Mind the gap

“There’s a frustrating gap between politics and what we need in energy markets in Australia right now” is probably a good summary of all that has been said and done in the past week.

The quote comes from a radio interview given by Matthew Warren, CEO of the Australian Energy Council.

Elsewhere a media commentator has opined that energy users “are angry and frustrated at the inability of the political class to get its act together.”

Another has declared that the “tortured” energy policy debate is entering a new destructive phase “at the precise moment when leadership for the common good is most urgently needed.”

As for energy investors, it is not surprising (to me) to see in Brisbane’s Courier Mail newspaper an unnamed power industry executive reported as saying “We don’t know what the

f— the rules will be next month, let alone in 10 years, and that makes it nearly impossible to make investment commitments.”

As a metaphor for the political state of play it would be hard to go past South Australian Premier Jay Weatherill gatecrashing a federal government/AGL Energy $20 million “virtual power plant” launch in Adelaide this week – his administration has not contributed to it – to abuse Josh Frydenberg in front of TV cameras over their relationship.

This was apparently payback for federal criticism of the SA government plan to spend $550 million plugging gaps in local supply through embracing battery storage, building a new gas-fired generator with taxpayers’ money, bringing in back-up diesel plants, instructing retailers on the level of electricity they must source from within the State and legislating to give itself greater power to intervene in the market (a move which may contravene the current NEM arrangements).

In turn, Weatherill is eager to pour cold water on Prime Minister Malcolm Turnbull’s plan to expand the Snowy hydro system by 2,000 megawatts, a development that will take a number of years to come to fruition, including the period needed for environmental impact assessment.

(I note one former State energy minister this week describing it as a plan to use cheaper coal power to pump water uphill so you can later run it downhill as more expensive hydro electricity.)

The situation has moved ERM Power chief executive Jon Stretch to tell the PricewaterhouseCoopers/Australian Financial Review energy roundtable in Melbourne that “if this stupid anxiety between the States and the feds doesn’t stop, we are in deep trouble.”

Stretch says the energy industry is “screaming” for enduring national policy.

Others are expressing concern that the chance of fashioning such policy from the Finkel task force review of NEM security is being lost even before the report lands because of politics.

PwC’s energy and utilities partner, Mark Coughlin, adds the thought that now governments are intervening in the electricity market as investors and regulators. He asks: “What role is government trying to play? Where is all this going?”

As well, the upstream petroleum industry continues to point out, there is no viable plan for dealing with the closure of large coal-fired generation if gas is not permitted to play its expected role as a transition fuel, an issue that occupied not a little of this week’s Australian Domestic Gas Outlook conference discussion.

Looking at the SA plan, the Grattan Institute’s Tony Wood warns that it risks replicating the problems created by the national renewable energy target through working outside the NEM. On the other hand, Wood thinks the Weatherill government has no political choice but to act on its domestic issues, especially, he argues, when the Turnbull government “has no credible climate change policy.”

The Financial Review is moved to comment in an editorial this weekend that, a week after a national energy crisis was declared by the Prime Minister, “politicians are falling over each other with bigger and more eye-opening responses,” yet the core problems remain unresolved and the political bickering that got us in to this situation has “been ratcheted up to another level.”

Of the new Snowy development, the newspaper complains that it is “another big infrastructure project announced without proper assessment.”

All of which gives point to the Australian Energy Council reaction to the Weatherill’s plan. It tackles symptoms and not the cause, complains Matthew Warren, saying the “radical intervention only highlights the urgent need for an effective national strategy.”

Warren asserts that the SA electricity problems flow from poorly-designed government intervention in the NEM and subsidies, not the design of the market itself, a contradiction of the various voices declaring the NEM is “broken.”

(The National Farmers Federation in a submission to the Finkel review says the “broken” NEM needs fixing because reliability and affordability are key for agricultural producers in a situation where wholesale price spikes and outages “can destroy annual returns for some farmers in a few hours.”)

Many features of the Weatherill plan, Warren adds, “would be made redundant by effective national energy policy reform.”

And, perhaps curiously, given what it is up to, Queensland’s Labor government is also telling the Finkel review that “without coordinated national action to integrate energy and climate policy, the energy sector will continue to have sub-optimal outcomes and investment uncertainty.”

If anything, the gap to be minded in the energy space seems wider after the past week.

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