Scanning the media, one comes up daily with a multitude of views and assertions about the electricity supply sector, not all of which make much sense. Some quickly become accepted “wisdom” as one writer picks up from another.
An example of the genre is talk this past week about the value of the government-owned electricity businesses in New South Wales if they are sold.
A leading political commentator in a major newspaper wrote on Saturday that selling the State’s generators and network businesses “could free up $50 billion” in value on the NSW government’s balance sheet.
Now where did that come from?
In all probability a claim a week earlier in an allied Sunday newspaper that “the sale of the poles and wires could earn the State $58 billion.”
On the other hand, several electronic media reports have canvassed a $20 billion value.
Given that something of an authority in this area, David Leitch, executive director of utilities research at UBS Securities Australia, estimated back in March (see “Golden wires” in the 71st edition of my Coolibah monthly newsletter) that sale of the NSW networks businesses (three distributors and the high voltage operator TransGrid) could be worth between $20 billion and $25 billion, these numbers are just a tad out of whack – which won’t stop them being repeated here and there.
The latest NSW privatisation hare has been launched by former premier Nick Greiner, now chairing Infrastructure NSW, who gave a broad hint at a business lunch in Sydney that the advisory body and he personally had made submissions to the Tamberlin inquiry in to the State electricity industry calling for all the power assets to be sold.
What the assets are really worth can only be speculative at this stage.
Leitch’s networks numbers for the networks seem fair enough, but the value of the generators depends on many factors, including what is actually available to be sold, how potential buyers will value coal-burning plant – 8,340MW of it constructed before 1985, the perceived impact of the federal carbon regime and how the ACCC may view the sale of Macquarie Generation (holding a dominating 4,070MW) as one business.
The Greens don’t want MacGen’s 2,060MW Liddell power station near Muswellbrook sold – they want it closed down.
What pressure could they bring to bear on the Gillard government if a foreign investor sought to acquire it?
Also needing to be taken in to account is NSW’s majority share of the Snowy Hydro business – with the federal and Victorian government’s holding 42 per cent.
Privatising the Snowy is entirely sensible from a business perspective – it was pursued at NSW’s behest in 2005-06 and then abandoned when John Howard took fright at the backlash – but a hard sell politically.
Some believe the business could fetch about $5 billion.
However, the chances of getting the present federal government, hagridden by the Greens, to support a sale are not going to be high.
Barry O’Farrell, of course, tied his own hands with an unnecessary commitment before the last State election that he would not sell the networks businesses.
He seeks to weasel his way round this now by asserting he is relying on Tamberlin to come up with advice on “the best course forward for the State’s electricity assets that will keep power prices low.”
This is one of those daft things politicians say when they are pursuing wriggle room.
There is no possible way of “keeping power prices low” over the next eight years, a period when the Coalition should retain office on the back of its massive victory last March.
During this time there will be a range of developments that serve to push up State power bills.
They include the impact of the present round of regulatory approval for network expenditure (totalling $17 billion between 2009 and 2014) and of the determinations for 2014-19 (which will still surely exceed $10-12 billion even with a different set of rules) – plus the effects of the federal carbon regime, of the renewable energy target and of the notorious Keneally “solar bonus scheme” before we even get to rolling out smart meters. As well, there are possible higher energy prices flowing from rising fossil fuel costs.
Without a majority in the Legislative Council, O’Farrell can propose anything he likes regarding power sales but may not be able to implement it. What he can’t do is change the direction of the price trend.
His best chance of making big ticket policy changes may not come until (if) he can achieve a majority in “LegCo” after the March 2015 election.
If he breaks his 2011 election promise about privatisation, in an environment where power bills continue to rise, how will he go at the polls in 42 months’ time?
Losing the Legislative Assembly election in 2015 is as near to impossible as anything in politics can be, but the critical element for the Coalition will be gaining a Legislative Council result to enable O’Farrell (or his successor) to implement policy in a second term.
The first genuine stepping off point for the government with respect to electricity policy will be delivery of Tamberlin’s report at the end of next month.
Soon thereafter the government needs to come forward with a well-reasoned, all-encompassing plan for electricity supply in NSW out to 2020 or 2025 set in the context of the State’s overall infrastructure requirements.
It needs to take in to account that the latest available forecasts for the State (which include demand in the ACT), as published in the Energy Supply Association 2011 yearbook, predict the need for energy supply will rise from around 77,000 gigawatt hours annually now to about 90,000 GWh in 2019-20, with summer peak demand accelerating from 14,000MW now to around 18,000MW, and with all this implies not only for generation requirements but also for network development.
It needs to plan for several hundred thousand more people living in the State, most of them in the Wollongong/Sydney/Newcastle corridor, already the single largest load centre in the country, and for tens of thousands of more households and related services.
Of course, the nay-sayers and ideologues in the political arena, the starry-eyed in the environmental movement, those pursuing their own particular business desires and the chin-waggers in the commentariat will continue to sound off and dominate media coverage.
Us Outdoors can only cover our ears and hope that O’Farrell and his team have learned from a bit of a shaky start in their first months in office and will bring some discipline to bear in making decisions about electricity strategy that resonate through the decade and beyond.
The last serious attempt to produce an energy white paper was made by Bob Carr back in December 2004 – and it only got as far as a green paper that I strongly suspect was a cut-and-paste job from several advisory sources.
It began well, however.
Like this: “The security of energy supply is a critical issue for the future of NSW. As the population and economy grow there is an ongoing need to ensure that households, businesses and industry have access to a reliable, affordable, sustainable and secure electricity supply.
“The consequences of demand growth include increasing emissions, diminishing generation and network reserve capacity and increasing costs for consumers.
“Engagement at the national level to achieve energy security and combat climate change is necessary but not sufficient. NSW must continue to improve and clearly articulate its own policy settings.”
My suggestion is that the fourth premier since Carr adopts this statement as his own and starts to plan and say things that will enable him to do what Carr (and his three Labor successors) could not do – deliver against this perspective in the State’s interest.
Carr’s green paper summed up the challenge for government like this: “To set energy policy in a way which maximises net public benefit by ensuring security of supply, encouraging private investment, providing a simple and efficient planning and environmental assessment framework, reducing greenhouse gas emissions and other environmental impacts and maintaining competitive energy prices.”
Easy to say. Hard to do — but it is what O’Farrell’s government has to deliver.