INDUSTRY DEVELOPMENT

STRATEGIC ENERGY SECTOR FRAMEWORK

BRIEFING NOTE SUMMARY • Electricity prices are

unsustainably high in TNQ which restricts business profitability and new investments that drive economic growth.

• The TNQ energy sector is defined by three distinct energy markets: (1) High Demand Fringe of Grid (Cairns); (2) Fringe of Fringe of Grid (rural towns and properties closer to Cairns); and (3) Off-Grid (remote towns and properties).

• Surveys indicate 15% of regional Queensland businesses have cut staff hours or reduced staff numbers in response to escalating electricity bills.

• A TNQ Energy Sector Strategic Investment Framework is proposed to drive affordability, reliability and transition in the TNQ energy system. This Framework would require shared State and Federal Government investment of approximately $1.5 million.

• A State Government CSO of $465 million is in place. However, a 5% headroom charge is still applied state-wide which removes the benefit of the CSO in TNQ.

Tropical North Queensland (TNQ) faces unsustainably high electricity costs to the detriment of regional industries, small, medium and large enterprises, and domestic consumers. An estimated 75% of electricity consumed from the Queensland energy grid is by business customers and more than 97% of Queensland businesses are small business, making up 44% of jobs in the State.Given TNQ’s proximity to two world heritage listed assets, the Great Barrier Reef and the Wet Tropics Rainforest, the vision for the region is energy sector reliability, affordability and a seamless transition to reduced carbon emissions.

At present, the region suffers significant energy reliability, affordability and transition challenges, while also providing opportunities such as energy export. Despite policy instability over the last decade, there have been major new investments in the region in wind, solar, biomass and hydro-power electricity generation. As more stable State and Federal energy policy frameworks are beginning to emerge, to achieve energy reliability and affordability while also transitioning to reduced carbon emissions, TNQ will require a region-wide strategic investment framework that has bilateral Government support.

THE ISSUE

A D V A N C E C A I R N S P R I O R I T I E S 2 0 2 0 / 2 1

Despite policy instability over the last decade, there have been major new investments in the region in wind, solar, biomass and hydro-power electricity generation.

COUNCIL: ALL TNQ STATE ELECTORATE: CAIRNS, BARRON RIVER, COOK, HILL FEDERAL ELECTORATE: KENNEDY

A D V A N C E C A I R N S P R I O R I T I E S 2 0 1 9 / 2 0

NEXT STEPS

• That in 2020-2021 the Federal and Queensland Governments support development of the TNQ Energy Sector Investment Framework through shared investment of approximately $1.5 million (based on 50:50 contributions).

• That to maintain the Uniform Tariff Policy and annual payment of the Community Service Obligation, the Queensland Government remove the 5% headroom requirement and reduce wholesale costs by 10%.

ESTIMATED PROJECT COST $1.5M 2020-2021

Recommended State Investment $0.75m

Recommended Federal Investment $0.75m

BACKGROUNDCurrent energy prices seriously impact

business and domestic consumers, adding to cost-of-living pressures and resulting in business and industry restricting their regional economic growth opportunities. While subsidies exist for domestic consumers, industry operates in a largely unsubsidised environment, making energy a critical influence in decisions to invest in TNQ.

Across northern Queensland, inefficiencies in the electricity network drive the case for increased power generation. High transmission losses and fuel transport needs highlight the overwhelming costs of supplying power across the region and universally, the efficiency and reliability of TNQ’s energy supply needs to be assessed and improved.

In response to escalating energy costs, the Queensland Electricity Users Network (QEUN) conducted a regional business survey in 2018 and identified that 15% of regional Queensland businesses had already cut staff hours or reduced staff numbers in response to escalating electricity bills. In addition, 30% would consider cutting staff if electricity prices rise again while conversely, 24% would consider expanding their business if electricity prices fell.

The survey also identified five business sectors in regional Queensland greatly concerned about their ability to pay their power bills in full and on time. All five represent critical industries to the TNQ economy which combined, represent 35% of jobs and contribute $3.8 billion toward GRP annually:

1. Accommodation and food service2. Agriculture3. Arts and recreation4. Manufacturing5. Retail tradeAs a predominantly tourism, services,

resources and agricultural economy, TNQ

stands firmly behind the need to: (i) ensure a strong reliable power strategy that delivers substantive energy security; (ii) identify new generation options that deliver improved energy affordability; and (iii) without compromising reliability and affordability, deliver significantly on reducing carbon intensity in energy production.

However, preliminary work by the CSIRO Energy Flagship suggests that the TNQ energy sector is defined by three distinct energy markets: (1) High Demand Fringe of Grid (Cairns); (2) Fringe of Fringe of Grid (Rural Towns/Properties across TNQ); and (3) Off-Grid (Remote Towns/Properties). The reliability, affordability and transition challenges and opportunities facing these three markets is diverse, requiring significantly different policy, budgetary and industry investment solutions.

In addition, the impacts of disruptive technology, including the uptake of domestic new renewable sources, progress in battery storage technology, and advancements with electric car technology are certain to impact the way that energy is generated, stored, transmitted and consumed in the future. In response to escalating energy costs the State Government provides a Community Service Obligation (CSO) payment to Ergon Energy (Energy Queensland) to subsidise the cost of electricity for domestic and business users in regional Queensland. The purpose of the CSO is to ensure the Uniform Tariff Policy (UTP) is implemented evenly across the State and in 2018-2019, the total CSO to support regional Queenslanders was $465 million.

The 5% headroom charge introduced in 2013 to allow competition in south-east Queensland however is applied state wide, regardless of the fact that there is only one provider in regional Queensland. Coupled with high wholesale costs, this diminishes the benefit of the CSO in TNQ.

A decade of policy uncertainty has led to limited activity around the resolution of energy security issues. In addition, the complexity of electricity regulation is a barrier for community and industry engagement in energy reform discussion and delivery. Significant and targeted effort is needed to frame the investment opportunities that deliver reliability, affordability and carbon emission transition outcomes for regional Queensland. Therefore, in a collaborative partnership coordinated through James Cook University’s Cairns Institute, it is proposed to develop an Energy Sector Strategic Investment Framework. This would aim to:• Better understand key reliability,

affordability and transition drivers in our region’s energy markets;

• Explore and define the most viable new generation opportunities;

• Determine the most critical policy refinement and public-sector investment pathways;

• Explore the potential for new energy and energy services export opportunities in the region;

• Engage with industry, community, Local Government, and other key regional stakeholders to scope and identify current and future energy options and aspirations; and

• Develop and drive a cohesive, bilaterally supported strategic pathway for regional attracting investment into the region to achieve reliability, affordability and transition.

PATHWAY TO PROSPERITY