Politics and Finkel

Everybody in the federal parliament agrees spiralling power prices are a massive problem, politically and economically.

This assertion by the Australian Financial Review’s chief political reporter at last week’s end (in a commentary headlined “Every galah in the pet shop is now an energy expert”) was followed by another from the Grattan Institute’s Tony Wood that the current political debate threatens to deliver less secure and reliable energy at higher cost, the opposite of what the Finkel report is attempting to get the body politic to pursue.

Wood adds: “In Australia, ‘old coal’ delivered electricity at about $40 per megawatt hour for many years. But those plants are retiring and the cost of power from new coal plants, even the most efficient, is closer to $80. Gas-fired power, even if domestic gas prices move down closer to export parity, will cost $90-100. Wind and solar, when available, can deliver power below these levels, but the cost of balancing their intermittency pushes prices back up. Wishing a return to the costs of last century is futile.”

Critical to analysing the “blueprint” Finkel is offering federal, State and Territory governments is understanding that the task force has implicitly recognised higher power prices are a fact of our lives and that failures of collective political management of the sector will see them rising further out to 2030 because of investor reaction to policy uncertainty. (As readers of this blog know, I discount projections to 2040 or 2050.)

Political touting of the task force as a vehicle to achieve lower power prices – less than they were last year, let alone where they stand now after the latest round of retailer announcements – was always a dubious ploy and is now a hurdle to consideration of other aspects of the panel’s recommendations.

To me, one of the notable features of the first post-Finkel week has been the view, to quote one senior journalist, that the Prime Minister “has multiple challenges in trying to craft a (new) energy policy.” The problem with this perception is that the task equally belongs to the State premiers. The mechanism for moving forward is the Council of Australian Governments.

The new generation of players in the energy space is bored with veterans’ references to the creation of the NEM in the 1990s but it bears repeating, in the present context, that the prime movers in power reform then were Prime Minister Paul Keating and premiers Wayne Goss and Nick Greiner, with Jeff Kennett coming later to the party.

One of the arguments that carries some weight with me is that, pared down, the key impact from the efforts of Keating, Goss, Greiner and Kennett was to get quite a lot of politics out of electricity supply – at least in the NEM – and this worked until late in the past decade when politics came back with a vengeance.

Some see the best possible outcome from the present goings-on is for politics to again be pushed in to a back seat; a big problem is that the atmosphere now is a lot more poisonous than it was in the 1990s (that was often toxic, too) and the main parties have a large amount riding on appearing to win the argument.

As well, there are over-arching aspects, like the size of the emissions reduction target, that are political to the core (which is why, one assumes, that Finkel and his colleagues opted to work with the present 2030 target).

In a new commentary on the Finkel report, the Energy Policy Institute argues that CoAG’s Energy Council, which has until August to come up with recommendations to Turnbull and other leaders, “lacks the institutional authority and resources required” to implement whatever version of the “blueprint” is eventually pursued by the jurisdictions.

EPIA wants to see rapid take-up of Finkel’s recommendation to establish an “Energy Security Board.” From the institute’s perspective, an ESB will be better able to adapt to ongoing technological, social and environmental change and reduce the current propensity towards short-term, piecemeal solutions.

The ESB’s first priority, the institute adds, should be to put together a long-term plan in which the energy industry and the community can have confidence.

EPIA proposes that the ESB should have an independent charter that encompasses all of Australia’s interrelated energy objectives, including to protect consumers, to bolster energy export trade, to strengthen the entire economy and to foster the energy security of Australia and its energy trading partners.

The board, it says, should function transparently, follow predictable practices, consult regularly with all stakeholders and publish an annual report – and it “should include members with wide industry experience and not include political appointees.”

EPIA suggests the board can be established under a single federal law, “doing away with much of the costs, red tape and inefficiencies of separate legislation and administration in nine jurisdictions.”

One of the advantages of taking this route, EPIA opines, is that an ESB will not be “hostage to electoral cycles” and not be bound by political directives except in cases of national emergency.

If you follow the huge volume of political and bystander contributions of the past week, much of it circling around what was clearly a “robust” Coalition party room discussion in Canberra of cherry-picked aspects of the Finkel report, you will find very little about the task force recommendation for establishment of an ESB – but perhaps it should be higher profile as a tool for breaking out of the vicious cycle of politics in which electricity and gas policy is presently trapped.

Note: Alan Finkel is speaking at the three-day Australian Energy Week conference in Melbourne this week, as is Josh Frydenberg, Mark Butler, Victoria’s Lily D’Ambrosio and Queensland’s Mark Bailey. Also presenting will be AGL Energy’s Andy Vesey, the Minerals Council’s Brendan Pearson, Australian Industry Group’s Innes Willox, Energy Networks Australia’s John Bradley, the Australian Energy Council’s Matthew Warren, AEMO’s Audrey Zibelman and AEMC’s Anne Pearson. More than 400 people will be attending the event. (See www.energyweek.com.au)

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