Archive for August, 2017

The siren’s call

I would very much like to back our most egregious political players in the east coast energy system – notably but not solely Andrews & Co in Victoria, Palaszczuk & Co in Queensland and Weatherill in South Australia – in to a corner and not let them out until they have explained precisely what they are trying to achieve (apart from pursuing vote-catching) and have supported their actions with believable expert assessments.

This, of course, is not just an issue for eastern Australia. The same demand could be thrust at successive governments in the UK, administrations in North America and some in Europe.

The vogue right now is for helicopter reviews of power systems – such as Finkel here, Dieter Helm (just starting) in the UK and, interestingly for us (because of the resonance for our own set-up), the just completed review of the American grids by the US Department of Energy, ordered by Secretary of Energy Rick Perry, the former governor of Texas (a state that can be held up as having made a not unreasonable fist of pursuing a competitive, stand-alone electricity market).

The 187-page DoE report, delivered in the past week, is acessible on the Web and can also be seen through the lens of a multitude of critiques quickly published in reaction to it.

I thought one US commentator did a good job of summing it up in this fashion: “The review caused great trepidation among solar and wind advocates because Perry (previously) had singled out the importance of nuclear and coal – a favorite of President Trump – in maintaining grid reliability. In the end, the study said the sharp decline in natural gas prices over the past decade is the primary reason US coal generation has become less economic rather than the spread of wind and solar. The report also found that wind and solar, which provide power intermittently, have not caused any insurmountable problems in the grid’s functioning – yet.”

In a background briefing, an unnamed DoE official told a major American newspaper: “While no day-to-day reliability threats loom in ordinary circumstances, this report is meant as a warning that the nation’s electric grids and systems are at a pivotal point. The replacement of coal plants by gas and intermittent wind and solar generation, and the spread of new digital controls, means the grid’s future resilience cannot be taken for granted. The report doesn’t say coal plants are necessarily required for maintaining reliability but underscores the importance of how various kinds of power interact to affect reliability and resiliency.”

To which one of my friends, who is an expert advisor to a government in Europe, adds in an email over the weekend: “If you scan the report with no preconceptions, the message that comes through clearly is that the USA has a very diverse electricity generation system, including a lot of hydro-power and nuclear, which provides enormous resilience through that diversity.”

Robert Pritchard, executive director of the Energy Policy Institute of Australia, in a note to his members shared with me, has done a yeoman job of encapsulating the DoE document in four points:

  • The continued closure of traditional baseload power plants calls for a comprehensive strategy for long-term reliability and resilience.
  • States and regions are accepting increased risks that could affect the future reliability and resilience of electricity delivery for consumers in their regions.
  • Hydro power, nuclear, coal and natural gas power plants provide essential reliability services and fuel assurance critical to system resilience.
  • A continual comprehensive regional and national review is needed to determine how a portfolio of domestic energy resources can be developed to ensure grid reliability and resilience.

You don’t have to be Einstein to see how this translates in to some messages for the NEM down here, bearing in mind, of course, that we have gone on denying ourselves access to nuclear power past any point of commonsense despite our substantial uranium resources and international developments in technology, we have created a major wholesale power problem with a hysterical reaction in some quarters to gas exploration and development, the storage issue (batteries and hydro) is still up in the air even as some governments chase high levels of intermittent supply – as is the question of greater interstate interconnection – and we seem incapable of discussing advances in coal generation technology without descending to a Punch & Judy show.

The past week has been also notable locally for a ferocious blast for energy policymakers from Tom Parry, former chairman of the Australian Energy Market Operator and before that of the New South Wales regulator, IPART. If you haven’t read it, I recommend doing so. See “Expensive power: brought to you by 20 years of bipartisan federal/State failure” in The Australian.

In his op-ed, Parry declares: “Reliability is now subject to much greater stresses as the mix of generation plants has changed and transmission networks have not adequately adjusted. And the once world-leading NEM, developed some 20 years ago, as well as the three national market bodies that are responsible for the NEM, are now being seriously questioned as to whether the model is still fit for purpose.”

