The exam question

The Energy Networks Australia CEO, John Bradley, makes a sound point in the wake of this week’s federal budget.

His association welcomes the steps taken by the Turnbull government – including seeking to boost customer confidence in electricity retail and wholesale gas markets as well as support for new energy sources and pipelines plus money for scientific assessment related to onshore gas development – but emphasizes that “government funding is not the biggest challenge facing the energy system.”

Bradley says “widespread federal funding of new energy projects should not be necessary if governments can rapidly agree on a national energy transition plan” that, he adds, can return investors to an environment where they have confidence in allocating private capital, avoiding calls on the public purse.

Meanwhile, the Australian Petroleum Production & Exploration Association, which is holding its big annual conference in Perth next week, says $50 billion needs to be spent on east coast gas developments over 15 years to meet demand.

CEO Malcolm Roberts adds: “The industry is capable of delivering this provided State governments stop their political games. The only genuine, lasting solution to the tight east coast gas market is more supply (to) boost liquidity and competition, putting downward pressure on prices.”

In a nutshell, Bradley and Roberts, while commending the federal government for its positive approach in the budget, are nailing the ongoing over-arching issue: the willingness of jurisdictions to get real about the weaknesses in the system – and to do so soon.

As an example of the games being played, APPEA points to the (Coalition) NSW government creating an elaborate new regulatory regime for gas development – but failing so far to release acreage for a fresh round of exploration.

The Australian Energy Council’s Matthew Warren made a similar point a week ago. ““More renewables are part of the solution, not the solution itself,” he said. “We still need a durable national energy and climate policy that unlocks all types of energy investment and allows the market to coordinate energy technologies to deliver reliability and lower emissions at the lowest cost to consumers. We are yet to the fix high energy costs and increased reliability risks faced by Australian businesses and households. We are still to address how we will efficiently and reliably integrate higher levels of renewables into the grid.”

Riding back home on a train yesterday from attending an ENA forum in Sydney on “grid edge innovation,” I found a commentary by Catherine Tanna, managing director of EnergyAustralia (one of our three largest producers of electricity), in the new issue of a utility trade magazine – and some of her comments resonate with these budget reactions.

“Any transition,” she writes, “from large, older coal-fired power station to newer technologies will require an orderly, realistic plan and stable energy policy.”

She says: “The staggering thing is that there is no shortage of existing and potential energy supply in Australia. The problem isn’t capacity – it’s planning. We have enough electricity generation capacity – just not where and when it’s needed. There are abundant supplies of gas – but they stay in the ground.”

The exam question, says Tanna, is how to deliver reliable, affordable and cleaner energy for everyone in Australia.

She points out that, when one element in this equation is given priority over the others, you get the situation in which we are mired now: volatile markets, problems with security of supply and rising prices.

The answer, Tanna argues, “isn’t rocket science – it’s giving business confidence to invest,” the point also being made by Bradley, Roberts and Warren (and not a few others). “We get problems when we play favorites out of cleaner energy, reliability and affordability.”

The Grattan Institute’s Tony Wood, offers another, not unreasonable, view that the federal budget contains “modest commitments” to energy security, more gas and better regulation but he questions public funding for further feasibility studies on large-scale developments (like Snowy 2.0, power interconnection and major pipelines). “If the gas crisis can’t galvanize support from companies and consumers for pipelines,” he says, “why should governments reach a different conclusion?”

The Turnbull government may think him harsh, but I feel he’s on the money in declaring that, on energy, the budget is really “small fry” ahead of the outcomes of the Finkel task force review (next month) and climate change policy review (later this year).

The truth of the present situation is that, even as they ask us to perceive them as farsighted, our political leaders (across the board) are still pursuing short term agendas to win headlines, opinion polls and, they hope, “the only poll that matters.”

What will come out of the Council of Australian Governments meeting to be chaired by the Prime Minister on 9 June when confronted by Finkel’s report? Will it be a firm purpose of amendment on the part of governments collectively? Or will it be more rhetoric and game playing?

Among business stakeholders (whether suppliers across the energy spectrum or large-scale consumers) there is consensus that the status quo is unsustainable.

This past week the international resources company Glencore warned that “Australia has drifted past a tipping point of industrial energy demand destruction.” Global coal executive Peter Freyberg told The Australian Financial Review “Australia has to meet its energy needs now, in five years, in 10 years and in 15 years – and can’t rely on blue sky thinking.”

Real solutions are needed, he declared.

This, surely, is the exam question and the policymakers’ answer has to engender confidence on the past of investors (and their financiers) that policies and regulations will not continue to be capriciously adjusted.

Back in March of 2014, chairing a Quest Events conference in its “energy outlook” series, I said that, unless the policy process inculcates a balance of trust, confidence and understanding across investors and the community at large, “we are going to go on digging deeper and deeper holes rather than providing affordable energy with a lower environmental footprint.”

The political leadership’s approach in the past three years has been to launch inquiry after inquiry. The Australian Energy Council says on its website that there are now 25 reviews and assessments under way in the federation arena, “Are we now effectively beginning to see reviews in to reviews,” it asks?

As Glencore asserts, we are now at the very least on the brink of a tipping point – and the ultimate question is how do we avoid falling really hard? It can’t be argued that the federal budget provides the answer, so what must be done?

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