Issue 91, November 2012


The tsunami of energy information and opinion continues to roll over us, bringing the energy white paper this month, the Senate select committee report on power prices, the Climate Change Authority review of the renewable energy target and the massive Productivity Commission draft review of networks. Ahead lies a Council of Australian Governments summit on power issues in mid-December preceded by a meeting of energy ministers in mid-November. This newsletter edition wades through it all, offering a range of perspectives on issues and developments that will impact electricity supply for years to come.

Wind rush

Analysts ReputTex warn that the growth of wind capacity on the east coast will outstrip expected additional electricity requirements by more than 2.5 times over the rest of the decade.

RepuTex say they expect the wind rush to result in a drop off in output by gas-fired and brown coal power plants.

RepuTex associate research director Bret Harper argues that new investment in wind generation will get under way in 2015 as the present glut in renewable energy certificates wears off. The analysts expect 11,000 megawatts of wind farms will be needed to meet the current target, which the Climate Change Authority has recommended should be sustained.

This, Harper says, will keep wholesale power prices low on the east coast, “bad news for marginal coal producers.”

RepuTex predicts that 80 per cent of new capacity built this decade will be wind-powered.

It also forecasts that existing gas plant production will struggle to compete with black coal generators in this market and gas-based operators will then be confronted from 2016 by domestic fuel prices being driven higher by the new Queensland LNG projects.

White paper

A central point in the long-awaited federal energy white paper, released on 8 November, is that Australia faces continued pressure over domestic energy prices.

The paper’s appearance coincided with a report by the New South Wales Auditor-General recording that average household prices in the State had risen from $1,000 per year in 2007-08 to $2,230 this financial year.

Rising costs of production, the need to replace ageing infrastructure and the development of cleaner sources of energy are the drivers, says the white paper.

It sticks with its draft prediction that as much as $240 billion may need to be invested between now and 2030 to meet domestic energy requirements while predicting that energy export projects may require up to $290 billion in capex.

The paper warns that “the footloose and competitive nature of foreign capital means that Australia must maintain attractive and stable investment and policy frameworks, particularly if the turmoil in global financial markets continues. “This,” it says, “includes ensuring that energy markets provide opportunities for fair commercial returns.”

The paper also warns that “there are no easy fixes” to domestic energy price problems.

“If we are to maintain investment and promote the efficient use of energy,” it says, “prices must reflect the cost of supply in a competitive market.

“Interventions to suppress efficient pricing outcomes will have detrimental investment and supply consequences that are not in the long-term interests of consumers.”

The paper claims that there are positive signs that some price pressures may begin to ease, pointing in particular to the impact of lower growth in electricity demand on the need for infrastructure investment.

Dog’s breakfast

The Grattan Institute’s Tony Wood says most of the current policy framework for low-emissions demand and technology developments for supply is a “dog’s breakfast.”

Speaking at the mid-October Sydney conference on uncertainty in the east coast electricity market, Wood said the key requirements for policy are credibility, flexibility and predictability. “Certainty is an illusion.”

Given that the challenge is to decarbonise Australia’s electricity sector within 40 years while maintaining security of supply and affordability, Wood said, none of the renewable technologies available can produce power at a scale and at costs similar to today’s conventional generation.

The principles for government market intervention, Wood added, must start by effectively addressing the problems and the solutions needed to be low cost and “provide a flexible, predictable framework for investment.”

Another conference speaker, Scott Taylor of Infigen Energy, argued that the east coast market is “no longer fit for purpose” because of the distorting effect of a multitude of ad hoc State and federal regulations.

Meanwhile the federal government has announced another $340 million in funding for energy efficiency efforts.

Climate Change Minister Greg Combet says the grants being offered include a $200 million program to help local governments and not-for-profit community organisations undertake energy efficiency upgrades for local council buildings and recreation centres and $100 million to demonstrate smarter energy use to low income households.

Key driver

Mark Collette, executive manager energy markets of Energy Australia (formerly TRUenergy), says New South Wales is the key driver of reduced demand in the east coast market.

“Rolling 52 week energy is declining in the State at a rate equating to an average demand loss of 400 to 500 MW relative to 2011,” he told the Sydney conference on “NEM” uncertainty. “Much, but not all, of this loss relates to the closure of Kurri Kurri smelter.”

