State Electricity Commission enshrined: Energy reform for Victoria’s Constitution

A key component of the Victorian Government’s 10-year plan to transition to cleaner energy where there is increased public demand for action and progression, the State Electricity Commission (SEC), has now been enshrined in the State Constitution, and thereby entrenches its objectives – to support Victoria’s net zero ambitions and to participate in the generation, storage and supply of renewable energy in Victoria – as well as its public ownership, with the State holding a controlling interest.

On 22 October 2024, the Constitution Amendment (SEC) Act 2024 (Vic) received royal assent, amending the Constitution Act 1975 (Vic) to enshrine the SEC.

What is the context for enshrining the SEC?

The Constitution Amendment (SEC) Bill 2023 was introduced by the Hon Lily D’Ambrosio, Minister for Climate Action, Minister for Energy and Resources, Minister for the SEC, on 15 November 2023.

The Government is seeking to use the SEC to help change the trajectory of Victoria’s energy system as the National Energy Regime, which regulates the sale and supply of natural gas and electricity in Australia, is not aligned with Victoria’s objectives since it was not established to give effect to decarbonisation.

According to the second reading speech delivered by Ms D’Ambrosio, the purpose of entrenching the SEC in the Constitution is “to safeguard its existence and ownership by the State” and to ensure Victorians can rely on the SEC to “invest in renewables, support households and help create training and work opportunities for generations to come”.

As the Bill sought to amend the Victorian Constitution, the Labor government was required to secure a special majority, needing 60% in both the Legislative Assembly and Legislative Council.

Now that the Constitution has been amended, the added provisions may only be repealed, altered or varied if a special majority of all of the members of both houses of Parliament is achieved again.

What does the Constitution Amendment (SEC) Act change?

The Act secures the SEC as a government-owned renewable energy company in which the State must always have a controlling interest.

The State will have a controlling interest if it controls the composition of the board of the SEC and is in a position to cast or control the casting of all of the votes that might be cast at a general meeting.

The objects of the SEC are to:

• support Victoria’s transition to having an electricity system operating in Victoria with net zero greenhouse gas emissions attributable to the electricity system’s operation;
• generate, purchase and sell electricity in Victoria;
• own, operate, develop, support, participate in and invest in renewable energy generation and storage systems and facilities; and
• supply energy related products or services to energy consumers in Victoria.

While the SEC should not do anything contrary to these activities, the objects are expressed so as not to limit the SEC’s activities. In the second reading speech, the Minister said entrenching these objectives provides the SEC with a long-term purpose beyond the immediate goal of accelerating the transition to renewable energy, and offers sufficient clarity and certainty about its functions without limiting its future role or commercial flexibility.

Additionally, the SEC must not pay any dividends or distributions of profits to the State or any shareholders it may have. All the profits the SEC makes must be reinvested back into renewable energy projects, demonstrating a commitment to the achievement of the SEC’s objectives.

The SEC is explicitly prevented from owning, operating or investing in a fossil fuel facility, reinforcing its commitment to renewable energy.

The Act renders void activities which are contrary to the Act, including the State or a Minister relinquishing a controlling interest in the SEC, the payment of a dividend or distribution of profits or actions that relate to the owning, operating or investing in a fossil fuel facility.

What are the implications of the changes?

The Act secures public ownership of renewable energy assets through the SEC for the future, giving the SEC the certainty to continue accelerating the renewable energy transition and prioritising long-term benefits to Victorians and the achievement of Victoria’s target of 95% renewable energy use by 2035.

While the SEC’s investment in electricity infrastructure is intended to reduce the shortfall between the resources required to achieve Victoria’s climate targets and the investment from the private sector, this private sector shortfall may be based on assessments of financial viability. The SEC will need to ensure it remains viable and financially sustainable while navigating the prohibition against owning, operating or investing in a fossil fuel facility.

According to the Explanatory Memorandum, this prohibition is not intended to apply to the SEC’s subsidiaries, parties that the SEC enters into agreements with, any partners or co-investors or any entity that the SEC has an investment in. Further, the prohibition does not prevent the SEC from receiving finance from or partnering with a company that has commercial interests, investments or projects in fossil fuels.

The SEC can leverage its public ownership to make investments guided by social purpose, market enablement and sustainable returns. The SEC outlined its plan to accelerate Victoria’s transition, with its Chair Simon Corbell saying that as a government owned renewable energy company, “the SEC can invest together with private sector partners before market signals are strong enough to incentivise others”. In its 2023-2025 Strategic Plan, the SEC conveys that by being an early investor in transition projects, it is striving to build industry confidence and enhance the profitability of electricity infrastructure and services investments to attract more investment from the private sector. In turn, the SEC expects additional private investment will advance Victoria’s transition efforts and deliver projects that would not have been delivered at the same speed, or at all, without the SEC’s involvement.

The Act recognises that the SEC will require flexibility in the long term and provides a mechanism for it to change legal form, for example, to become a statutory corporation. To balance this flexibility with the objective of limiting the ability of future governments to vary the operations of the SEC or to undermine the Act’s purpose, the Act allows Parliament to declare a single successor entity, in any form of body corporate, to the SEC by having each house of Parliament pass a resolution.