Archive for December, 2013
As years go, 2013 was busy, busy and, from an energy supply perspective, busy-ness on the local scene masked not a lot of progress.
For this writer, it was yet another year to promote the need for context in public commentary about energy supply and yet another year to point out that this is missing in media action a great deal of the time.
The past week’s heatwave provides a case in point – Victoria’s peak demand reached 9,000 megawatts on Thursday compared with an annual maximum average of 6,000 MW.
Suddenly, the purveyors of cicada-like chatter about network “gold-plating” and “gouging” fell silent and none in the media thought it necessary to say to readers, viewers and listeners that peaks of this nature are the reason for billions of dollars worth of infrastructure investment.
As the Productivity Commission noted in its April review of network performance, some 25 per cent of electricity bills is required to meet a few (around 40 hours) of “critical peak demand” every year.
That’s between $400 and $500 a year for the “typical” household bill, a topic of much noise from the media cicadas at times when demand is not spiking to extremes because of the weather.
Heatwaves highlight the reason for such capex but the point is not brought home to residential users when it could be best appreciated.
On the broader local front, of course, 2013 will be remembered as a year of three prime ministers – the last time this happened was when Harold Holt drowned – and by at least some of us as a year when politicians’ hysteria merged with media hype until the shrillness became unbearable.
Just how poorly we now behave, in a pavane between politicians and the media, in dealing with big (or momentarily concerning) issues has been exemplified in the past month by the Nelson Mandela obsequies, which reached such a pitch that a prominent English writer in London’s “The Guardian” observed “For serious media outlets to discuss him alongside Mother Teresa, Gandhi and Jesus of Nazareth is barking mad.”
Locally, we can expect 2014 to bring on a lot more barking from the chattering classes and the media about many issues under an umbrella of disdain for Tony Abbott and a Coalition federal government and, in terms of of energy matters, a triangular set: carbon policy, energy costs and the impending southern gas problems.
Hysteria over the future of manufacturing,focussed on the automotive sector in particular, is a given.
Here one needs to note that a slump in manufacturing has been a problem that has been evidenced in electricity demand numbers since 2008 and more-or-less ignored in favor of hype about rooftop solar systems and household consumer reaction to much higher power bills.
As it happens, there is some interesting analysis in this regard available from Vivid Economics in a report on power consumption and emissions for the Climate Change Authority.
It was published in October and I cannot recollect seeing anything about it in the media.
Vivid Economics’ report says this:
The recent change in electricity consumption in the “NEM” has been driven by falling activity in the manufacturing sector offset by consumption increases in the residential, commercial and service sectors.
“NEM” manufacturing power use declined by 7.6 per cent from 2008 to 2011 “due to slower growth and higher electricity prices.”
And it is safe to say, I suggest, that this decline will be more marked when 2012 and 2013 are taken in to account – closure of the Kurri Kurri smelter, for example, accounted on its own for an annual loss of some 2,800 gigawatt hours a year.
Vivid’s report goes on: “Electricity consumption in commercial and services sectors grew by 4.3 per cent between 2008 and 2011 largely as a result of growth in activity.”
And the consultants point to population growth holding up aggregate residential power use even as higher prices impact on average demand.
(Vivid Economics also report that solar PV constituted 0.6 per cent of the market’s generation output in 2012,. Yes, this is six times as much as in 2008 before over-the-top feed-in tariffs influenced purchases but it is a miniscule contribution to electricity supply and less than a quarter of the relatively low contribution from wind farms in 2012.)
What the consultants’ report shows overall is that manufacturing’s share of “NEM” power demand shrank from 30 per cent in 2008 to 26 per cent in 2012.
Meanwhile, commercial and services demand rose from 23 to 25 per cent and residential use rose from 24 to 26 per cent.
The two other significant consumption sectors are mining (up one per cent to six per cent) and electricity, gas and waste services, static at 14 per cent.
The snarly bit is that between 2003 and 2012, the power requirements of manufacturers fell 20,000 GWh (that is 10 per cent of the market).
What’s perceived to be important about electricity supply and demand depends on where one is standing; the green obsessives, for example, have hijacked a large chunk of the public debate.
Politics has also dictated that residential power prices have become a “white hot” issue, even though, in fact, they do not represent, in real terms, a much greater demand on household disposable income than, say, a decade ago and most spend more on booze, cigarettes and entertainment.
(In passing, we are likely to see electricity prices continue to rise for householders in 2014 along with some increase in gas prices as a harbinger of what is to come later this decade – and a falling dollar should drive our car fuel costs above 160 cents a litre, thus delivering a political trifecta that will exercise the media and those in Canberra more than somewhat.)
But, as the Vivid Economics data show, manufacturing, after being the mainspring of rising power demand for almost four decades, has fallen back substantially and is obviously going to fall further.
Getting a good grasp on all that the manufacturing data imply seems to me to be an important aspect of the energy white paper mark 2, one of the triple landmarks for the energy sector in 2014 (the others being the future of the renewable energy target and of carbon pricing).
Can we hope that the energy green paper, due out in May, will address this issue in a clear way with the most up-to-date statistics?
Rugby union forwards don’t have to worry about finesse – they charge ahead until they hit something and then rumble on or fall down, usually on someone else.
I know what of I speak, having played either scrum half or hooker through my mediocre schoolboy rugby career in South Africa – and I have a buggered right knee and stuffed neck to show for it.
The new chairman of Origin Energy, Gordon Cairns, is a former rugby forward – out of another harsh school in Scotland – and he has kicked off his energy role by telling politicians, via an interview with the “Australian Financial Review” today, that what we need is an end to energy price regulation, a big reduction in development red tape and an end to talk about gas reservation in favor of getting out there and accessing more of the stuff.
If you have played rugby union, you appreciate the value of forwards to drive the game deep in to your rivals’ territory so that the smaller, faster team members can pounce. (I scored five tries one muddy afternoon, a school record, behind a pack that kept rumbling up to our opponents’ line and allowing little me to snatch the ball from out of their feet and dive over.)
Cairns has carried the ball forward in strong style, but getting the tries and converting them to gain maximum points is still going to require considerable further work.
(At this point the rugby metaphor should go right out the window because the scorers have to be the referees and linesmen in the shape of the body politic.)
Cairns and Origin Energy, along with the rest of the energy retail sector, can run and run and run, but it is Campbell Newman and Barry O’Farrell in particular who have to dot the ball down in the sense of introducing deregulation, selling it to the community and accompanying it with steps to roll out smart meters and new tariff systems in order to make it work.
And it is O’Farrell and electorally-embattled Victorian Premier Denis Napthine who have to overcome a football field full of hurdles to make new onshore gas development work.
Plus the Abbott government as playmaker.
