Looking back on Energy Week

You’d have to be living under a rock not to know that the biggest public energy issue in Australia today, and one of the two or three top issues overall, is the rising cost of electricity and gas – or that political promises about alleviation, from whatever source, are to be approached with caution.

Sieve the large number of issues aired at Australian Energy Week, just concluded in Melbourne, a fair few of which have been canvassed in the media, as well as the conversations among 400-plus attendees and there’s no avoiding that cost is the over-riding cause for concern, more so than blackouts, which gained notoriety after the South Australian event.

Or that careful reading of the Finkel report does not show the task force offering lower prices down the track, based on modeling, but a possible bill below what business as usual would otherwise deliver depending on many variables. There is a difference.

The manufacturing sector is seriously unhappy, as is only too obvious. Australian Industry Group’s Innes Willox was moved to tell one of the AEW sessions I chaired this week that, from the perspective of business consumers, “the status quo in energy is frankly disastrous.” He added that “Australia’s east coast gas problems are beyond looking crazy.”

Gas loomed large at the conference – which was no surprise. The impact of its high prices on both direct users of the fuel and ultimately on retail electricity bills because of flow-through effects to the generation market was one of the top topics in presentations and discussion at refreshment breaks. As one panel speaker put it, “we have a burning platform.”

And it is hard for consumers to lift their eyes to the far horizon and the many prospects of the “transition” when they can feel the heat of this fire at their backs.

I see a senior media commentator opining this weekend that the Prime Minister and his government now “own” the energy price problem, which may be true in the political sense, but is unreasonable when one factors in the contributing roles of other governments (and oppositions) in the federation. Over the past four years the Coalition has sought to lift us out of the morass of gas policy management – and it is hopeful that its recent moves to compel LNG companies to be part of the solution will prove at least a short-term circuit breaker (however cross it makes the exporters, who point, with good reason, to the sovereign risk issues) – but there is no short-term fix for what both large industry and households want, encapsulated by Willox as “energy to be a source of competitive advantage again.”

For me, Australian Energy Week underscored once more the gulf between the many efforts being made to pursue a new order in electricity supply – to gratify community ideals for a lower carbon society without jeopardizing security and reliability of supply – and the here-and-now imbroglio where concerns about what the new financial year, and especially next summer, may bring are never far beneath the surface of the conversation.

Some of our best minds are addressing the big picture – Alan Finkel, Josh Frydenberg and AGL Energy’s Andy Vesey clearly impressed the Week’s audience with their thoughts in this regard – but, in an environment where seven days in politics is a long time and the prospects for potholes on the road to the next elections are myriad, the here-and-now keeps intruding.

Frydenberg is firm on the point that the federal government is not going to be rushed in to a decision on a key part of the Finkel report, the clean energy target. It’s more important to get this right, and to take the Coalition party room as well as key energy stakeholders along with the decision, than it is to resolve the issue quickly was a key part of his message to the AEW audience.  (We never got to hear the views of Labor’s Mark Butler because a combination of the late Senate sitting on Thursday and one of Canberra’s impenetrable fogs on Friday morning made it impossible for him to get to Melbourne to speak to AEW despite his best efforts. This was unfortunate because, from an energy investor perspective, federal Labor is no less important in how this situation plays out than the federal Coalition.)

Frydenberg acknowledged the major challenge of getting policy right and the competing political problem that power prices are “a barbecue stopper.”

The background to his address is the Prime Minister calling for policy to be based on economics and engineering not ideology and politics, a view with which energy suppliers and major users could hardly agree more and an attitude that fairly reflects a large part of the Australian Energy Week formal and informal discussions, but a decade of game-playing has bred a deep cynicism among stakeholders. There is strong concern that opinion polls still pressure political leaders in to saying things that either prove hard to deliver – lower costs, for example – or send worrying signals to investors about the durability of decisionmaking.

The Australian Energy Council’s Matthew Warren struck a chord, both with an AEW concurrent session audience and more widely through a subsequent newspaper op-ed, when he declared that “energy policy is a mess, prices are rising, reliability is deteriorating and we aren’t getting emissions down at the rate we need.”

The current “investment strike” brought about by “a decade of policy flip-flopping,” he warned, “threatens the future of the national electricity market,” indeed its “death” in the form of re-regulation and “a return to government paternalism of the 1960s.”

His comments, as well as those by Willox and a number of others this week, contrast sharply with the desire of many to focus on a “transition” future where things are much greener and happier. (I noted with interest that the two concurrent sessions of Australian Energy Week that attracted the largest attendance were those dealing with “digital disruption and innovation” and the “future grid.”)

Amongst my reading in recent days has been a law firm’s review of the Finkel report in which it asserts that the two key energy policy challenges facing Australia are the need to better manage the integration of renewables in the power system and to respond effectively to the global trend towards a more intelligent and decentralized supply chain; others would suggest that the two key challenges right now are to remedy the price crisis and to accept and promote a market where no particular technology is being pushed by policymakers and the transmission system has been reinforced so that it and various forms of storage can play a critical role.

Beyond this is the ballooning fear that, having had years of a renewable energy policy but no coherent energy policy, the bigger problem, in the national interest, is what competitively-challenged user industries (with their considerable direct and indirect employment) will shrink or close and in what time frame? This is, as the economists like to say, a non-trivial issue but it is still flying somewhat below the public radar.

A final thought: reading a substantial review of energy issues, including some of the discussion from Energy Week, in today’s Weekend Australian, I am struck by this observation from Matthew Warren: “Energy has never been properly understood by the political class,” he tells the paper. “It has just been something that happens in the background and it just worked. As a result, actions have been taken through a political lens rather than a policy lens.”

How far it is possible to recover from this in the relatively short time available for remedial action to have a meaningful effect where it matters in the present tense (ie for the benefit of today’s consumers and more broadly for today’s economy) is a big question. The carry-home message from Energy Week is that it is one that, post-Finkel, is still totally up in the air – and that an almighty bump as we all fall to earth is not a remote and unlikely prospect even if there are numerous ways open to avoid this in whole or part.

In energy politics, we are, as the poet Matthew Arnold had it, still very much on “a darkling plain, swept with confused alarms of struggle and flight,” terrain for which the Quest Events “energy outlook” conference series, with which I am associated and of which Energy Week is the latest event, has sought to provide a lighthouse for the past six years. The past week’s conference, sadly, has illuminated just how much there is still to do to avoid a grand wreck and the critical point of the shortening time available to do so.

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