In this context, I am also taken with a comment in a recent paper by Tony Clark, a Washington DC lawyer who was an Obama-appointed commissioner at the US Federal Energy Regulatory Commission after a career at state level as a utility regulator. He writes: “States need to be clear about their goals and take the responsibility of pursuing them. While it can be alluring to think one can maintain the benefits of a restructured market while also reflecting your generation winners and losers, I have come to the conclusion that it is a siren’s call best left unanswered. There may be plenty of reasons a state might wish to exert more control over its generation mix, some of them legitimate, but it must not (be) done haphazardly.”

Readers are no doubt aware that synonyms for haphazard include disorderly, hit-and-miss, arbitrary, slapdash and slipshod, every one of which can be applied to the processes that have brought us locally to where we are today. In fairness, via the Finkel review, the Turnbull government is trying to extract us from some of the worst problems policymakers have caused – but its clean energy target hassles re-ignite the haphazard epithet as do the actions of other jurisdictions.

The siren’s call to mess with the east coast electricity market, as well as the gas market, in pursuit of picking winners in a populist contest is still ringing loud over what Parry derides as our ongoing race to the bottom.

Sauve qui peut!

One of the ironies is that creation of the east coast electricity market (the “NEM”) two decades ago was strongly influenced by the desire to take politics out of power supply, leaving it to competition between suppliers to dictate what new infrastructure was built where – and, it was widely assumed at the time, ensuring through much greater efficiency in the private sector that inevitable price rises would be kept to a minimum.

For a relatively brief time – between 1998 and 2008 – this brave new world seemed to be delivering as planned and then politicians started intervening again.

An enduring public myth is that intervention will lower power bills when, all along, what is really anticipated (within governments) is that rises in consumer bills can be more constrained by political action. Paradoxically, the more evidence there is that such scheming makes things worse, the more politicians are driven to interfere.

In 2017 the interaction between politics and the east coast energy marketplace has blown up this conceit big time – thanks to interventions piled on interventions, the inevitable reactions of investors and, more recently, the macro world of engineering colliding with the machinations of political mice.

The east coast situation is made all the more complex by the fact that multiple governments are involved in energy policy and, when elections loom, the default position for each, to pinch the French phrase, is “sauve qui peut!” (“Save yourselves, whoever can,” the infamous cry of Napoleon’s Old Guard as they cut and ran at Waterloo.)

The other wrinkle in today’s NEM prices crisis is that “sauve qui peut!” is essentially the cry being directed by the federal government to residential consumers. Even as the body politic turns on energy retailers – via both the Victorian government’s push towards re-regulation and the federal government’s recourse to the big guns of the Australian Competition & Consumer Commission – the top-level message to households is still that their first, best hope for lower bills lies in their own hands.

Federal Environment & Energy Minister Josh Frydenberg has a detailed dissection of the current security and price situation in today’s The Australian in which his most salient point is that half of east coast household accountholders – that is more than four million bill payers in South Australia, Victoria, New South Wales and Queensland – have not moved retailers or contracts in the past five years (when the price spikes have really hit the political and media fan). “This,” writes Frydenberg, “is despite savings of more than $1,000 a year being available to those who secure a better deal.”

The minister claims “important progress” is being made in addressing this situation through the recent meeting between energy retailers and Malcolm Turnbull, Scott Morrison and himself.  This progress, he asserts, flows from the retailers being driven to providing better information to households. “The government’s campaign to shine a light on the behavior of retailers,” Frydenberg adds, “has caught the public’s attention, with a record 150,000-plus visits to the Australian Energy Regulator’s price comparison website.”

There’s an element in all this of that constantly-aired TV advert for the lotteries with cartoon characters driving a truck over-laden with money down a highway. In this case, using the ministerial arithmetic, the power truck notionally contains several billion dollars a year which householders collectively can win if they can just get their act together. The federal government’s ploy is to harass the retailers in to doing the herding of consumers towards the pots of money because, in a looming election environment, the mass market is where the voters are.

Timing is a huge political issue here. Householders/voters are still wincing from receiving the power bills for a long, hot summer. Soon they will get the energy charges for a cold winter – and next summer is not far away. The point is elections: Queenslanders and Tasmanians have to go to the polls by next May, South Australia votes on 17 March, Victoria on 24 November 2018 and New South Wales on 23 March 2019. Somewhere in this time frame Malcolm Turnbull has to pick an election date – although he may have one forced on him by circumstances. In every case, the “energy crisis” will be a major issue affecting votes.

