if NSW has enough information to track electricity infrastructure and system reliability. It could also learn from the experiences of other states with similar strategies.

How can the private sector embrace emerging opportunities?

The NSW Electricity Strategy and Net Zero Plan will unlock opportunities for energy firms and investors in renewable generation, contestable grid connections and distributed energy resources. Novel technologies, including hydrogen, electric vehicle infrastructure and coal innovation, will also be supported.

Industry would benefit from embracing some priorities:

• Develop strategies to invest in new areas. Investors, incumbent firms and new entrants will need strategies to invest in new technologies and solutions, to access unregulated opportunities and to better engage with consumers. Gentailers should invest in alternate generation technologies, including renewables, gas-fired generation and hydrogen, as the existing thermal generators are retired. Network businesses can facilitate decarbonisation of the energy system with high security and reliability and at low cost. Networks should revise their business models to access unregulated returns through investing in contestable connections to the grid, energy storage, hydrogen, and distributed energy resources. Investors can identify opportunities in new energy firms with strategies that would benefit from the Government’s plan.
• Engage Government to influence policy. Energy firms and investors must form solid policy positions on decisions that lie ahead for the NSW Government. Issues that require policy positions include the transition in generation mix as coal-fired generators are retired, connection standards that are consistent across jurisdictions and support new technologies, and policy settings to enable new business models such as demand aggregation.

Success depends on the actions of key players

The NSW Electricity Strategy and Net Zero Plan offer a vision and coordinated plan for the energy future of NSW. Success relies on the approaches taken by the Government and the private sector. Progress requires Government leadership, well-thought through execution and constructive collaboration.

Nous is committed to supporting better energy outcomes for Australians and will continue to work closely with the NSW Government and private sector to realise the strategy and plan’s potential.

This article features insights from a Nous Group paper, ​​“Seizing the opportunity for an affordable, reliable and sustainable energy future for NSW​​”. 

Get in touch to discuss how Nous can help you shape the energy future of NSW. 

Connect with Richard Bolt and Mohamed Daif on LinkedIn.

Published on 19 May 2020. 

[1] NSW Electricity Strategy

[2] Net Zero Plan Stage 1: 2020-2030