The vision thing

If we have learned nothing else in the energy debate over the past year it is that what really matters to consumers is security of supply and cost.

The former is easy to define: the lights are either on or not.

The latter tends to be a murky pool and one where politicians and businesses seeking to make a buck out of consumer concerns can fish endlessly with the media happy to play along in the “shock, horror” game.

It’s useful, therefore, to find amid the many submissions to the Finkel task force that someone (the Australian Industry Group) has done the core arithmetic.

AiG tell the task force that, when fully passed through, the electricity and gas price rises currently in train will cost users collectively between $10 billion and $12 billion a year (that’s up to $36 billion in 2018-20, not a trivial sum) – with households paying an extra $3.6 billion annually and all forms of business an extra $8.7 billion.

In the latter case, AiG points out, energy-intensive manufacturers will be particularly hard hit, paying up to $4 billion a year more.

Companies in primary metals manufacturing, food, basic chemicals and non-metallic mineral products (including building products) “are particularly exposed to a double hit to their profitability from steep electricity and gas price increases,” the association adds. And, as the media panic demonstrates whenever any such business even looks as if it may close a plant, these are large direct and indirect employers.

The cumulative costs presented by AiG give point to what the politicians are seen to be promising the Mob (as Paul Keating used to describe us voters seven prime ministers ago). However phrased, this is an easing of the energy budget pain.

How this will be achieved is the big question. As AiG says in its Finkel submission, it won’t be easy.

The association comments: “Gas faces international price parity and rising production costs while all new electricity generation looks expensive.”

AiG goes on: “It is very plausible that current steep increases in electricity and gas prices (will) induce more households and businesses to use solar and batteries – but, without reform to the current market structure, they will only face incentives to cut their use of the market, not to install and operate (these) assets to support the market and create value for everyone.”

The goal, the association argues, should be to provide a market framework that will work for society as a whole. “The alternative – continuing paralysis and division over energy and climate policy – is a threat to us all.”

The current “national electricity objective” – the driver of the market’s rules and operation – is at heart “to promote the long-term interests of consumers” and AiG suggests that a starting point for worthwhile action is for the task force to draft a new vision on which there can be broad agreement. Without this, it says, “policy is more likely to be reactive, uncoordinated or hostage to unspoken choices and assumptions” and it adds there is a particular problem in the form of a mindset that it is inevitable Australia will lose its energy-intensive, trade-exposed industries to lower-cost countries.

The association also suggests part of the new vision be along the lines of “Energy should become a source of global competitive advantage for Australia’s trade-exposed industries. Our energy systems should help make Australia an attractive location for energy-intensive industries all the way through the global transition to net zero emissions.”

Of course, AiG acknowledges, any such vision must contain elements relating to the interests of household consumers and other stakeholders; its own push is to get recognition of the importance of energy to industry (and by extension to the economy in which we all live and work).

Thinking about this, I feel there is a fair bit to be said for giving priority to tackling “the vision thing” (as George Bush senior once put it) in pursuit of clarity of the principles that could/should shape a new policy approach on the basis that, for a ship without a rudder (and even worse without a map), navigation becomes near-impossible. Any port will do for politicians in these circumstances as is only too obvious from the present energy melee – and we shouldn’t lose sight for a moment that, whatever Finkel & Co may offer, it is politicians at both federal and State levels who eventually will make the decisions.

The vision thing is also taken up in the submission from the Energy Policy Institute to the task force.

EPIA wants the CoAG Energy Council to be advised to take two immediate steps: first to pursue an agreed national energy vision and to identify the policy priorities that flow from it – and, second, to appoint a “chief planner” with the appropriate mandate, powers and resources to guide implementation of the vision and undertake long-term planning for the power system, including its interaction with the gas system.

The “chief planner,” EPIA adds, should pursue a rolling 30-year horizon in consultation with industry, mass market consumers and other key stakeholders.

The institute notes that going down this road will require an efficient working relationship between the “chief planner” and the trio of NEM institutions (the Australian Energy Regulator, the Energy Market Commission and the Energy Market Operator), suggesting their roles and powers may need to be reviewed.

Beyond this, as is obvious from a slew of submissions to Finkel, lies the question of whether the design of the NEM continues to be fit for purpose. Opinions vary widely – EPIA thinks it is “outmoded,” others have talked of it being “broken” and there is a quite strong mainstream supplier body of thought that pursuing a new market design is not going to work unless and until the issue of long-term emissions policy is resolved on a durable basis.

There is a crucial need to be practical about all this.

The Australian Industry Group, in its Finkel submission, makes this salient comment: “Energy users and suppliers need reasonable confidence about the future direction and detail of energy and climate policy (but) full certainty is not achievable or desirable given the need to evolve and adapt our energy system over time to changing circumstances.”

However, says the association, it is possible to deliver a clear forward pathway and to define processes for shifting it as required in the long term.

This is why, it seems to me, the vision thing is really important. The ways and means of this “pathway” may shift, but the underlying intent shouldn’t change.

We are in a situation today where achieving a political consensus on a technological route is almost impossible (and undesirable, many of us would argue) – but perhaps we can improve things significantly by focusing on a vision of what we (that’s a mainstream “we;” the fringe dwellers want only their own radical way) envisage as a national goal and setting in place a process to pursue it.

 

 

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