Collette also argued that claims large energy retailers are using market power to constrain the roll-out of renewable energy in the “NEM” are untrue. In September alone, he said, Energy Australia committed to buying a further 215 MW of renewable power supply in NSW under two new contracts. “The best projects in the market are being supported by the industry.”

Collette said the market was faced by four key challenges: (1) rebalancing supply and demand as consumption falls, (2) ensuring generator shutdowns are carried out efficiently to sustain the “NEM,” (3) managing changes to the renewable energy target to sustain the “NEM” while ensuring investor confidence and (4) ensuring retail prices reflect both variable and fixed costs faced by the suppliers.

Nuke views

A new Essential Report opinion poll finds that respondent support for the introduction of nuclear power in Australian has fallen back over three years – from 43 per cent in favour in January 2009 to 39 per cent in October this year – while opposition has grown from 35 per cent then to 45 per cent now. The “don’t know” reaction is stuck on 21 per cent.  The poll also finds that those supporting the Coalition favour nuclear power by 47 to 34 per cent. Labor voters are split 36/44 per cent – and 52 per cent of men support nuclear energy versus 25 per cent of women.

Gas benefits

Federal Resources & Energy Minister Martin Ferguson says the coal seam gas industry in Queensland now provides 18,500 direct and indirect jobs.

Much of the employment, he adds, is in rural and regional areas that have been struggling as a result of declining farm incomes and periods of severe drought and floods.
“CSG projects are generating significant flow-on benefits,” Ferguson says, “offering local construction and supply opportunities and investment in training, research and development. These benefits will continue over 20 to 30 years.”

Ferguson says that regulatory regimes for the unconventional gas sector already include “a majority of international best practice strategies.” But he agrees that federal and State governments must continue to pursue the highest standards for the industry and use “best evidence” when making regulatory decisions.

Local communities and the public generally must have confidence that the regulators and the industry are supported by sound scientific evidence.

Ferguson, supported by the Coalition, continues to stare down lobbying by the manufacturing sector to quarantine some coal seam methane resources for domestic use.

“The federal government,” he says, “does not believe in constraining domestic gas prices or supply through intervention.”

Better for business

Martin Ferguson says Australian businesses have faced a 33 per cent increase in electricity prices over the past three years compared with a 40 per cent rise for householders.

He rejects energy-intensive user claims that Australian residential power bills have shot towards the top of the OECD ladder for electricity costs.

Analysis by his department, he says, shows that, when purchasing power parity is taken in to account (what can be bought with a currency), average household prices “still sit within the lowest quartile of OECD nations.”

This is not grounds for complacency, he adds, “but I simply wish to correct the record against selective analysis earlier this year.”

Ferguson insists that there are no “quick fixes” for the electricity price situation. The issue needs to be address through a package of reforms that together will improve efficiency of supply.

“The energy market is incredibly complex and interconnected,” he says, “and acting without detailed analysis to implement the best possible solutions will only lead to perverse outcomes with longer-term consequences not in the best interests of consumers.”

Not closing

Government-owned CS Energy has denied a claim by the Electrical Trades Union that it is planning to close its 700 MW Callide B power station, one of a trio of coal-fired plants near Biloela in Central Queensland.
The State’s other government-owned generator, Stanwell Corporation, is currently undertaking a two-year shutdown of two units of its Tarong plant near Kingaroy.

Elsewhere in the east coast “NEM” Alinta has partially closed Northern power station in South Australia and Energy Australia (formerly TRUenergy) has closed one unit at Victoria’s Yallourn plant.

CS Energy’s 2011-12 annual report, recently released, notes that the business is operating in a market with low average pool prices and falling contract prices driven by a downward trend in demand, an over-supply of generation, the dominance of vertically-integrated retailers on the east coast and carbon policy uncertainty.

CS Energy says Queensland now has total installed capacity of 12,300 MW compared with a 2012 summer maximum demand of 8,806 MW.

It adds that it faces a $260 million cost of carbon in 2012-13.

Meanwhile, Tony Bellas, chairman of Brisbane-headquartered ERM Power, has told the company’s annual general meeting that two key factors – a further spread of domestic solar PV systems and greater energy consciousness by households and businesses – are causing structural adjustment in the “NEM.”