(Just to throw fuel on the political energy fire, the next United Nations climate talks – “CoP23” in the jargon – will be held on 16 and 17 November in Bonn; you can guarantee that the ripples from this will spread in to our domestic wrangling, with the Turnbull government’s carbon abatement target sure to get a good kicking. The government’s review of climate change policies, in a number of respects no less important to the NEM than the Finkel review, is promised for “the end of 2017.” Will it appear before or after CoP23?)

The sleeper in all this is the impact of energy costs on business consumers, both very large ones (of which there are more than 3,700 across Australia) employing lots of people and hundreds of thousands of smaller ones employing a lot more. The companies are significantly impacted by what the Australian Industry Group describes as “eye-wateringly high” energy costs and the flow-on must reach workers/voters.

On Friday, GLOBAL-ROAM’s Paul McArdle, writing in his WattClarity blog in a commentary well worth reading, fretted about the “disproportionately low share of the (public) conversation” focusing on the impact of these costs on business, pointing out that last calendar year the non-residential sectors accounted for 130,000 gigawatt hours of NEM electricity consumption versus just under 60,000 GWh for households. “It’s businesses that provide our jobs, salaries and dividends from investments,” says McArdle, urging greater recognition that energy-intensive industries in particular are facing “a systemic crisis.”

Which brings us around again to the NEM and the I-word: intervention, the tool for which governments reach when the heat in the voter kitchen threatens to burn them. Market analysts, for example, describe the Andrews government in Victoria as “poised to make significant regulatory interventions in the energy market.”

The situation would be troublesome enough if it only related to price rises but the NEM waters are also muddied by political virtue-signaling through boosting green technologies and baulking fossil fuels (eg anti-fracking activity), by the very real developments in new technologies (eg storage and also solar power but also conventional supply) – which tend to get over-run by media and activist hype – and by individual corporate steps to bolster their market shares and profits.

To which can be added the issue of an ageing NEM power generation fleet (as Frydenberg points out in The Australian today, units supplying 70 per cent of NEM electricity are heading towards the end of their designed working lives). How, when and where these workhorses are replaced is a major challenge. Just how major can be illustrated by reminding ourselves of the NSW load in the critical late-afternoon heatwave hour of 10 February that so nearly saw the State, the largest sub-region of the NEM, in real supply trouble: at that point, the contributions to extreme peak capacity requirements were 64.5 per cent thermal generation, 18.3 per cent hydro power, 12.2 per cent imports from other States, mainly Queensland, 2.9 per cent all forms of solar and just under two per cent wind farms.

In passing, there are two very useful opportunities just ahead for stakeholders to assess the NEM state of play. One is a one-day symposium to be presented by the Australian Academy of Technology & Engineering in Sydney on 1 November under the title “The National Electricity Market after the Finkel review” – all the details can be found at www.atse.org.au. The other is the return of the Quest Events “NEM Future Forum,” the fourth in this series, to also be held in Sydney on 30 and 31 October (see www.questevents.com.au) to examine key trends and technologies driving change in the east coast market and the interplay between them.

In co-chairing the latter event, I must remember to quote from Frydenberg’s op-ed today: “For government, it is not a question of preventing change, but rather of managing it in a way that ensures energy reliability and affordability remain paramount. There is no silver bullet to lowering energy prices; anybody who says so is lying.”

The great divide

Tucking in to brunch at an outdoor café in my home area, Sydney’s The Hills district, last Friday and mulling over Malcolm Turnbull’s encounter with energy retailers two days previously, I came to the conclusion that the issue of trust should be explored further in the world of the NEM.

And now, blow me, I have found a really interesting article in Britain’s Utility Week magazine on the very point, highlighting just the issues about which I was thinking in an Australian context. If you put “Utility Week” and “The challenge of trust in utilities,” you can read the whole article yourself.

