As global instability and conflict reshape national priorities, energy security is back in the spotlight. Many nations are reconsidering their strategic vulnerabilities, including the resilience of energy grids and related infrastructure. As the war in Ukraine demonstrates, a nation’s ability to generate and transmit power to its population is strategically significant, especially leading up to and during months of high energy demand brought on by regular weather patterns. Over the past 50 years, energy-related assets have also been targeted in hundreds of attacks. These attacks have demonstrated that even relatively minor non-state actors are capable of causing significant damage to national energy infrastructure, highlighting gaps in resilience strategies.
In Australia, the challenge of building resiliency into the energy grid is doubly complex. We are already undertaking a major transformation of our energy system to meet decarbonisation objectives and replace ageing infrastructure. The roll out of transmission lines and other infrastructure required to facilitate this transition is proving to be costly and is facing considerable resistance from parts of the community. To add further projects with a price tag in the billions of dollars into the mix to build in redundancy may appear foolhardy as it is sure to push up the price of delivery, exacerbate the shortage of material and labour and add further pressure on household energy budgets. From 1 July, the Australian Energy Regulator’s (AER) latest determination of ‘standing offer’ retail electricity prices are increasing by up to 9.7%.
As system security becomes increasingly important, it may be time to consider new funding models for critical energy infrastructure. Given the existing pressure on household energy budgets, the cost of additional resilience projects may be beyond the capacity of the vulnerable sections of Australia’s public to sustain.
The limits of the current model
Under the current model administered by the AER, the capital cost of energy transmission projects is added to the network service provider’s regulatory asset base and ultimately recovered from energy consumers. The remit of the AER is to promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers. In safeguarding the long-term interests of consumers, the AER is required to consider the price, quality, safety, reliability and security of energy supply, as well as emissions reduction targets. While the AER is required to consider the safety and security of the national electricity system, its remit does not extend to national security considerations, such as ensuring resilience of the grid in the face of a potential attack. Moreover, any system security considerations must be weighed up by the AER against the impact of additional investment on prices paid by consumers.
Time for federal intervention?
As the energy market transition has gathered momentum, some state governments have taken on a greater role in directing investment to support the development of renewable energy zones. However, the cost of investment under these state government schemes is similarly borne by consumers.
With national security becoming an increasingly important consideration, it may now be time for the Federal Government to take a greater role in directing and funding investment to support energy infrastructure resilience as part of the increased defence spending recently contemplated by both major parties. Naturally, adding these costs to the federal budget would increase the burden on all taxpayers, but, crucially, its impact would be felt by individual taxpayers differently in accordance with the progressive taxation system.
This approach would deliver a fairer allocation of the costs of securing the electricity grid as would benefit any other national security initiative. While some may baulk at apparently redirecting defence spending to the construction of civilian infrastructure, that infrastructure may prove essential in a large or small-scale conflict scenario to ensure the ongoing operation of Australia’s economy and to prevent sapping popular morale, both of which are essential to maintaining a national security effort.
This funding approach should not be confined to resilience-related projects necessitated by national security considerations. It could be a natural evolution of the current involvement of state and federal governments in delivering energy security during the energy transition.
Currently, when governments lead the delivery of energy infrastructure, such as within renewable energy zones, the costs are largely passed on to consumers. But, as these projects become increasingly dictated by the broader national interest, the industry could take the lead from other infrastructure projects. Long-term concessions backed by direct government funding have helped deliver more equitable outcomes for taxpayers and end users, and could do the same in the energy sector.