Also, AGL Energy has announced that it is suspending development of the first stage of its 1,000 MW Dalton OCGT power station near Goulburn in NSW.

The company says the economic viability of the project had been under review for several months because of market conditions. The first phase of the $1.5 billion project, which received development from the NSW government in July, is intended to be 500 MW.

An AGL spokesperson said growth in demand for electricity had slowed due to higher prices, economic conditions and milder weather, among other factors.  "Dalton is still on the books, we are just not going to progress it any further at this stage.”

Doesn’t make sense

A former State Treasurer in Queensland, Keith De Lacy, has told journalists that public ownership of government monopoly businesses no longer makes sense.

“In this day and age there is no compelling case to keep commercial assets in public ownership,” he says. “They are better off in private hands. It is just a distraction for government and they are inevitably less efficient in government hands. However, it is a very difficult exercise without a mandate at an election.”

Both Queensland and NSW governments face continuing pressure to sell their network businesses, with analysts suggesting the privatisations could raise as much as $50 billion for the cash-strapped States.

Going up

The Climate Change Authority, in its draft report on the renewable energy target, says that sustaining production at 41,000 GWh, the federal government’s present policy, will deliver 25 per cent of demand in 2020 in a weakened consumption environment.

The authority, which is recommending that the status quo be retained, says cutting the RET back to a target of 26,400 GWh, representing 20 per cent of projected demand at the end of the decade, would save $4.4 billion in resource costs – savings in annualised capital and operating costs between now and 2030 – versus an estimated total resource cost of $116 billion over the period.

Reducing the RET to a “true” 20 per cent would also cut emissions abatement from the electricity sector between now and 2030 by 94 million tonnes, it claims.

The agency considers that the cost savings are not large enough to offset damage to investor confidence that a downward shift in the RET would entail.

A consultant’s review commissioned by the CCA assesses total investment in renewable generation in 2011 in large-scale and small-scale systems at $5 billion – of which rooftop solar PVs, driven by generous federal and State subsidies, accounted for $4.3 billion.

The consultants say the renewables sector had 8,600 full-time employees in 2011.

All change
Consultants ACIL Tasman have told the West Australian government to either fully deregulate the State’s power supply system or to revert to the past integrated utility.

Mark Chatfield, the consultants’ WA executive director, has said to a Perth newspaper that the current disaggregated, but mainly State-owned, set-up is not delivering consumer benefits because of the dominance of generator Verve Energy and retailer Synergy. “There is neither sufficient competitive pressure nor efficiencies of scale to keep down prices.”

There has been a running debate in the West over this year about the merits of recreating the former fully-integrated utility. The move was first raised by Premier Colin Barnett and is opposed by the Labor opposition and the WA Chamber of Commerce & Industry.

The WA Economic Regulation has rejected the claim that disaggregation has contributed to the past four years’ power price rises, saying they were inevitable because the previous government had frozen them for so long.

CCS priority

The Australian Coal Association has called for top priority to be given to the development of storage sites for CO2 as part of a national collaborative approach to lowering greenhouse gas emissions in the fossil fuel sector.
Greg Sullivan, deputy CEO of the association, says developing CCS technology is becoming urgent if Australia is to deliver its greenhouse gas emissions targets in the coming decades.

"CCS is not only a coal technology. It is a carbon technology that will be as important for future gas use as it is for coal use and for use in industrial processes such as steel and cement manufacture," Sullivan told a conference in Perth.
"Treasury suggests that CCS will be applied to electricity generated from coal and gas for up to a third of Australia's electricity by 2050. If CCS is not deployed, electricity will be fuelled by gas that has no carbon abatement. The result is Australia's electricity sector emissions would be around 40 per cent higher in 2050. “

Sullivan says "the number one policy opportunity” for the near term in Australia is to prioritise and accelerate the appraisal of large-scale CO2 sites.

Meanwhile Eileen Claussen, president of the US-based Centre for Climate and Energy Solutions, has told a Brisbane audience the world needs CCS among a mix of policies to address climate change. "We must ramp up investment in CCS technologies and enact strong policies to ensure that they are deployed."

Embedded issues

In a submission to the Senate select committee on electricity prices, Victorian distribution networks twins CitiPower and Powercor Australia have responded to claims that their sector is a key barrier to the roll-out of embedded generation in order to protect its revenue stream.

