After a turbulent year in the energy sector, two major reports released today highlighted energy affordability as a major challenge in Australia's transition from fossil fuels to renewable power.
Multiple factors would push up costs in the near-term, but long-term the energy transition would deliver net benefits and improve affordability for consumers, according to the reports.
The Australian Energy Regulator's AER State of the Energy Market warned high inflation and the rising cost of network investments could add to the pain of high energy prices in the near-term.
The NEM report said that the best strategy to improve energy affordability was massive physical investment and policy reform An orderly energy transition is the best way to improve energy affordability in the long term, according to the Health of the National Energy Market NEM report.
The NEM was going through an unprecedented period of transformation, according to the Chair of the Energy Security Board, Anna Collyer.
The events earlier in the year highlighted the types of challenges we face and the bumps that can arise due to a combination of factors, including the pace and scale of change, the volatility of global commodities markets and the accelerating retirement of thermal generation, Ms Collyer said.
Market reform and regulatory settings that encourage efficient investment in our energy future are necessary to manage those risks and deliver an orderly transition. AER chair Clare Savage said declining energy affordability was increasingly worrying for consumers who are already facing higher costs of living.
In July, we saw record wholesale energy prices but network costs are likely to increase as inflation and rising cost of capital impact the cost of network investments that will be necessary to support an orderly decarbonisation of the energy system, Ms Savage said.
In these tough economic conditions, we are focused on using our regulatory levers to get the best possible outcomes for consumers in order to ensure that the transition is at least cost-effective. In October, the consumer vulnerability strategy will be launched by the AER, which will include a series of actions to tackle market complexity and improve energy equity.
Ms Savage said that the market transition needs to have consumers at the centre of it.
In good news, households and businesses have been able to install record volumes of rooftop solar capacity, reducing the volume of electricity households need to buy from the grid.
More than 15 GW of capacity are connected to the grid, which is about one-fifth of the NEM's total generation capacity.
There was an increase in battery investment, including an increase in small-scale batteries by 33 per cent, due to lower costs and expanding opportunities for battery technology.
Four new big batteries came online, bringing the total across the NEM to nine, including the Victorian Big Battery, which is now the largest lithium-ion battery in the southern hemisphere.
The reports warned that delays in transmission projects and acceleration of coal power station closures could lead to potential supply gaps in reliable power in the future.
The health of the NEM report said the best strategy to deal with the transition was to build replacement assets quickly and cost-effectively in advance of coal and gas generation retirements.
The report stated that this will reduce our exposure to the shocks of international gas and coal price movements, reduce our reliance on ageing assets and allow consumers to benefit from strongly connected, geographically diverse renewable energy resources.