(At this point I have the quirky thought that the role here is being taken on by Quade Cooper, but I mustn’t digress.)
The hallmark of a leader on the rugby field is strength: strength of mind, of legs and of upper body.
The model is the great John Eales, who married brains to brawn and exceptional technical and people skills to huge effect for Australia in a glory period for local rugby union.
When you look across our energy playing field today, with respect to policymakers, you don’t see a John Eales, let alone two or three of them, which is what we need to escape from the current impasse.
I simply cannot imagine Paul Keating playing rugby, but, in important respects, he brought an Eales-like strength to energy policy development, one of the key outcomes of which was the establishment of the “NEM,” the east coast electricity market, the 15th anniversary of which we are marking this month.
The KPMG review of the “NEM,” commissioned by federal energy ministers and released on the anniversary date, 13 December, to be found on the national government’s website, is not just an interesting read for those of us who were on the 1990s playing field Keating established to achieve this outcome but important, too, for the insights it provides in to how such policies can be developed.
If you don’t scan any of the rest of it, read the final pages “Key lessons for the future,” penned by KPMG – the balance of the report is devoted to sifting and presenting the views of a multitude of key participants in “NEM” creation.
In summing up, KPMG offer six critical points:
The material problems were defined and clear reform objectives were set.
Reform took a high-level political drive including provision of time, energy and financial incentives.
Strategies were developed to enhance confidence in the process.
Strong and appropriate support structures were established with key stakeholder participation.
The pace of reform allowed for effective consultation across all stakeholders.
Getting industry structures right was a key issue.
As with the “NEM” so it can and should be with the introduction of retail deregulation, the roll-out of meters, the change to tariffs and, in gas, the pursuit of new production in NSW and Victoria.
The big, big difference between now and the 1990s when the “NEM” was developed is that we have spent too many recent years mucking about and time today is not on our side.
This is the problem I have with another year being spent producing a new iteration of an energy white paper – we simply don’t have the leeway to go on shuffling opinions and feet.
From where I sit – and the game is always so much easier when seen from the sidelines – the governments in Canberra, Melbourne, Sydney and Brisbane in particular must not spend the next 12-18 months kicking the ball in to touch and engaging in endless lineouts and scrums: in order to achieve more user choice and to put downward pressure on energy costs (the points Ian Macfarlane wants to see put on the scoreboard), they need to head for the try line.
This is where Origin’s Cairns, and other senior figures like him, can have a big impact on the game – by using their muscle (standing) to herd the politicians, via the media, in to a position where they act rather than talk.
It is, I note, exactly what people like them did back in the early 1990s to hustle the politicians towards electricity reform and the establishment of the “NEM.”
Their predecessors’ good fortune was to have policymakers like Keating, Greiner, Goss and Kennett to pick up the ball and run with it – not huddle on the centre line and have another little talk-fest.
Or to kick it in to touch to avoid the hard bit.
The cry on the fields where rugby began was “Play up. Play up and play the game.”
It’s worth a thought as we go to the change rooms for the break.
Perhaps the most overblown phrase in the energy sector internationally in 2013 has been “the death of coal.”
Nary a week goes by without it popping up in media headlines and stories somewhere.
Like so much else that is adopted as a media catchcry, coal’s “death” turns out to be less than it seems when put under scrutiny.
Behind this parroting lies the the fact that the media develop “narratives” in covering issues and many writers follow each other, nose to tail, in keeping a theme alive.
The British commentator Christopher Booker contributed a vigorous piece to “The Daily Telegraph” in London on this phenomenon at the weekend.
His peg for the commentary was the media view, widely expressed during the long drawn-out farewell to Nelson Mandela, that Margaret Thatcher was a friend of apartheid and opposed to the ANC leader’s release from prison, a falsehood that need not be further canvassed here.
However, the broader Booker point is highly relevant to how the media covers energy issues, and coal especially, in the context of global warming.
He writes: “We can see countless examples these days of how the media, politicians and lobby groups wish to impose their own false narratives on public understanding of issues of the time, remorselessly suppressing any evidence that contradicts the version they want us to believe.”
Booker argues that a “quintessential example” is the BBC, which, he says, has a narrative shaping its coverage on almost every issue, not least global warming.
Swap “ABC” for “BBC” and the point applies equally here but the malaise goes deeper and wider than this and is not restricted to the “greenies.”
There are many examples of the so-called conservative media, here and abroad, pursuing their own narratives on a smorgasbord of topics.
(The near-inability of Australian journalists to write about power networks without using “gold-plating” or “gouging” is a case in point.)
The situation isn’t helped by so many of the media being unable to understand basic stuff about the electricity industry – an egregious example being the frequent failure to grasp the difference between capacity (megawatts) and output (megawatt hours) in power supply.
Another is the continuous moronic reference to power networks as “poles and wires.”
I’d like to chain offenders in a large transmission sub-station until they understand the point.
Again, I keep seeing references to the 3,000 MW of rooftop solar power now in use in Australia as being equivalent to two fossil fuel power stations.
Readers of this blog don’t need telling what a nonsense this is.
Back to coal.
The narrative here is that the suppliers of the fuel are in deep trouble because its use is going out backwards; to demonstrate this, the situation in the United States is endlessly cited.
It’s true that, as a result of the shale gas “revolution” in the States, a large number of old, inefficient coal-fired American generation units are being shuttered.
It’s also true that in Ontario, Canada, a political decision is being pursued to close coal plants as refurbished nuclear reactors are brought back in to service (and not because of a commitment to subsidise wind farms as is so often asserted).
Locally, harping on these overseas developments is intended to drive home the point that Australia, too, should be rejecting coal and quickly to “keep up with the rest of the world” in relentless pursuit of lower carbon emissions.
North America, however, is not the planet.
The reality, planet-wide, is that coal remains a critical resource in electricity supply – and in steel production – and its current status as number two energy source behind oil could change by the end of the decade in its favour.
Today, coal provides 30 per cent of global energy and 41 per cent of global power generation.
Its status is being promoted rather than demoted – to a relatively small extent in western Europe where the crusade against nuclear reactors is leading to its greater use and to a large extent in Asia. And in parts of Africa.
Reuters this month published an interesting story asserting that efforts to meet the power needs of South-East Asia’s 600 million people (that’s 120 Sydneys or 150 Melbournes) – which will require a 50 per cent increase in generation capacity over 10 years – will lead to more use of coal rather than expensive LNG.
“Coal is making a sneak return,” it quotes consultant Fereidun Fesharaki as saying of the regional outlook.
Reuters also quotes the International Energy Agency as forecasting that half the region’s new plants will be coal-fired versus a quarter that will be gas-fired.
The news agency filed this story on 9 December.