The companies say there are series of issues affecting the connection of medium and large-scale solar PV systems to the networks.

They are required to undertake detailed, case by case, assessments of the impact of such connections in terms of safety, security and reliability of supply, they say.

If a network is already constrained in an area where an embedded generator is seeking connection, additional investment will be needed to ensure safe operation of the system and this takes time.

CitiPower and Powercor add that would-be generators often provide incomplete information and the time between initial contact and final provision of all required information can be “substantial.”

Frustrating & worrying

Rod Sims, chairman of the Australian Competition & Consumer Commission, used an address to the Energy Users Association to hit back at the States seeking to pull the Australian Energy Regulator out from under his umbrella.
Declaring the situation “frustrating and worrying,” Sims defended the AER against critics.

It is “strange indeed,” he argued to claim that higher than necessary network prices are due to the regulator’s deficiencies. In fact the AER had intervened to reduce proposed expenditure and to deliver prices “significantly lower” than those sought.

The rules, he said, were “lead in the AER’s saddle bags,” restricting it from making independent assessment of expenditure programs with a merits review system that allowed businesses to cherry pick elements of decisions to challenge.

One Australian Competition Tribunal ruling over the cost of capital had resulted in an additional $2 billion cost for NSW customers.

The AER was also not responsible for NSW and Queensland government decisions to make networks meet higher reliability standards. In Queensland this had resulted in capex outlays on reliability doubling “for a relatively modest gain.” 

More than a billion dollars of capital expenditure could be deferred by east coast networks without any detrimental affect on current reliability levels.

Sims says the AER cannot be more independent than it is now and he dismisses complaints that it is part of an entity too focussed on the interests of consumers. “Its mandate is to work in the long-run interests of consumers.”

The ACCC chairman accuses federal and State governments of being too slow to recognise the deficiencies in the rules even when the AER and the NSW regulator, IPART, were pointing them out.

“It is difficult to see how making the regulator less independent and more responsive to industry can be in the long-term interest of consumers.”


Rod Sims has distanced himself from the accusation most commonly hurled at east coast networks by politicians, the media, consumer groups and people like Ross Garnaut. “Gold-plating,” he says, “is a term I have never used.”

The debate, he argues, should be about how to appropriately regulate the revenues, and therefore the profits, of monopoly network businesses and “the lack of sensible processes” in setting network standards.

No silver bullet

An alliance of business, CHOICE, the Brotherhood of St Laurence and the Energy Efficiency Council says there is “no silver bullet” that can address changes to the east coast electricity market.

The alliance, which includes the Australian Industry Group, however, is calling for urgent action to achieve reform.

It calls on federal and State governments to ensure that network determinations – which will next address the period 2014-19 – are undertaken next year with a new set of rules.

The alliance wants governments to focus on greater scrutiny of network businesses, a more clear operating framework for networks, boosting energy efficiency and greater consumer protection with a stronger voice for customers in the market.

It says any one policy on its own will only have a limited impact on electricity prices. “A mix of policies is required to engage all parts of the market.”

CHOICE meanwhile, off its own bat, describes the electricity sector as “broken” and urges immediate government action to fix market problems.

Blame game

Grid Australia, the lobby group for the nation’s electricity transmission businesses, has warned that the current blame game around power prices may lead to short-sighted decisions that may “seriously jeopardise” long-term supply security.

The organisation has called for greater focus on finding solutions to network issues rather than seeking “easy targets to blame for rising prices.”

Grid Australia chairman Peter McIntyre, CEO of TransGrid, says commentators on the situation need to understand that “much of the vital network infrastructure built 40 to 50 years ago needs replacing and these costs are considerable.”

Knee-jerk reaction, he warns, “can end up creating costly and dangerous future problems with a greater risk of power failures affecting millions of Australians due to under-investment.” 

The comprehensive reviews currently under way are investigating long-term solutions to provide price relief without compromising safety and reliability of supply, he says.

Grid Australia’s members own and operate more than 47,000 kilometres of high voltage transmission lines.

Yes please

The Australian Energy Market Operator has leapt at a Productivity Commission suggestion that it be given a wider role.

In a media statement welcoming the 800-page draft report of the commission on network regulation, AEMO is pleased to be proposed to take on decision-making responsibilities for transmission planning.