This is how it kicks off: “Consumer trust and confidence in their utilities providers is far from straight forward. National headlines would have you believe that high prices and profiteering are the crux of the undeniably low public esteem in which utilities are generally held. But, in reality, the issue is considerably more nuanced, involving issues around transparency, loyalty, social equity and fair play. In short, there is no single silver bullet to the challenge of creating engaged utility customers with high levels of confidence in the industry.” Would you change a word of this in thinking about the situation locally?

The parallels run deeper: in Britain, as here, it seems there is a dichotomy between what consumer respondents to surveys say about prices and what they would like to see happen in the marketplace. Just over a third of the UK participants in a new consumer poll say they are paying a fair price for utility services and another 39 per cent say they do not believe the costs are unfair but they would like to pay less. On what I have read here over time, I’d say that’s about the Australian perspective on power costs, too. But then more than half the UK respondents believe there should be an energy price cap and 42 per cent would like to see electricity re-nationalization. Scratch our local community and would you find a very different answer?

British industry commentators interviewed by Utility Week say the magazine’s survey findings of a gulf between perceived value for money and a desire for market intervention reflect the complexity of the public trust challenge for utilities – and fears about future higher prices. Their power sector, on the other hand, chooses to see it as a reflection of a consumer desire for a more clear picture of what makes up the bill: greater visibility about costs. A leading energy analyst with consultants EY says the British answers reveal uneasiness about foreign ownership of utilities or simply a belief that a nationalized industry would provide an easier to understand system with greater standardisation of offerings – and therefore greater equity for all customers. “But fundamentally,” he adds, ”many (believe) essential services such as energy should be supplied by not-for-profit organisations.”

My own take on the local situation is wider: I think the failure of trust here is much broader.

Who among electricity and gas suppliers any longer trusts governments to maintain durable policy positions? The Grattan Institute has pointed to “an acute danger of politicians panicking and rushing to decisions that push electricity prices higher and make it harder to reduce Australia’s emissions.” It talks with good reason of “a decade of toxic political debates, mixed messages and policy backflips that have prevented the emergence of credible climate change policy.”

Trust in the energy reforms launched in the 1990s is eroding. As Energy Consumers Australia puts it to the Australian Competition & Consumer Commission (currently inquiring in to retail power pricing): “A strong case can be made that electricity market reform – the privatization of electricity and gas network and retail businesses, structural separation, retail contestability and the removal of price regulation – has contributed towards a more efficient market. The evidence is less clear that these efficiencies have resulted in lower prices or better service outcomes for consumers.” With politicians at State, ACT and federal level continuing to intervene in power supply, who trusts in the future of a genuine competitive market?

The Turnbull government’s embracing of a mechanism to enable it to interfere in LNG exports if it deems there will be a domestic supply problem in 2018 reveals (to quote a leading media commentator) a collapse of trust between the administration and gas producers.

Investors (unless piggy-backing on subsidies) are voting with their feet with respect to both new generation development and petroleum exploration.

Outside parts of Queensland, how much community trust (especially among farmers) exists for onshore petroleum explorers?

Who trusts modelling outcomes promoting energy technology directions bought from consultants by entities with vested interests?

Who trusts the bulk of the media to deliver balanced news about energy issues set in the real context of economic, technical and environmental challenges?

There is a new Essential Report poll that shows just 17 per cent of respondents rate the performance of the Turnbull government on ensuring reliable and affordable energy as “good” and 51 per cent say it is “poor” with 27 per cent opting for “average.” How far does this reflect an understanding of the complex energy issues and how far a lack of trust in the body politic generally to resolve the “energy crisis”? How many east coast Australians have an understanding of the role of all jurisdictions in pursuing a way out of the current mess?

In this environment, it seems to me that trust is the key to a safe exit from the “energy crisis” but it is well and truly misplaced; every passing day now sees it kicked further under the energy market furniture. And, as the British report indicates, Australia is not alone in this unhappy situation.

Watch these spaces

For those of us who closely follow developments in the energy crisis saga there are now a number of dates to mark on our calendars for the last third of the year.

The first is 18 August when the major energy retailers, the Australian Energy Council and others are summoned back to Canberra for act two of the somewhat theatrical “power to the people” drama being played out by the Prime Minister. (He surely must have been pleased with the photograph doing the media rounds last week showing him, fists clenched, teeth bared, delivering an opening salvo to the suppliers.)