Have you read it in any Australian media outlet?
Overall, 75,000 megawatts of new coal-fired power generation have been commissioned worldwide in 2013 and, if all the plans currently on tables reach fruition, another 450,000 MW will be added to the world’s generation fleet by the decade’s end.
This is why Godfrey Gomwe, CEO of Anglo American Thermal Coal and chairman of the World Coal Association committee dealing with energy and climate, told the WCA forum in Warsaw last month that “as much as some may wish it, coal is not going away.”
As an example, let me cite South Africa, which has dominated the news over the past 10 days because of Mandela’s death.
(May I say in passing that there are two big reasons why Mandela should be lauded: first, he and F.W. de Klerk succeeded in warding off a terrible southern African civil war with the potential to make Vietnam and Iraq look like sideshows as it sucked in global players — and,second,he led by example in embracing the white community as part of his “rainbow nation.”)
Unfortunately, in other respects, the ANC regime has been much less than good value for South Africans.
None of the hundreds of journalists present at the funeral rites have thought to write a story staring them in the face: that the ineptitude of the governing ANC is best illustrated at present by the giant electricity monopoly Eskom having to declare a state of emergency and order large companies to cut consumption by 10 per cent to ward off blackouts.
To quote the SA press, “The country is a heartbeat away from lights out as Eskom battles to carry out regulatory maintenance on its ageing plants, cope with electricity demand and work desperately to bring new generation online by the second half of next year.”
This is despite a focus on new renewable energy over the past decade and very much because of a supply security gap caused by Eskom taking too long to develop its new fleet of – yes – coal-fired power plants and doing too little to maintain the existing ones.
(The utility provides 95 per cent of the country’s electricity from 41,000 MW of plant, mostly coal-fired, of which 12,000 MW is currently offline for maintenance.)
Eskom in its shape today is a metaphor for the poor management of South Africa by Mandela and his two successors, the downside of the glory story that has dominated headlines around the western world for a week.
South Africa’s immediate power needs will be resolved by building six 794 MW coal-burning units at Medupi in the Transvaal, commissioning them every eight months from 2014 to 2018. If the schedule is stuffed up, the country’s power problems will magnify.
When completed, the Medupi project will provide 10 per cent of South Africa’s electricity.
More, equally large, developments are intended to follow.
Meanwhile, the international and Australian “coal is dead” media narrative can only grow in shrillness as we move through 2014 towards the supposedly seminal 2015 UN conference on global warming.
Before then, of course, we have the UN leaders’ summit on the issue in New York next September.
And we have our own energy white paper mark 2 to negotiate.
The local need to deal with the “coal is dead” furphy and to establish a sensible way forward for Australia in developing a strategy for its power needs to at least 2030 is real and it is urgent.
The narrative needs rewriting.
The story that Tony Abbott needs to take to New York in less than a year has to overcome conventional chatter and underpin an improved energy model for Australia.
No-one involved in launching electricity reform 20 years ago – a point when I was early in my stint managing the Electricity Supply Association – thought that the process was going to be easy, but it would have been hard to find anyone then who expected stakeholders to still be trudging a winding, potholed road two decades later.
That, however, is the state of play, as the latest “national electricity reform scorecard” published by the Energy Supply Association (which since 2004 has included gas in its remit) makes clear.
You can find the full scorecard report on the ESAA website.
ESAA put out the report on the eve of the meeting of the Standing Council on Energy & Resources, a clear attempt to wave a flag at energy ministers as they meet under the chairmanship of Ian Macfarlane, a role he last occupied in 2007 in the failing Howard government.
ESAA chief executive Matthew Warren sums up the situation in a sentence: “We have seen some progress in 2013,” he says,”but there’s much more to be done to create open, competitive and efficient energy markets around Australia.”
It’s an outcome that would have had Paul Keating, Nick Greiner, Wayne Goss and Jeff Kennett spluttering if they had been told in the 1990s just how painfully slow it would be to realise the reformation they had launched.
Not surprisingly, ESAA wants to talk up progress that has been made in Victoria and South Australia, the leaders of the pack, but there is another way to look at its scorecard: fully half the nation’s 10.5 million residential customers live in two States, New South Wales and Queensland, where the going has been most tortuous.
Leaving aside Western Australia – and “The West Australian” newspaper appears to be the only media outlet in the country to pick up the scorecard story (not least, I suspect, because it can it can lead with the line “The Barnett government has the worst electricity market reform record”) – NSW and Queensland are laggards on this path, even though ESAA is keen to make encouraging noises about a little progress made in the past year.
Out of a score of 20, derived from a range of criteria, NSW manages 12 and Queensland 8.5 (versus 16 for Victoria).
NSW gets a better score than it did last year because the O’Farrell government has committed to reforming reliability standards, embraced the National Energy Customer Framework and pushed on with selling off Macquarie Generation and the left-over bits of the other generation businesses.
It has plenty still to do, however, with deregulating the retail market the possible next cab off the rank.
How long it plans to sit in Macquarie Street staring at the Australian Energy Market Commission recommendation that it gets on with this is anyone’s guess. (After the March 2015 State election?)
Given that Premier Bob Carr signed off on the Australian Energy Market Agreement – committing his government to phase out retail price regulation where effective competition can be demonstrated – at a CoAG meeting in 2004, it has taken an entire decade for the NSW jurisdiction to start thinking seriously about embracing one of the keys to better electricity service.
Mediocre as the situation is south of the Tweed, north of the river things are still worse.
Queensland was slow to lurch in to action on reform. It was the late 1990s before it really got going and progress has not been speedy.
ESAA sums up things there like this: “Successive governments have adopted a short-term approach to reform which fails to recognise the benefits of promoting competition and driving efficiencies.
“Retail prices continue to be set below cost, infrastructure is largely government owned and concession frameworks are poorly targeted.”
As an example of the latter, the State offers a concession payment on power bills to all seniors, regardless of income. This means that a 65-year-old billionaire is eligible for a handout but younger recipients of Centrelink support are not.
While this is just silly, the reliability standards Queensland Labor imposed on Energex and Ergon Energy are no laughing matter, adding about $200 million a year to consumer bills.
ESAA notes that the Newman government is looking at “moving towards a less prescriptive approach that focuses on customer outcomes and explicitly considers the trade-off between the level of reliability and the costs.”
The key question for politicians, as it says, is “do you focus on customer outcomes or standards defining how networks should invest?”
Well, we are all paying the price for Labor State governments, pushed by the union movement, getting that answer wrong over the past decade.
Lying ahead of all the governments, except Victoria, where the flagship scheme was botched in application, lies the need to shift customers from olf-fashioned analogue power meters to modern digital technology.
