Sailing stormy waters

Perhaps the most depressing thing said about energy this month is the observation by Ross Garnaut that “it may take several more electoral cycles” before our political system can achieve a consensus on policy.

It’s especially depressing because he is probably right and the shenanigans between governments in the run-up to the latest CoAG Energy Council meeting and since it underscore the problem.

Still, there is some light: the council endorsed 49 of the Finkel report’s 50 recommendations, of which possibly the most important is the formation of a national Energy Security Board.

The Australian Energy Market Operator’s chairman reportedly sees the Brisbane meeting as “the one where the energy ship turned around.” One can only hope he’s right but one needs to bear in mind that this is a ship that has turned before – and more than once.

The ESB, says the meeting communiqué, “will provide whole-of-system oversight for energy security and reliability of the NEM and be integral to improving long-term planning.” It will report to the Energy Council on a regular basis, including an annual “Health of the NEM” review in addition to advising ministers on strategic priorities. Josh Frydenberg says its role will be “critical.”

The chances of this level of endorsement of Finkel proposals did not appear all that bright on the eve of the Energy Council meeting, based on ministerial posturing in the media, but maybe the “stakeholder roundtable” they held on Thursday night with 100 representatives from consumer groups, industry bodies and concerned companies sobered the animal spirits of the politicians.

The Australian Energy Council, representing generators and retailers, took a message to the meeting that “energy prices are unsustainable and the reliability of the electricity system is deteriorating.” It would not have been alone in presenting these sentiments. AEC chief executive Matthew Warren asserts that “the time for playing politics is over (because) Australia has arrived at a tipping point for energy policy.” Regrettably, echoing Garnaut, there is no realistic chance that politicians will stop playing games – which is why the ESB concept is so important; it will be tricky (in terms of public reaction) to maintain the games if an independent umpire is delivering hard truths.

In the short term, the hardest gig in the energy arena right now falls to the Australian Energy Market Operator, which, the communiqué notes, “has put in place a comprehensive set of actions to ensure the (east coast electricity) system is ready for the coming summer” and has also contracted an independent audit of its plans to manage the NEM through the heatwave season. Frydenberg, in a newspaper op-ed, underlines the demands being made on AEMO: “Interacting closely with generators to ensure their maintenance timetables and resource stocks are appropriate for summer is (its) priority.”

A repeat of last summer’s weather is a challenge for east coast supply shorn of Hazelwood, not least in Victoria and New South Wales, home to 60 per cent of NEM power demand in 2016 and to 6.2 million residential and business electricity accountholders. A debacle here of the South Australian kind next summer is not to be countenanced economically, socially or politically and, as the communiqué makes obvious, the market operator will be front and centre in any blame game that ensues if there is an unfortunate event.

A core part of the broader challenge for the NEM is the gas imbroglio and, really, nothing has changed after Friday’s ministerial meeting.

Frydenberg sums things up like this: “COAG has been remarkably effective in agreeing to a historic set of reforms around gas pipelines and the Australian Competition and Consumer Commission is doing important work lifting the veil on gas pricing and margins in the wholesale market, but Victoria and the Northern Territory continue to lock up their abundant gas resources and prevent them from being developed.

“It’s a bit ironic,” he adds, “for Victoria to grandstand on the Clean Energy Target while ignoring a key recommendation from Finkel’s review that States drop their mindless bans on onshore gas development, accept the science and move to a case-by-case regulatory regime.”

In short, we are still mired in the potholes on a path that should be leading to the expenditure of billions of dollars to ensure adequate east coast supplies of gas out to 2030. We still have many business consumers, large, medium and small, under the price pump and high gas prices will continue to flow through to NEM wholesale electricity prices and ultimately consumer bills. The federal government’s intended intervention to force gas aimed for foreign buyers in to the east coast market is not going to bring down prices to any comfort zone for direct users of the fuel or power generators. It’s a palliative measure, not a cure.

Chemistry Australia CEO Samantha Read said this month that there is “a lack of understanding of how critical domestic gas is to job creation.” Her industry uses 10 per cent of national domestic gas supply and the present problems, with company input costs rising by hundreds of thousands, and in some cases millions, of dollars are a real danger to jobs and the economy.

This is another area where the electoral cycle is freewheeling over the real needs of the community and the economy with Victoria and NSW in particular being unable, mainly for political reasons, to introduce a satisfactory regulatory regime for gas extraction. The same is true in the Northern Territory, where gas resources are large enough to make a real difference for southern States.

Perhaps the biggest political issue looming ahead is the highly likely coincidence around this time in 2018 of more hurtful power bills arriving in millions of homes after another hot summer and the next round of retail price hikes (even if they are not at the eye-watering levels of 2017), feeding in to the run-up to the next federal election.

Paul Kelly of The Australian opined a week ago: “At stake is the (federal) government’s ability to prevent blackouts and counter spiralling price pressures on house­holds and business. If this fails, Turnbull is history at the election.” No pressure, then – and no prospect either of Labor desisting in striving to ride the opportunity to the polling booths.

Which brings us to the clean energy target, the most politically sensitive Finkel recommendation, and to the Labor NEM State governments (in Queensland, Victoria, South Australia and the ACT) banding together to request the Australian Energy Market Commission to model a design. Frydenberg labels this a stunt, which, of course, it is, but the Turnbull government has created this problem via its inability to pursue the Finkel recommendation in its own ranks.

The AEMC request is Labor’s ploy to ensure this is a political grenade that goes off later this year or in the first half of 2018. It’s a certainty that the bulk of submissions to an AEMC inquiry will promote adoption of the measure. It is also a certainty that Abbott and his acolytes will continue to rail against the measure.

Politically, it’s a gift that keeps on giving for Bill Shorten & Co with the full-throttle support of the media.

The energy ship may have turned but it is still in stormy waters and reefs lurk ahead.






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