“The purpose of the a national planner would be to optimise investments across the entire market rather than State by State as it is now,” says CEO Matt Zema. “(This will) translate in to lower network charges and ultimately lower consumer prices.”

AEMO says that, while there are “compelling reasons” for network investment to continue, it recognises that the industry as a whole needs to take a more cost-effective approach to moderate price increases.

In its submission to the Senate price inquiry, AEMO said that capex growth in power networks over the past five years had outstripped growth in both energy and peak demand. It argued that the market and regulatory arrangements needed to be capable of a better response to demand changes and of delivering “appropriate price signals to enable efficient investment.”

In evidence to the Senate, AEMO said its role as national transmission planner was to provide “valuable information to stakeholders to facilitate long-term developments” but this was limited by being only an advisory role – it could not direct investments in the grid or prevent non-economic investments from proceeding.

Customer protection

The O’Farrell government says it intends to go beyond taking up the federal government’s “national energy customer framework” next year to harmonise the retail energy market and to make it more efficient.

In a submission to the Senate prices inquiry, the NSW government says its will introduce additional customer protection “to empower them with better information and greater choice when engaging in the energy market.”

This will include, it says, making metering data available and putting restriction on the exit fees charged by retailers when customers take up another supply offer.

Green burden

The NSW government says the combined cost of the carbon tax and the federal RET schemes account for more than half the 18 per cent power bill price rise imposed on the State’s household consumers this financial year.
The government, in a submission to the Senate inquiry, says the tax plus the large and small RET now account for about 15 per cent of NSW residential bills, averaging $314 a year.

The government says the federal solar subsidy scheme has “substantial flaws” and it resulting in customers paying for “phantom energy” – being billed now for energy that will not be generated for up to 15 years through deeming of whole-of-life generation for solar panels.

It opposes customers being “charged twice” through the carbon tax and the RET programs for the same policy outcome.

The government says it is pursuing a State renewable energy plan to ensure that generation “built in NSW to meet the Commonwealth RET” can be delivered at least cost.

Network pledge

Vince Graham, appointed chief executive of Networks NSW, which the O’Farrell government has set up to oversee management of its three distribution businesses, has used a Sunday tabloid newspaper interview to pledge that the State “has seen the last of double-digit increases in network tariffs.”

Graham, previously the CEO of one of the businesses (best known as Integral Energy in the name-change environment of the past three years), says the networks have “set our sights for the next five years on containing prices rises to the CPI.”

The State government, Networks NSW board and the management team have a “steely determination” to deliver on this pledge, he says.

Under Graham, Networks NSW has committed to cutting $2 billion from the capex outlays of $14 billion the AER approved for the distributors between 2009 and 2014. He says another $2 billion will be cut from opex.

The Electrical Trades Union says that “allowing power infrastructure to decay” poses safety risks. “Saving a bit of money from neglecting maintenance starts to look like a pretty false economy when you weigh up the risks,” it argues in a statement.

Meanwhile, the NSW Energy Minister, Chris Hartcher, in a commentary in the “Daily Telegraph,” says the O’Farrell government has been working from its first day in office to address spiralling prices and to help consumers in need of assistance.

He accuses the former State Labor government, in office for 16 years, of locking in higher reliability standards and increased network charges from 2009 “while recklessly failing to manage the increased investment needed to avoid harsh impacts on households.”

Reforms, says Hartcher, require much more than a simple check-list and he supports Martin Ferguson’s point that the issue will not be solved by “cheap front-page headlines.”

He adds that he O’Farrell government found the distribution businesses “bloated and mismanaged” and he puts the savings for the next five years from efficiency gains and avoided capex at $2.6 billion.

Oakeshott in sights

The Queensland government has attacked federal independent MP Rob Oakeshott over his private member’s bill designed to put Canberra in full charge of network regulation.

The bill is not supported by the federal Labor government or the Coalition and is not expected to succeed.

The Newman government’s Energy Minister, Mark McArdle, has accused Oakeshott of “grandstanding” and trying to divert voter attention from his support for the carbon tax.

McArdle says Oakeshott “fails to account for the cost of domestic solar programs that do nothing to reduce peak power demand while decreasing consumption of mains power and driving up prices for other customers.”

McArdle also warns Queenslanders that, under regulation controlled federally, State pensioner subsidies for power bills and the $640 million given to rural and regional users through imposts on consumers in the south-east would be at risk.