“Smart meters,” ESAA points out yet again, “must be installed so that retailers can offer tariffs reflecting the different costs of generating and distributing electricity at different times of the day and in different seasons.”
As it adds, reducing demand when the cost of supply is the most expensive and pushing consumers towards more off-peak use is a key reform.
Ongoing peak demand and the growth of the solar market, it says, are creating “an urgent need to make power pricing more fair for all.”
As I have pointed out once or twice before, the meter roll-out and tariff reform are the two steps behind Julia Gillard’s much-hyped promise a year ago to cut east coast residential bills by $250 a year – by 2014, she pledged.
If, as ESAA comments, governments all want affordable energy prices and modest price increases for their constituents, then they have for the most part demonstrated a damned poor capacity to deliver – and especially so from around 2006 to date.
To describe the process over the full two decades as elephantine would be an insult to pachyderms.
To say that we really can’t afford to continue to lumber on at this pace is surely a statement of the obvious, when you consider the pressing need to improve the country’s economic management.
Can we expect to hear of a new sense of urgency when the first ministers and the energy ministers finish their meetings today?
I’m not holding my breath.
The hype and hyperbole are flying again over Australia’s electricity networks.
Contrast these two statements:
“Household power bills will keep spiralling out of control unless regulators stop bloated energy distributors from gouging customers and encourage electricity retailers to adjust power prices throughout the day to reflect demand.”
That’s “The Australian” kicking off a report on the new Grattan Institute commentary on networks this week.
Then there’s this:
“The AER is satisfied that all (Victorian) distributors’ network tariffs are recovering only approved costs and comply with the rules framework.”
That’s the Australian Energy Regulator’s chairman, Andrew Reeves, announcing “a modest increase in Victorian network tariffs for 2014” for the five privatised distributors in that State.
And this is Reeves being interviewed by the ABC for a report on the Grattan document:
Reporter: “Do you admit that the rates of return (for networks) were set way too high back in 2006?” Reeves: “We were concerned that the rates of return were set too high because the rules set up that pricing structure. We propose to change the rules and we think that the prices as they are reset should be at lower rates of return.”
(The rules were imposed by the collective federal, State and Territory ministers as part of their reform package for the industry seven years ago in which their prime purpose was to chase up a very large amount of investment. Incredibly, they did not make the connection between higher capex and higher prices – which is why we are where we are today.)
The institute itself, via a commentary in “Business Spectator” from Tony Wood, argues that, because electricity consumption is falling for the first time in 50 years, distribution and transmission businesses are facing some unprecedented challenges “and the answers are neither obvious nor painless.”
(Well, they are if you are a journalist in tabloid mode, but that’s not news is it?)
The institute is forecasting “a big and nasty correction” for the network businesses and in its “Shock to the system” commentary (available on its website and well worth reading in its full 25 pages) canvasses three key points for governments.
(I doubt it’s a coincidence the report appears on the eve of the meeting of Australia’s energy ministers in Canberra on 13 December.)
First, the institute argues, governments should ensure that networks make future investments that better match future power needs.
(Here, I point to the institute’s own comment that in 2010 the independent Australian Energy Market Operator forecast “NEM” consumption in 2012-13 would be 216,600 gigawatt hours and that it actually came out at 188,900 GWh. “Forecasting,” says the institute, “is not easy.” Quite.)
Second, the institute wants governments to begin the hard task of reforming network tariffs so that the prices charged reflect the costs incurred.
(Everyone in the industry, policymaking and regulation is in violent agreement on this – but between the rhetoric and the reality falls the political shadow. Contrary to “The Australian’s” story line, power suppliers don’t need to be “encouraged” to introduce time-of-use tariffs – they have been calling for them for several years. It’s the pollies who are running scared.)
Third, the institute wants government to review the value of network assets to decide who should pay for any write-down of surplus infrastructure.
The point here is that, under the present system, tariffs will keep going up to compensate the networks for the capex outlayed in an environment where demand is falling (and will fall further as manufacturers continue to get the staggers).
It’s the institute’s exploration of how any write-down of asset values might be pursued that has the networkers snarling.
A suggestion of retrospective write downs is “reckless,” says the Energy Networks Association CEO John Bradley.
Grattan, he says, asks the right questions and comes up with the wrong answers.
“It’s not logical to claim network returns are currently too high while effectively calling for them to be increased in a riskier environment of asset write-downs. The report admits this would greatly increase the price that would have to be paid to attract investors.”
Bradley argues that, if network operators end up with the same risk premium as “NEM” generators, the cost of their finance will be $2.8 billion higher over a five-year regulatory period.
And he accuses the institute of calling for changes in the rules that have already been made. “If (our) businesses are over-spending against capex forecasts, they already face the risk of write-downs.”
He adds that analysis by the Australian Energy Market Commission, the rule maker, has concluded “that the rules do not provide incentives for (networks) to spend more than their capital expenditure allowance and (that) there is no evidence of over-forecasting by the businesses.”
The ENA is cheesed off as well because the Grattan Institute, it says, has failed to acknowledge that network businesses are reducing expenditure in an environment of falling demand.
Bradley points to “cuts of billions of dollars” by service providers in Queensland and New South Wales and adds that actual capex across the country’s networks was “significantly lower” than the allowances provided by the regulator for 2010-11 and 2011-12.
Coming back to the AER, it is worth recording why it has agreed to “modest” increases for the Victorian businesses for 2014-15.
“(They) reflect the need for additional expenditure to replace ageing infrastructure built in the 1960s and 1970s and also reflect more stringent bushfire safety standards and maintaining supply reliability,” says Reeves.
The increases the regulator has approved will see Victorian end-user bills rise by one per cent in 2014-15 versus five per cent for the current financial year.
When you add in the smart meter costs, a development pursued by the previous Labor government and castigated by the State’s Auditor-General for the poor quality of planning, Victorians face a two per cent bill increase.
In the rarefied atmosphere of debate between suppliers, big users, governments, regulators and hired consultants, the spikey new contribution from the Grattan Institute has an undoubted value – the problem is the way it is interpreted and presented through the media, and especially through the lens of those journalists who cannot mention networks without adding the adjectives “gouging” and “gold-plating.”
We have a vicious circle here where the public reacts poorly to what it sees and hears in the media and the politicians take further fright at the feedback, not least from focus groups.
Tony Wood said to the ABC that, when in a hole, one should stop digging.
His barb was aimed at the networks, but it applies equally to others.
At the end of the day, the issue is with politicians and specifically with those who have leadership responsibilities in this area.
Their job is not to lean on their spades watching the other diggers or to join in hurling dirt around in a blame game, but to expedite the expeditable and to speak up loudly and clearly on what the real factors are in some difficult decision areas.
