The renewable investment that shows government abandoned a key SEC promise

The Victorian government has reneged on an election pledge for a revived State Electricity Commission to take a majority stake in each renewable energy project it funds.

The SEC’s inaugural investment of $245 million in three large batteries in Melbourne’s west, announced in late November and selected from more than 100 contenders, represents a 38.5 per cent share of the 600-megawatt project.

Artist’s image of the Melbourne Renewable Energy Hub, a large battery farm in the city’s west.

Three sources directly involved in establishing the SEC, speaking anonymously to detail confidential negotiations, said the organisation’s strategy was quietly altered this year after an expert panel identified difficulties of meeting the government’s initial election pledge.

They said the government-appointed panel found a $1 billion budget was insufficient for larger-scale projects and although there was enthusiasm from investors, the SEC would find it difficult to identify smaller partnerships where private companies seeking financial returns would accept a majority government investment.

“There was an initial vision for the SEC that promised a lot, but the details were to be ironed out later. Once the commercial realities of the energy market entered the picture, that vision was bound to change,” one source said.

During the 2022 election campaign, then premier Daniel Andrews’ announced that the government would revive the SEC. The government allocated a budget of $1 billion to help create 4.5 gigawatts of renewable energy, enough to replace the coal-fired Loy Yang A power station by the time it was due to go offline in 2035.

Amid rising energy prices and cost-of-living concerns, the government issued a press release saying the SEC would deliver “government-owned renewable energy to drive down power bills and put electricity back in the hands of Victorians”. Another release said the state would have a “controlling interest in each of those projects”.

On Andrews’ website, a policy page for the SEC says that Victoria would bring back “government ownership of energy generation” and “the government will own a majority in each new project, meaning any profits will go straight back into keeping bills down for Victorians”.

Tennant Reed, director of climate change and energy at the Australian Industry Group, said it made sense for the state to prioritise its money for maximum impact. He said the SEC could have potentially put $1 billion into a majority share on a project, but this would limit the ability to make commercial returns and reinvest those profits.

“A billion dollars of capital from the Victorian government, it can be useful [but] it can only stretch so far, and so they do have a delicate dance to do to ensure that they are making a difference with that money,” he said.

“One way to make a difference is to take majority stakes and sort of call the shots. Another way to make a difference is to provide a capital cushion that’s willing to absorb some of the risks.

“Unlock more projects than the private investors would have been able to on their own.”

Wording in the SEC’s 10-year strategy document, released in October following the expert panel’s intervention, avoids committing to majority ownership and instead refers to “critical system gaps” and a bid to “catalyse investment in wind and solar”.

Without a controlling share in renewable energy projects, the state may have limited power to influence decisions about where power is to be sold.

Two of the batteries in the SEC’s initial investment are 70 per cent owned by investment firm Equis and 30 per cent commission-owned. The third and largest battery is 49 per cent owned by the SEC, but a contractual arrangement gives the state dispatch rights that allow it to choose when the stored energy is sold onto the national electricity market.

Victoria’s Energy Minister Lily D’Ambrosio.Credit: Eamon Gallagher

When asked about the arrangement in November, Energy Minister Lily D’Ambrosio claimed the government had “always” said the commission’s controlling interest would be across a portfolio of projects, and it would build to a 51 per cent share across its $1 billion in funding between now and 2035.

“We’ve always said that the SEC will have a controlling interest in its portfolio of projects. And we’re going to be doing that.”

Under the latest budget predictions, net debt in Victoria is expected to hit $177.8 billion by mid-2027 – equivalent to about a quarter of the state economy. This is $6.4 billion higher since the May budget and comes after the total cost of the North East Link road project blew out by a further $10 billion.

Grattan Institute energy program director Tony Wood questioned whether there was a need for the government to invest the money at all when it could focus on policies that encouraged the private sector to pay all the upfront costs.

“If all you want to do is build wind farms, solar farms, and maybe some storage. I would argue that there’s just no point in the government doing that,” he said.

“That does not mean the government does not have a role. I absolutely support the government having a role to put in place the policies to drive the renewables, then just get out of the way.”

Wood said that if the policy was set up right, the private sector would pay 100 per cent and the government would not need to put in any money.

Daniel Andrews campaigning in Yallourn with a promise to “bring back the SEC”.Credit: Jason South

“I’m not sure what the point is. You’ve got to really stretch the argument to come out with any rationale for why you get a better outcome with the government in there or without the government being in there,” he said.

Opposition energy spokesman David Davis said the government had known its pledges for the SEC, including majority ownership, were a “pipe dream” before the election.

“They went ahead with the lie anyway,” he said. “The SEC has not delivered lower prices or more reliable power, it just promises a new government bureaucracy.”

The Allan government did not respond directly to questions about whether the SEC’s majority ownership policy had changed after the election.

A spokeswoman said its investment was consistent with the criteria set out in the SEC’s strategic plan, including enabling the battery project to be expanded and delivered quicker.

“This will strengthen our energy security and put downward pressure on prices sooner,” she said.

“SEC’s investment model was developed by an expert advisory panel consisting of prominent energy sector and business leaders. Over time, the SEC will develop a pipeline of projects, which give greater options in ownership and operational terms.”

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