Introducing the bill, Oakeshott said he was inviting federal parliament to “end the greatest market failure in Australia today – a regulatory rort and rip-off.”

The purpose of his bill, he said, was to enable the national electricity law – legislated in South Australia and adopted by other east coast governments – to become federal law.

His proposal, he said, gave Prime Minister Julia Gillard the opportunity to use the “big stick” with which she had threatened State governments on 7 August in pressing for decisions on electricity regulation at the December CoAG meeting.

Reacting to the proposal, federal Resources & Energy Minister Martin Ferguson said the government did not believe this approach was “the best way” of addressing current needs to improve regulatory rules and achieve more cost-reflective power pricing.

Powering Australia 2012

“I look forward to the release of this publication each year,” Martin Ferguson said in launching the “Powering Australia” 2012 yearbook at Old Parliament House, Canberra, in mid-October. “It always provides well-rounded analysis to help government and industry identify the emerging challenges facing the energy sector.”

Ferguson said the key challenge for government in the energy sector is to ensure adequate and efficient investment in infrastructure while minimising the cost pressures for consumers.

Wise words

“No-one knows with certainty what the future supply of electricity will look like in Australia,” says the Australian Energy Market Commission, publishing its transmission frameworks review last month.

“Wind, wave, gas, distributed generation, solar and other technologies will compete with existing plants for their place as a proportion of overall generation.

“Attempting to forecast the location and nature of new generation and transmission investments any distance in to the future is hazardous.”

The commission adds:

“In the earlier years of the “NEM,” generators were mainly located around fuel and water sources. Technological development, economic change and responses to climate change policies are fundamentally changing the way that electricity is generated and transported – and will continue to do so in coming decades.

“Critically, the location and scale of new generation sources are likely to be very different to those that dominated in the past and new solutions will be required to ensure that electricity generation and transmission are as efficient as possible to cope with this change.”

The AEMC says submissions to its review indicate that generators and large customers find the current framework for connection to transmission networks inefficient and costly. 

Stakeholders have highlighted a lack of clarity in the national electricity rules and the flow-on effects include delays in development of project business cases and inefficient risk margins being built in to investments, lowering the profitability of developments and increasing the costs of connection.

So yesterday

The unrelenting focus on networks in the fierce public debate about electricity supply and prices is “so yesterday,” says Cameron O’Reilly, chief executive of the Energy Retailers Association.

In a commentary contributed to “The Australian Financial Review,” O’Reilly warns that, while the network sector is being subjected to enormous scrutiny, potentially greater regulatory risks emerging today are being ignored.

“The continuing existence of State retail price regulation is a risk itself, even more so when the objective becomes the lowest possible price rather than (reflecting) the efficient costs (of suppliers).”

He points to regulators choosing to base their estimates of wholesale costs on volatile spot and futures market data rather than the long-run costs of new generation.

“In a market that relies on investment by private sector generators, which are more often than not also retailers, the regulators have effectively removed any incentive to add new capacity as this would push down the wholesale price."

Group think

Veteran energy-oriented academic Alan Pears says a major problem in the electricity market as configured today is “group think” in the industry.  Pears, who is an adjunct professor at RMIT University in Melbourne, argues that the sector is “run by an exclusive club that has a culture very different from mainstream society.”

Writing on the electronic commentary website “The Conversation,” Pears says energy regulators believe they hold the industry to account, but they are often captives to it “because of the pervasive group think and the isolation of the industry from the broader community.”

He says the energy sector’s response to pressures for reform is to claim that processes for change are in train. “If we are just patient, they will sort it all out. Unfortunately, these efforts are inadequate.”

Pears argues that the energy sector needs to be refocussed on its role in society “not just on the profitability of the market participants.”

Gas prices rise too

The federal department of Resources & Energy has told the Senate inquiry in to electricity prices that household bills for gas have average a 24 per cent rise across Australia over the past three years.

The department says there has been “a steady upward trend” in gas prices over a decade, partly as result of the unwinding of cross-subsidies from business to residential customers. It adds that rising wholesale energy costs and pipeline distribution costs have been the main drivers of upward pressure on retail prices.

It told senators: “Some similarities exist between the cost pressures facing retail electricity and gas prices. These include rising wholesale energy costs, in part due to international pricing linkages and carbon pricing.