Still more, their job is to take decisions on behalf of the rest of us – and never to forget that teeing off investors is not in the long-term interest of consumers.
As Ian Macfarlane launches the energy white paper process for the Abbott government, I have found a quote that goes to the heart of what he and it should be aiming to achieve – at least for electricity.
It comes from AGL Energy and is to be found in a letter to the Queensland Department of Energy & Water Supply about that State’s own review: the attempt to create a 30-year electricity strategy with a rolling five-year near horizon.
Tim Nelson, who is AGL’s head of economic policy and sustainability, describes the power goal like this: “Creating an environment which promotes efficient investment in generation, the existence of energy security and optimal utilisation of infrastructure with customers in a position to respond to cost-reflective pricing signals in a competitive retail market with minimal administrative burden.”
He goes on: “Priority should be placed on ensuring the existence of policy settings which maintain the economic and regulatory environment and in which optimal use is made of the infrastructure and technology available.”
And he adds: “Competitive market forces should be allowed to operate unimpeded and regulation only used as a last resort in the event of market failure.”
For my money, this sums up exactly what we should be looking at in the “NEM” – the east coast market – and the “SWIS,” the south-west integrated system in far-away Western Australia.
With the so-called “NEM” marking its 15th anniversary on Friday (the 13th), the AGL submission to the Queensland government also contains a useful commentary on the state of the market.
In part, this is what it says:
“The current design has proven well suited to the general market conditions of the past 15 years.
“It has delivered reliable and robust results and coped with a number of significant and variable market events, such as changing climatic and environmental conditions, changing physical conditions and changing regulatory settings.
“However, the current wholesale pool clearing price is sub-economic in that participants are unable to recover their long-run marginal costs from the pool alone.
“An important reason for this is the decline in demand that has occurred, resulting from slowing economic conditions, increased take-up of energy efficiency, increased deployment of of new generation driven by government policy and significant take-up of distributed generation, particularly residential solar panels.
“An important consequence is future difficulty in investing in new generation required by government policy as wholesale electricity prices are unlikely to support (extra) renewable (plants).”
AGL says that the potential impacts of this situation for the “NEM” include the increased possibility of plant withdrawal, closure or mothballing, increased probability of unscheduled/disorderly plant withdrawal, increased system costs being passed on to all customers and a possible higher number of high-price market events.
The key, the company argues, is pursuing an economically optimal generation mix – which “inevitably” requires retirement of ageing current plants and changing the renewable energy target scheme to create a more sustainable wholesale market.
As it points out, there are a range of mechanisms available for pushing older, less efficient plant out of the market, including direct regulation and contracts for closure.
It highlights one of the risks of the current situation that I think has been substantially underplayed in the debate to date: the prospect of generation owners, unable to recover their long-run marginal costs, cutting, delaying or reducing their expenditures.
Delaying operation and maintenance costs, AGL says, decreases plant reliability which could impact on “NEM” system reliability.
If one takes the past as prologue for what may happen, lack of timely and effective intervention by policymakers (and their regulators) to resolve the current situation – their hands were slapped by the Productivity Commission this year with respect to networks for being “tardy” – over much of the rest of the decade could have some awkward consequences in the early 2020s.
AGL makes another point in this submission that is well worth underlining: scenario planning is a useful tool for predicting possible external circumstances impacting on the energy sector but the risk lies in governments trying to influence the direction of the market to increase the likelihood of these events happening.
One only has to pause and consider what the Rudd-Gillard-Rudd government got up to from 2008 to appreciate the temptation for policymakers to interfere in this fashion and the nasty consequences of their doing so.
AGL offers a commandment for governments that applies generally: thou shalt not regulate pre-emptively in pursuit of a market outcome.
How often has that been breached here and overseas in the past decade?
The company argues that the role of government should be to create economic conditions in which “efficient market outcomes are incentivised through competition, minimum (political) intervention and the operation of genuine market forces.”
Removing barriers impeding efficient market outcomes, yes; introducing new hurdles to suit ideology or political circumstances, no.
There is another point Nelson makes in his letter to the Queensland government that I think is worth deep consideration by other jurisdictions and especially the federal one: prioritise the challenges you wish to address and understand that some of them are related to each other; some reforms are in fact pre-requisite steps for achieving other goals.
Finally, the submission makes a point about what has become the bane of the “NEM” – the challenges facing governments across the east coast are broadly common, so, for Pete’s sake, can we have a more collaborative approach to “developing consistent strategies to address common challenges.”
With the committee of resources and energy ministers of the Council of Australian Governments holding its first meeting on Friday with the new federal government in the chair, this is advice that needs a broader audience than the one in Brisbane and then (in all likelihood) just the bureaucrats working on the Newman government’s 30-year strategy.
So, using the AGL letter’s advice, listen up, ministers:
The nature and timing of investment in generation should be determined by the market.
Don’t create incentives for specific technology types.
Don’t pick winners.
(“It is important,” say Nelson and AGL, “for government intervention to be minimal on the issue of which form of generation technology emerges and develops first in the market.”)
Don’t yourselves engage in the competitive aspects of energy supply.
(I’d go further: governments, ie politicians, do not need to be engaged in energy supply full stop.)
Remove regulatory barriers to generation technologies.
Do not place market incumbents at a relative disadvantage (or advantage) versus new entrants.
Provide frameworks that encourage (not dictate or force) the emergence of new technologies.
Provide a long-term, sustainable climate change policy framework that applies across the “NEM.”
Support a market-wide platform of policy stability and regulatory certainty for businesses that have assets with 20-30 year operating lives.
Finally, may I suggest sticking up on the wall of the SCER meeting room this salutary advice from the AGL letter: “Governments must refrain from pre-emptively regulating on the expectation of a certain market outcome occurring. This approach is highly distortionary and will not lead to economically sound outcomes.”
Ministers, you don’t need to wait 12 months or so for an energy white paper to adopt these points. Just do it – and then act in accordance with them on all the issues you have to resolve.
One of the least surprising things of 2013 has been the unremitting propaganda against coal-fired power here and abroad, highlighted perhaps by the clash of cultures in Poland at the recent UN climate change conference.
For every encomium about renewable energy in our media this year, there have been more than an equal number on the perceived evils of burning coal and very few on how the fuel could fit in to a carbon-constrained future.
Hardly a week goes by without someone in the media, most frequently the electronic scribblers with strong green tendencies, harping on about the “death of coal,” a perception all the more remarkable for the ongoing role of the fuel here and overseas.
The development of carbon capture and storage is nowhere near as much in its infancy as the pursuit of energy storage, but most coverage of CCS is negative and most writing about storage is full of hope.