The second is 1 September – which is when, Malcolm Turnbull tells the media, he expects the Australian Energy Market Operator to report on the dispatchable power needs of the NEM. With a hot summer looming, this is no small matter.

The third is 27 September when the Australian Competition & Consumer Commission is required to report to the Treasurer on the initial findings of its review of retail electricity prices.

Not to be lost to view in all this is the review of electricity and gas retail markets in Victoria, released by the Andrew government this weekend. The core claim of this review is that around 30 per cent of the power bill for the average State household (using 4,000 kilowatt hours a year) before GST lies in retail charges, bigger than the costs of producing or distributing electricity.

The review panel, chaired by former Deputy Premier John Thwaites, recommends introduction of a “basic service offer” via regulation for households who “want affordable energy without fuss.”

Woven in to the panel report is the suggestion that retailers appear to purposedly make the deals they offer confusing – an accusation that crops up in other parts of the “energy crisis” debate, too, and one that plays to today’s Australian community bent for viewing many large companies across the economy through a glass darkly.

There’s a paragraph from the 80-page report that I wouldn’t be surprised to see get greater, wider currency in the energy debate: “Consumers are entitled to obtain easily understandable energy offers and enter into energy contracts that provide value for money and don’t contain negative surprises.”  To which the Thwaites panel adds: “The retail energy market should deliver benefits to all consumers, not just to those who are capable, interested, and able to navigate its complexity.”

On the broader front, a possible major development is pending around 1 October – when the federal government is committed to making a decision about whether to act for 2018 under the “domestic gas security mechanism” that now allows it to limit LNG exports drawing from the domestic gas market.

The upstream petroleum industry is continuing to rattle Turnbull’s bars on export restrictions. In the latest foray by the Australian Petroleum Production & Exploration Association, CEO Malcolm Roberts has hit back at the PM for “scapegoating” Queensland LNG exports for east coast market shortages.  East coast supply is tight, Roberts acknowledges.  “However, the industry has tripled gas production on the east coast over the past five years.  More supply would have been developed if New South Wales and Victoria had not imposed bans and other restrictions on new projects.”

Turnbull, he says, should encourage these States to follow Queensland’s gas development example “not undermine it,” adding that “the east coast market needs a massive capital injection to arrest falling production in traditional basins and to realise the potential of coal seam gas as a new, large source of supply” and declaring the export controls being proposed will jeopardize this future investment.

Another date for the calendar is 9 October when Environment & Energy Minister Josh Frydenberg will deliver a keynote address to the “national energy summit” being presented by the Australian Financial Review, followed within the hour by an address to the same forum by Labor leader Bill Shorten. South Australian Premier Jay Weatherill and ACCC chairman Rod Sims are also on the program.

Potentially of rather more importance is the October publication by the Australian Energy Market Commission of design options for a clean energy target, activity commissioned by the Queensland, Victorian, South Australian and ACT governments in an effort to push the Turnbull government on adoption of the fiftieth step recommended in the Finkel report.

The mainstream energy production and retail sector, via the Australian Energy Council, is not letting up in lobbying the Turnbull government on a CET. The measure, declares CEO Matthew Warren, is the “key reform to drive new investment and bring down electricity prices.”

Given internal Coalition politics, this issue poses a large challenge for government MPs on the House of Representatives standing committee on environment and energy, which has been engaged since February in considering “the future of the electricity grid” and should deliver its report in the year’s last quarter.

Frydenberg also has to organize the thirteenth CoAG Energy Council meeting, for which there is no public date at present, and at which the CET issue is going to be no small agenda item.

Finally, something I see as a sleeper in this cost debate is the impact of the GST on household electricity prices.  I raised this in passing in one of my blog posts earlier but got comprehensively ignored. Now a senator, David Leyonhjelm, has pounced on it in a tabloid newspaper op-ed. Electricity is as much an essential service as water supply, he declaims, so why is it wearing the GST when our water does not? Removing the GST on power purchases, he argues, will provide an immediate 10 per cent cut in household bills.

Leyonhjelm claims that, across the country, removal of the GST will save households $2 billion a year, half of it in Victoria and New South Wales. He says he will campaign on the issue at the next federal election if Turnbull and Treasurer Scott Morrison don’t take up his proposal.

