Boiled frogs

Three months is a very long time in politics.

At this point in December the Prime Minister and the State and Territory leaders held a Council of Australian Governments meeting and this is what their communiqué said about energy: “COAG agreed that governments must prioritise energy security, reliability and affordability as the electricity sector transitions to low emissions technologies. As the electricity sector accounts for 35 per cent of Australia’s carbon emissions, leaders agreed it has an important role to play in meeting Australia’s commitments under the Paris Agreement. Leaders noted the technical challenges to be overcome to successfully manage this transition and asked the COAG Energy Council to make it easier to expedite changes to frameworks, technical standards and rules that will assist in managing this transition and to accelerate proof of concept projects in relation to new technologies and infrastructure enhancements. Leaders committed to urgently progress work on broader solutions to provide certainty to industry, drawing on the outcomes of Dr Finkel’s final review.”

Can you spot the missing word? It’s “crisis” – as in Malcolm Turnbull declaring this week “we are facing an energy crisis.”

The COAG statement in December was mostly about carbon-related issues – where the vote-chasing politicians’ attention was focused. Even after the wake-up call that was events in late 2016 in South Australia. Until now.

The truth of the matter is that Turnbull, Tony Abbott and Julia Gillard (let’s not bother about the brief re-appearance of Kevin Rudd) have been faced since 2012 with mounting evidence of the security and affordability risks of not resolving energy policy, not least when it comes to gas supply, but they have been more interested in the “carbon war” and surfing the waves of popular sentiment favouring renewable energy.

Now we are suddenly discovering secure, cost-efficient electricity and readily-available, cost-efficient gas are “inextricably linked” (that’s the Australian Energy Market Operator). Well, duh!

The issues fuelling this week’s “crisis” talk have been in evidence, for example, at each of the past four annual Australian Domestic Gas Outlook conferences – and will be again next week when the latest ADGO is held in Sydney with an audience approaching 300 concerned people from across the stakeholder spectrum.

What we have here is a classic “boiling frog” scenario; only now, with the publication of an alarming AEMO statement in the wake of blackouts, load-shedding, price rises and ever-more-shrill cries from embattled manufacturers, are our political frogs prepared to acknowledge the perils of the hot water – with the added twist that, collectively, they are the ones who lit the fire.

There are in essence two issues here today.

One is the Bandaid solution the politicians inevitably will seek to apply to deal with the immediate risk – the consequences of AEMO’s prediction of gas supply shortfalls within two years in the southern States and the resulting threat to adequate power generation.

The other is the long-term resolution of the transition to a much-changed energy market. The price of failure in this respect, to quote Turnbull again, is that Australian economic investment will be impacted and jobs will be lost (in their many thousands, although he did not say that).

As the Energy Networks Australia CEO, John Bradley, has commented today, AEMO’s warning highlights the need for governments collectively to provide an integrated energy plan, given that secure electricity is dependent on secure gas supply.

And, as Australian Energy Council CEO, Matthew Warren, has put it in a letter to Alan Finkel despatching the association’s submission to his inquiry, “policy is the problem, not markets.” Recent price and reliability issues, Warren asserts, are “not the result of the NEM failing but (of) sustained policy interference and arbitrary constraints.”

Certainly Grant King, now Business Council president, is right when he says we are reaping the consequences of bad policy and of short-term populism. And he’s right to point out that “It’s hard to get out of this problem, given there is a three-to-five year gap in the development cycle.”

Maybe the Grattan Institute’s Tony Wood has put his finger on the real sore point. “Both sides of politics,” he says, “need to admit that reducing emissions under any policy or technology will lead to higher costs than the power we have today.”

And a ray of hope: EnergyAustralia CEO Catherine Tanna has told the Australian Financial Review, reacting to Turnbull’s “crisis” talk, “the situation is salvageable” even if we are “in for a couple of years of challenging times.”

She adds: “We can make certain improvements but we shouldn’t pretend all is broken.”

Quite an important question in this respect is whether the political frogs can cope with more heat?

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