The most uncomfortable truth for the “death of coal” brigade is that the fuel has achieved sustained growth globally over three decades and, on the back of rising power demand in Asia in particular, is expected by hardnosed observers to continue to be important in the world’s electricity generation out to 2040.
I saw Bjorn Lomborg write earlier this month that “There’s no question that burning fossil fuels is leading to a warmer climate and addressing this problem is important, but doing so is a question of timing and priority.
“For many parts of the world,” he added, “fossil fuels are still vital and will be so for the next few decades because they are the only means to lift people out of the smoke an darkness of energy poverty,” pointing to the fact that 3.5 million of us, mostly the young, die prematurely every year because of indoor pollution caused by open fires or leaky stoves.
Too much of the debate in the western world, not least Australia, is captive to the views of the green radicals and their fellow travellers and this includes the bureaucracy of the United Nations.
Witness Christiana Figueres, a daughter of South American privilege and career-long bureaucrat, the executive of the UN climate change machine, speaking to the World Coal Association on the fringes of the recent conference in Warsaw.
The green movement loathed the idea that Poland had sanctioned a coal forum cheek by jowl with the UN conference and flew in to a froth over Figueres accepting an invitation to address the WCA event.
Inevitably, therefore, she had to say something “meaningful” about the need to abandon coal-burning and she did, calling for all sub-critical coal generation plants to be shut down.
The fact that this would involve shuttering most of South Africa’s electricity supply, 90 per cent of coal generation in Australia, Poland and India plus three-quarters of coal units in America, Russia, China and Germany did not rate a mention in her presentation.
She was followed to the podium by Godfrey Gomwe, the black CEO of Anglo American Thermal Coal, who pointed out that three-quarters of thermal capacity now under construction in south-east Asia is coal plant “and there is no other realistic or affordable pathway for the region to follow.”
Gomwe, a Zimbabwean who says his first experience of electric lighting was at university, told the forum that “no matter how badly some people may wish otherwise, coal is not going away.”
So much for Figueres, who was lauded by “The Guardian” and other radically-oriented media for “pulling few punches” in speaking to the WCA meeting.
The other-worldly nature of their stance can also be illustrated by environmental movement complaints that the manufacturing developments being kickstarted in America by access to large,low-cost shale gas supply, especially in Texas and Louisiana, will result in greenhouse gas emissions equivalent to building nine new coal-burning power stations and therefore are a bad thing.
Considering the importance to millions of US people, and by extension to the rest of the world’s economy, of American manufacturers getting back their mojo, this is bottom of the garden stuff on steroids.
Which brings us back to the issue of CCS, as important for new gas generation as for the sort of ultra-critical coal plants Figueres could support being built (albeit with obviously long teeth) and which President Obama thinks is a must technology for America in order to pursue an abatement agenda.
Local green media feedback from Warsaw took the opportunity to yet again dismiss talk there about CCS as a “pipedream,” arguing in one case that “wouldn’t it just be easier to put up a bunch of solar panels and wind turbines?”
Now this renewables buff and others like him are willing to die in the rhetorical trenches to save the Clean Energy Finance Corporation, which the Abbott government is pledged to close – and I imagine that they would be equally opposed to an argument that proposed that Australia’s interests would be better served by far by a “three pillars” approach that saw the $10 billion Julia Gillard & Co want the CEFC to have being allocated to support for CCS, energy storage and development of a nuclear industry here.
Success in each of these areas would change the face of our electricity supply over the next three decades and facilitate the much-desired high abatement path for Australia.
All three would be on my agenda if I was writing our 2014 energy white paper.
All three deserve a serious national debate about the values they can bring to security, affordability and sustainability of electricity supply.
Talking up all three at Warsaw, one might imagine, would have been a genuinely useful contribution to the global debate, but clearly not one that appealed to Christiana Figueres or to the multitude of colorful demonstrators or the many scribblers attracted to their antics.
The biggest challenge of all in the energy and abatement arena is moving from rhetoric to results, a task that seems far too hard for far too many of those engaged in the debate, although for them “debate” doesn’t include listening to the voices of reason but rather engaging in street theatre.
Tony Abbott, who needs to have a good script for his appearance at the UN leaders’ summit on climate change in New York next September, might like to tune out all this noise and think seriously about the “three pillars.”
Contrary to a popular song of many years ago, large numbers of people these days adhere to the view that the future IS ours to choose and nowhere is this more true than in the field of electricity supply.
Barely a month goes by without someone or some entity offering a new perspective on our electricity system 30 and 40 years from now – the reverse of which, as I often point out, is making predictions about today from the vantage point of the 1970s and 1980s.
The latest cab off the rank is the CSIRO, which launched a report on its Energy Flagship “future grid forum” on Friday at a Q&A style event at Randwick, compered by the ABC’s Tony Jones.
As one of the attendees, I confess I thought it a lacklustre affair and, having needed an almost two-hour commute across Sydney in the rush hour to get to it, I came to the conclusion I would have been better off sitting on my back porch with coffee and a print-out of the actual report – which you can find at www.csiro.au/future-grid-forum.
I made exactly one note at the two-hour event: Tony Jones observing that “the media does not deal well with complexity” to which he added that “We have a serious problem of short-term thinking in both the media and politics.”
The “future grid” report is a product of consultations in 2012-13 involving 120 people drawn from the electricity industry, government and the community.
CSIRO points out the ensuing document is not a consensus statement.
The guts of it is that participants believe, over almost four decades to mid-century, we will see “megashifts” flowing from low-cost energy storage, sustained low demand for centrally-supplied electricity and the need for significant greenhouse gas abatement.
CSIRO makes a point of stating that none of the four scenarios in the report are represented as most likely or most desirable – so much for some in the media writing about “predictions.”
It presents the report as “a starting point” for a “crucial conversation.”
The truth is that we are struggling today to see clearly to 2020 and worrying about what may occur between then and 2030 because that is the investment horizon in focus; 2050 is a bridge too far, maybe two bridges.
Just one example of another “megashift” would be the introduction of nuclear power – a topic this CSIRO report completely ignores.
A call in the document for a development of a bipartisan agreement now on mid-century abatement targets overlooks the fact that, at one every three years, we are 12 federal elections away from 2050.
Think back over the events of 2007, 2010 and 2013 and contemplate how anything worthwhile can come out of betting on four times as many polls?
(It isn’t exactly easy aiming at much nearer goals, after all. The CSIRO report rightly talks up the need now for cost-reflective pricing and smart meters – and then observes that such changes are “politically challenging.” Indeed, they are.)
My personal preference is for the Queensland strategic planning exercise, currently underway, that has a 2030 horizon with rolling five-year reviews.
This still leaves plenty of room for the ground to shift but it fits with the investment needs of the industry and is germane to the interests of today’s consumers.