Just one more space to watch.

The complexity of it all

Complexity is never popular in public debate, not with demagogues who just want to slam home their big scary messages and not with more reasonable people who just want a simple answer to what they think is a simple question.  Pauline Hanson’s “please explain” of yesteryear echoes a cry from the heart of ordinary Australia with respect to a whole bunch of issues where there are many shades of grey. This is very much the case with the supply and cost of electricity, now so troubling Australians that the Prime Minister is struggling to surf the waves of a political storm about it.

I coined the acronym “MEGO” during my almost quarter century as a lobbyist for energy investors and suppliers. It stands for “my eyes glaze over” and was borne out of experiencing that effect in a myriad of federal and State MPs and ministers when confronted with an industry explanation of some issue or the other. I recall a senior minister in a federal government practically snarling at me years ago “Orchison, is there any part of your damned industry that isn’t complicated?” (He didn’t say “damned.”) My reply was “No, minister.”

The stabbing point politically in the current energy debate – for both suppliers and politicians – is the assertion that Australians are now paying the world’s highest prices for electricity, about which I wrote here yesterday, seeking to demonstrate that, when you consider where most of us live (ie Victoria, New South Wales and Queensland), this is not correct.

I was reminded in an ensuing tweet by the Energy Networks Australia CEO, John Bradley, that negation of this claim could also be found in a recent Australian Energy Regulator report. And, if you go on the Web to the “State of the Energy Market” annual report of the AER, published in May, you will find a very different picture at page 136 in the form of a comparative bar chart from the one being touted about the media in recent days.

In this diagram, where prices are cast in US cents per kilowatt hour and interpreted on a purchasing power parity basis rather than the currency exchange rates, the ladder of average residential prices for 2015 (which is the most recent year for official global figures) has Australia at 24th and Portugal, Germany, Poland, Italy, Latvia, Turkey, the Slovak Republic, Denmark, Greece and Spain occupying the top 10 places. This chart shows Australia being marginally more expensive than the OECD as a whole and a fair bit less expensive than the UK although a lot more costly than the US and Canada. Even allowing for the latest round of local power price rises (not an area where we are Robinson Crusoe), the picture won’t have changed a great deal.

Now purchasing power calculations – which adjust for differences in nations’ costs of living – are positively despized by some economists and embraced by others. Not being a member of this breed, I can’t take sides – except to point out that our energy regulator sees it as a valid comparator.

I also recall a discussion on the price issue on The Conversation late last year when a federal MP, Craig Kelly, was slamming local suppliers for (he said) charging twice what Americans paid for power. The point was made in response that a higher price doesn’t necessarily mean a higher cost to consumers. Australians, for example, on average use much less energy than Americans – the most recent numbers are 10,800 kilowatt hours annually for a US household versus around 6,000 kWh here.

One of the factors this introduces is that network costs to homes are fixed, so the more energy used, the more the connection charges are diluted in the final bill, lowering the cost per kilowatt hour (which is the basis for the latest shouting about how high our charges are). Did I mention this is all pretty complex?

Then again, the higher prices are, the more likely a country’s consumers are to pursue efficient use of energy. Japan, for example, has high prices — it ranks 16th on the AER ladder — but also has high efficiency and consequently the Japanese spend about the same on energy (in GDP terms) as the Americans.

Australia’s residential energy efficiency performance is comparatively poor and this plays in to the costs we bear for electricity use.

Another issue is the inability of about half of our mass market accountholders to burrow through the maze of energy retailer contract offers to find the cheapest deal that suits their needs (and that last bit is really important). When the current noise subsides, this may turn out to be where the most relief for householders (aka voters) may be gained most quickly. Rod Sims, chair of the Australian Competition & Consumer Commission, which is running a pricing inquiry at present, has promised to “look closely at retailer behavior and offers to see if there are ways to help people find much cheaper plans.”

I suspect there may be more urgency to this focus following this week’s talks between retailers, the Prime Minister, the Treasurer, Scott Morrison, and the Energy Minister, Josh Frydenberg.

Power business complexity, however, is going to be always with us. Just read the AER’s 162-page “State of the Energy Market” report.