“Rising capital expenditure is another common factor, related to asset replacement, expansion needs and increasing material and labour costs.

Peak days

Evidence to the Senate inquiry shows that peak demand for electricity in 2011-12 was lower than for the previous three years. Maximum demand in the “NEM” exceeded 30,000 megawatts on 17 occasions, only one of them in summer.

In 2008-09 demand rose above 30,000 MW on 65 days – 21 of them in summer. This fell back to 45 in 2009-10 (again with 21 in summer) and to 37 in 2010-11 (seven in summer).

ESON 2013

Hard though it may be to comprehend, the outlook for the Australian energy industry over the next 3-4 years is for even more change and debate than in the past few years.

This is because we can expect to see:

All this will occur amid the next evolutions of the global economic crisis and the next round of developments in Australia’s beleaguered manufacturing sector. A further decline of local energy-intensive industries will have major implications for electricity and gas suppliers.

Against this backdrop, the Energy Policy Institute of Australia will present its 2013 Energy State of the Nation forum in Sydney on 22 March.

The 2013 ESON will feature a keynote address by the Federal Minister for Resources & Energy, Martin Ferguson, on What we have learned and failed to learn about energy markets and regulation.

The program will include addresses by the Shadow Minister for Resources & Energy, Ian Macfarlane, and the NSW Minister for Resources & Energy, Chris Hartcher.
Also on the agenda will be a strong focus on energy security, including the ongoing challenge of finding finance, and a review of the international context for Australian energy policy.
ESON is widely recognised as an important opportunity to pause and review the energy state of the nation and the 2013 program will again deliver thought-provoking information for energy stakeholders.

Last word

Events and political games have conspired to make a sideshow of the electricity aspects of the federal government’s energy white paper, released in early November.

The paper, of course, is not designed to address the short term and there is much in it that should resonate through the offices of policymakers and investors as we proceed down this decade and beyond – but we live in the 24/7 media world, an early federal election is on the cards, State governments are enmeshed in a multitude of energy-related problems, the media (especially the tabloid media) have the bit of the power price issue in their teeth and it will be hard to divorce day-to-day politicking from energy decision-making over the next 12-18 months.

Cynical strategies are not the preserve of one side of politics and their pursuit at federal and State level is the bane of sensible development of the energy industry and in particular of the electricity supply business.

One of the good things about the white paper is that it has stood up for cost-reflective pricing but the body politic is always tempted to twist and bend that path forward to suit short-term needs. 

Hence we see the Senate select committee on electricity prices – which published its report a week before the white paper appeared after a “quickie” review instigated by the Prime Minister for political spin purposes – agreeing that the east coast should move to time-of-use tariffs as a weapon against the peak power dragon and then adding the caveat that flat tariffs should be retained for the “most vulnerable.”

It seems almost impossible for most politicians to accept that power prices should not be distorted to deliver social policy.

In Queensland, for example, we now have some $640 million a year paid by households in the populous south-east corner to subsidise the cost of delivering electricity to the other 97 per cent of the State.

In Western Australia, households on the integrated south-west grid contribute $200 million a year in subsidies to those living in remote regional areas.

In NSW households without solar power on their rooftops – the vast majority – are paying a cumulative $1.4 billion (or thereabouts, estimates of the cost keep shifting) over four years to subsidise a populist scheme to attract “green votes.”
There are many aspects of the energy white paper that are worthwhile and it will serve as a useful sounding board for consideration of policy development for this decade, but it is hugely weakened by the political divide between the ALP/Greens and the Coalition over carbon pricing.

It also suffers badly from the “cart before the horse” syndrome thanks to the Rudd regime failing to appreciate that, first, you prepare an energy white paper and, second, you implement carbon-related policies in the light of the paper’s guidance.

Politics dictated this failure, too, and consumers must now endure many months, if not several years, of attempts to bring the cart and horse together, assuming the Coalition wins the next federal election – which still seems by far the most likely outcome when you focus on the key aspect of opinion polls (the trend in the primary vote) and not the info-tainment the media presents whenever they appear.

One sentence in the white paper should be painted on the walls of MPs’ offices around the country: in dealing with the causes of electricity price rises, it says, there are no easy fixes.

Keith Orchison

8 November 2012

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