It would be nice to think that the Abbott government’s energy white paper will attempt something similar – I hear from public service discussions with industry people on Friday that the aim is to produce a document of about 60 pages next September, one sixth of the length of the last one.
There is an obsession in the green-related conversation on energy at the moment about consumers “leaving the grid” and the CSIRO report is also somewhat taken with the topic.
It seems to me that three observations will suffice: it isn’t going to happen any time soon, the advent of viable storage is both an essential element and a long way from realisation – and 75 per cent of consumption is not from residential customers but from industrial, commercial and public service (hospitals etc) users.
Use of nuclear power would negate the need to cover eastern Australia with about 5,000 square kilometres of wind and solar farms and to spend about $90 billion on new transmission infrastructure – and, at least as far as three-quarters of the load is concerned, would make a nonsence of “leaving the grid.”
I’d be the first to put my hand up for a more concentrated R&D focus, nationally and internationally, on storage but right now the technology lives in the same sort of space as hot rock geothermal generation: a very interesting idea but not making giant strides towards the marketplace.
The CSIRO forum “assumes” a 50 per cent fall in storage costs by 2030.
I’ll just observe that the Federal Treasury modelling for mid-century assumed large-scale use of geothermal power, it didn’t assume a large increase in domestic gas prices and it assumed carbon capture and storage will underpin about a third of power supply – and this was a product of less than three years ago.
Another truth is that change is not inevitable even when it is highly desirable.
Just look at the mess we have made of urban rail systems in our capital cities and of dealing with the Sydney airport problems.
There are a raft of reasons, with respect to electricity supply, for wishing to see change and a bigger raft of policy steps needed to bring it about in an effective fashion, embracing all the options (including nuclear).
The problem with efforts of this “future grid” sort is that they are inevitably driven by political (small “p”) mindsets and aided by the efforts of more than a few in the business community to go with the flow rather than make themselves targets for public obloquy from the radical elements and their media fellow travellers.
Good policymakers need to rise above all this and to be good communicators, too. Most of all, looking at electricity, they need to understand the realities of the marketplace.
They’re in short supply, as you will have noticed.
Writing the “OnPower” and Coolibah December newsletters over the past week – an interesting challenge to produce two issues covering similar ground in different ways; fortunately there is no shortage of topics – I started thinking about how one might sum up this turbulent year.
It seems to me that the word “messy” might capture it better than anything else, a point underlined overnight by the decision of Chris Hartcher to resign as New South Wales Resources & Energy Minister just when the gas problems of his State, and the east coast, require experienced hands at the tiller.
I fret, too, about the process for energy policymaking we will see in the year ahead.
The carbon tax parliamentary embroglio is a situation tailor-made for a patched-up solution – look at the deal currently being stitched together by the Coalition and the Greens over Australia’s debt ceiling.
For that matter, look at the Gonski education funding merry-go-round of the past week.
Sometimes patched up arrangements work.
Too often, they fray under pressure or turn out to have unintended consequences.
From where I am observing things, they are not made any better by all the talk of excessive control from the prime ministerial suite.
We have been here before, too, more than once – think Malcolm Fraser as much as Kevin Rudd – and no good comes of “control freak” (to quote the media) behaviour at the top of government.
The new energy white paper could settle things down a bit in 2014, but getting it started is inevitably taking time in a situation where time is at a premium for investors and consumers.
The terms of reference for the paper are published today – and the deadline for its completion is next September (with a green paper published next May), but there are a lot of actions needed before late next year.
An issues paper is promised for mid-December. Rumour has it that the document is still in the PM’s office.
With 40-odd years – some of them very odd indeed – of dealing with governments under my belt, I am under no illusions about the degree of difficulty confronted by policymakers and their advisors in handling energy’s complex issues, nor about how politics intrudes in to this decisionmaking.
However, as I recall one veteran minister saying in my presence to a fresh MP finding the going a bit rough: “Well, son, you volunteered!”
Certainly, in the energy sector at present, the heat in the kitchen is quite intense and it is not going to be mitigated by sloganeering, jerking knees, shut-your-eyes-and-wish decisions or recourse to still more committees and task forces.
Something that caught my eye in the British media this week is a good example of just how far wrong things can get when successive governments play political games in the energy field.
It is claimed that the cumulative cost of meeting Britain’s pledge (initially by Labor in 2008) to reduce carbon emissions to 15 per cent below 1990 levels by 2020 will be around 100 billion British pounds by the end of the decade – and this translates to 400 pounds extra a year on household energy bills.
The aggregate figure for 2030 is alleged to be 300 billion pounds.
It is also being claimed that current high energy bills have led to the poor and the elderly British not using space heating and that this resulted in 31,000 “excess” deaths last northern winter.
Attention is being drawn to the political panic in the 2003 British heatwave, blamed for 2,000 deaths, and how it was used as a lever to drive climate change policies — and to the fact that new UK Office of National Statistics data show that, in the past 10 years, a total of 10,000 people have succumbed to heat-related problems but 280,000 have died because they couldn’t keep sufficiently warm.
Reacting to this does not require “denialist” views on global warming, but it does require an appreciation that madcap embracing of green schemes around the Western democracies, without proper attention to “joining the dots,” comes at a very substantial price.
If you put “energy” plus “cost” plus “Britain” in to Google News, you can get heaps more commentary on this topic, but my point here is more to argue that at home we, too, are paying a price for poor policymaking in this space – and that, with our east coast gas problems becoming more apparent by the day, the cumulative cost of radical ranting, media hype and political dithering is going to be considerable in the rest of this decade at household, business and economic levels.
The local challenges are far from just carbon policy.
Next week – on 13 December – the “NEM,” the east coast electricity market, marks its 15th anniversary.
Nineteen million Australians are dependent day-by-day, minute-by-minute on the efficient operation of the “NEM” and of its backbone, the monopoly power grid.
In terms of security of supply, so far the “NEM” has been a considerable success and we should not fail to acknowledge that the market is a political construct (bolstered by a huge amount of expert input) – but whether this can continue to be the case, after the past half dozen years of political intervention in the generation area, is another question.
In parallel, politicians, no matter how much they like to point their fingers elsewhere, created the current grid-related regulatory set-up that has increased power bills to unacceptably high levels – and they are now milling around trying to undo the pricing damage, which is impossible.
The best that can be achieved is to mitigate the impact for the rest of the decade, but this requires timely attention to rolling out metering technology, to introducing a new tariff regime, to enabling necessary network capex to be undertaken, to fully deregulating the east coast retail market and to enabling all of us to “churn” without developing migraines.
Here again, the best you can say about this process right now is that it’s “messy.”
I know some who use more emotive language.