In eye of the beholder

Every galah in the petshop and lots of the media are squawking at the moment that Australians “have the highest electricity prices in the world.” Is this actually so?

Well, no, if you look at the bar chart comparing the NEM States with a raft of selected countries just published in the Australian Financial Review.

The paper’s story asserts that “Australian residential customers are paying the highest electricity prices in the world,” a claim echoed through the media and in community conversation. What the chart shows about prices (including taxes), apart from South Australia sitting right at the top, is that the world’s most expensive countries are Denmark, Germany and Italy. Their costs per kilowatt hour are, respectively, 44.78, 43.29 and 40.30 cents. (The SA figure causing all the fuss is 47.13c.)

Where by far the bulk of Australian electricity accountholders are to be found is in New South Wales, Victoria and Queensland.

In round terms, these three States have 7.4 million of this country’s 9.5 million residential power customers. South Australia has three-quarters of a million such accounts. So, in the three States with 77.9 per cent of the residential account population (and of consumption), the average prices (on the newspaper bar chart, which is sourced using US Energy Information Administration data) are 39.1c (NSW), 35.69c (Queensland) and 34.66c (Victoria).

The games one can play with stats are on full display in this presentation: the US is at the absolute bottom of the ladder with 15.75c but even the meanest budgie in the petshop should know that there is a wide disparity between American state charges; its most expensive ones are well up the high price end. The chart also gives a European Union average of 29.85c and again (as illustrated in the presentation) this is a number diluted by the cheaper ones with seven countries right at the top end.

The simple point to draw is that, despite the pejorative catchcry of “world’s most expensive” now resounding through our corridors of parliament and in the media, it is untrue for the vast bulk of consumers here.  South Australia, source of the claim, accounts for 7.8 per cent of residential properties and 6.9 per cent of household consumption.

(In passing, I can’t resist pointing out that the two most expensive nations on the chart – Denmark and Germany – are countries most presented to us as icons of how to go green while among the cheapest are strong coal-burning Poland, heavily hydro Norway and dominantly nuclear France. In the ever-so-cheap US, the bulk of power is provided by gas and coal – nearly 70 per cent of it – with nuclear and very large hydro developments playing a strong supporting role. The UK, for which an average household price of 31.3 cents is cited, sources 41 per cent of its power from gas, 21 per cent from domestic nuclear and another six per cent nuclear imported from France. South Australia, the State causing us to wear the “most expensive” opprobrium, is of course another green icon.)

Nonetheless, our own price pony has well and truly bolted with the Prime Minister now summoning the large suppliers and their lobbying representative, the Australian Energy Council, to Canberra for yet another “summit” meeting in the week ahead. Symbolic yet again of how politics and populist media ranting get ahead of a proper analysis of situations, Malcolm Turnbull can no longer wait for the Australian Competition & Consumer Commission to report on the pricing issue – even though its preliminary diagnosis is scheduled to be with him on 27 September. The government, it is being reported, is “leaving open the option of (more) regulation.”

This is a repeat of Turnbull’s rush to interfere ahead of the arrival of the Finkel report because of the upheaval within Coalition ranks (and the ensuing media feeding frenzy) over an emissions intensity scheme.

None of this is to bely the fact that electricity prices in Australia are now uncomfortably high for many consumers, although, as I have pointed out numerous times, the worst danger lies in the impact on our manufacturing sector with its real threat to the economy and jobs. But rushing in with more political Bandaid is not a solution, just as interference with LNG exports does not resolve the domestic gas supply issue.

With respect to the industrial problem, it is worth pointing out, too, that the chart published by the Financial Review contains no comparisons with Asian prices – and it is in Asia that the competition lies for our beleaguered manufacturers.

Apparently, in calling the meeting, Turnbull has written to the suppliers that “the situation must be addressed urgently and directly” to “ensure no family pays any more for electricity than it needs to do.”

Getting its retaliation in early, the Australian Energy Council pushed out a statement in response on Friday.  CEO Matthew Warren says: “We agree that energy prices are unsustainable (but) we cannot fix this problem simply by talking about retail bills and customer deals. The price of electricity has increased because it is becoming scarce.  It is the market signalling the need for new firm generation capacity to be built.  The situation is already critical in Victoria and South Australia.”