We will get another insight next week in to how far the collective of resources and energy ministers, meeting on Black Friday under the somewhat tattered umbrella of the Council of Australian Governments, can promote progress.
What we need, for both electricity and gas, is not more committees but decisions, properly assessed for costs and benefits, and timetables for implementation – and not in silos but on a holistic basis targetting reliable, cost effective supply in the context of carbon abatement management.
And we cannot wait for them until 2015.
Naughty kids in another time used to be threatened with getting a lump of coal for Christmas rather than presents.
In this environment, are we collectively at risk of getting yet another lump of coal, metaphorically speaking, this year?
For me, one of the scary thoughts is that we voters have the capacity ourselves to hand out lumps of coal to governments that offend us and we have done that – there are no doubt a large number of areas where we are better off as a result of recent federal and State elections, but is energy one of them?
The news from Victoria that electricity prices will rise from 1 January along with the ongoing debate about just what benefits will accrue from the abolition of the carbon tax serve again to remind us that policymakers have yet to demonstrate a real grasp of this issue.
The situation is now double-barrelled, too,with gas price problems increasingly the focus of attention; in Victoria, for example, the latest price rise round is the first time in years that the blow is bigger for gas than electricity.
What politicians would like to achieve is clear – it’s the path towards this goal that is shrouded in mist and very potholed.
Federal Industry Minister Ian Macfarlane stated the goal at the launch of Mining Day last month: “We want to see power bills, gas bills and other bills go down to relieve households and businesses of cost pressures.”
His department has issued a seven-page commentary on electricity prices and the government has been promptly criticised because the document appears to say something different to the Prime Minister’s line.
Tony Abbott has pledged that Australian households will be “better off to the tune of $550 a year” if he can have his way on the carbon policy while the Industry paper offers an annual saving of $200 for electricity and $70 for gas “than they would otherwise be in 2014-15 with a $25.40 carbon tax.”
There are, of course, caveats aplenty for any of these promises – just as there were when Julia Gillard in 2012 (that’s still last year, believe it or not) promised a $240 cut in household prices in 2014 by driving through regulatory reform at the Council of Australian Governments meeting.
The problem for these prime ministers and other government leaders is that ordinary Australians don’t follow the caveats; they just hear the promises and, not surprisingly, get more cross when reality turns out to be different.
Queensland’s Campbell Newman plunged down this misty, rocky road on coming to office and froze a key tariff for his State’s householders for a year – only to be burned by the rebound when regulation threw up a 22 per cent price rise (a record in Australia) for the current financial year.
The mere fact that it takes the Department of Industry seven pages to canvass power price issues highlights the political selling problem: in the age of the soundbite who in the general community has sufficient attention span for a couple of thousand words?
It doesn’t help that every nana and grandpa knows that power bills have doubled in the past half dozen years and here are the pollies and the public servants saying it has risen only 59 per cent – as the Industry Department does, using the “real” value of the CPI.
The hard truth is actually set out in the Industry document, right upfront: “Consumers have the right to expect a highly reliable supply of electricity (but) making electricity available whenever it is needed comes at a price.”
And, as the paper points out, the recent years have been the time when the electricity networks built 40 to 50 years ago have needed replacing at considerable expense.
Politicians (who approved the new rule-making that enabled the $42 billion outlay on networks) are now confronted by the awkward fact that, because of the sharp fall-off in demand of the past four years, there is a lower consumption base for recouping the network capex and tariffs will rise to deal with this.
The network businesses are getting annoyed that the next tranche of regulations is being seen as the driver of a new approach to their efficiency and they are leery of the benchmarking that is part of the alleged solution.
The Energy Networks Association put out a media statement at the end of November that highlighted this.
While more clarity by the Australian Energy Regulator about its processes is welcome, said ENA chief executive John Bradley, “the big benefits for consumers are being driven by the reforms already initiated by the networks.”
He pointed to the businesses having spent the past two years revising capital programs and pursuing savings in operational service and back office functions. In New South Wales, he noted, this efficiency drive is worth $4.3 billion.
“Contrary to loose claims about network gold-plating,” Bradley snapped, ”analysis shows Australian networks significantly reduce their capital expenditure in a falling demand environment.”
He added that another factor in the present savings push is that networks have been convincing governments to remove prescriptive reliability standards “which have dictated spending in some States that didn’t provide value to customers.”
(Put another way, the trade unions were able to persuade Labor State governments to impose over-the-top reliability standards and Coalition regimes are now persuaded to somewhat unwind them, a game that is being played right outside the radar of householders.)
The networks are now on guard against the next stick they fear may be used to beat them: benchmarking.
“It’s easy to make spurious comparisons about cost differences between networks to support a media headline or public argument,” said Bradley.
“It’s vital that the regulator takes a prudent approach to interpreting benchmark data, given the significant differences in cost drivers, including climate, location and customer density.”
The big problem right ahead for both energy suppliers and policymakers is that the likelihood of power prices continuing to stay pretty high by comparison with trade competing countries and the inevitability of gas prices rising a great deal is going to sooner or later start having really substantial impacts on manufacturers and the people they employ.
Tasmanian consultants Goanna Energy Consulting, for example, in a new newsletter, comment that increased gas prices in that State “could expedite the exit of at least two major Tasmanian industrial users, leading on to stranded electricity transmission assets and the resulting increases in rates.
“This,” says Goanna, “could trigger a vicious feedback loop of energy cost increases for all Tasmanians.”
The islanders won’t be Robinson Crusoe in this respect.
Mainland manufacturers are increasingly strident in voicing their concerns about the state of play, with Tony Abbott and Greg Hunt reportedly being told about it first hand at a roundtable of industry figures in Melbourne in early November.
The Energy Users Association is calling for the meeting of energy ministers under the CoAG banner on Friday week to “make action on the gas crisis a first order priority.”
Any further delay, it argues “is akin to governments fiddling while energy costs burn a hole in business balance sheets.”
The problem, however, is that we have had a decade or more of governments fiddling in this area and it’s hard to see what can be done to achieve what businesses really want: yesterday’s world where Australian energy prices were amongst the lowest on the planet – and the Aussie dollar was much lower and labor costs were “reasonable” and so on.
(The Chinese dragon getting back in its box would help too.)
From a business perspective, although not all business by any means, killing the carbon price is a step in the right direction, but a cure-all it’s not and, anyway, there is no certainty it is going to happen.
Meanwhile, ahead on the path, lie the small matters of retail deregulation, rolling out “smart” metering and introducing time-of-use charging, not to mention the network privatisation issue, the fate of the RET, the problems of over-capacity in the “NEM” and so forth.
The ride can only get bumpier and the promises, no doubt, will keep coming.