Heavy industry may be unhappy about the Finkel report (see my previous post), but the AEC and its 21 members (generators and retailers) is adamant “Finkel has offered a blueprint that is the essential element to overcome our current energy crisis. A bi-partisan, national clean energy target remains the key reform to drive new investment and bring down electricity prices,”

Warren adds: “Recent power price increases are the result of old generators closing and the lack of a consistent plan as to how to replace them.  This is a national policy failure that has been a decade in the making. Investors cannot finance replacement generation capacity until they can see a workable, durable and bipartisan policy framework for the sector.”

He has told Fairfax media that “talking about retail bills and customer deals at next week’s power talks will not solve the problem of unsustainable bills.”

Where do we want to be?

Glencore is a big player on Australia’s energy scene – not just as a significant miner and exporter of coal but as a user through its metals, minerals and agricultural activities; it spends around $400 million a year on electricity, consuming 3,207 gigawatt hours.

Its senior executive Peter Freyberg, head of its global coal assets, could point to plenty of local skin in the game when he spoke to an Australian British Chamber of Commerce lunch in Sydney today.

The talk’s peg was the future of coal nationally and internationally, but it was what Freyberg had to say about the recently-delivered Finkel report that attracted my attention.

The review, he said, sets out one possible pathway for the NEM, “but it does very little to provide investors with any confidence for future investment” – and he posed a set of “unanswered questions” in terms of the report’s modeling and analysis.

For a start, he asked, what is the assumed make-up and nature of Australia’s industrial base and “just as importantly, what are the policy recommendations around future energy affordability?”

Where do we want to be, he went on, declaring two of the “clear priorities” for the NEM should be addressing the current energy crisis and “putting Australia on a sustainable and least-cost pathway to reduce emissions without sacrificing economic growth and (our) standard of living.”

From a Glencore perspective, two market priorities have to be (a) supporting baseload power generation and (b) replacing the RET and State-based renewables targets.

“I want to be clear on one point,” Fryberg told the large ABCC audience. “Renewable energy has a role to play in Australia’s energy mix – but not at any cost and not at the expense of grid stability and reliability.”

Other market priorities, Freyberg added, need to be establishing dispatch protocols for variable renewables, differentiating between household and heavy industry users and “imposing heavy penalties on generators guilty of uncompetitive behavior.”

If heavy industry is to continue operating here, he said, the energy cost burden it is now bearing has to be alleviated.

Freyberg is calling for more work to be undertake to test the impacts of the Finkel-proposed clean energy target on Australia’s industrial base, particularly on energy-intensive, heavy industrial processing plants.

Controversially, he told the forum “if Australia needs to consider a possible delay in meetings its emission reduction targets under the Paris agreement in order to prioritize energy security and economic prosperity, then it is worthy of further discussion.”

He declared “we tell it as we see it.” Glencore, he said, has a stake in future energy policy reform here and “we are willing to talk to and work with all sides of politics.”

There should be, he added, “a formal business dialogue similar to the CoAG model” as part of plotting a “measured” path forward to secure, reliable and affordable energy while delivering carbon abatement.

The present debate, Freyberg said, is “divisive, massively misinformed and more focused on declaring heroes, victims and villains than actually solving any problem.”

More generally, he said, “policy paralysis on energy, carbon, economic reform and workplace relations reform coupled with increasing costs and regulatory red tape have seriously eroded investor confidence in this country.”

A decade of poorly designed and uncoordinated energy policy in Australia has lead to the energy crisis, he argued. “Failure to adequately plan for and replace baseload capacity combined with changing climate change policies and increasingly disproportionate subsidies for renewable energy has weakened grid stability and increased volatility and costs in the energy market.

“Despite Australia being the world’s largest exporter of coal, the second-largest exporter of gas and a major exporter of uranium, at home electricity costs have been skyrocketing and we have major gas supply challenges. For many households, the current increasing cost of electricity is unsustainable. For business it is the same and, if we don’t find solutions fast, Australian businesses, job numbers and living standards will fall.”

The public debate, Freyberg said, “tends to go straight to how to reduce both emissions and electricity prices — but there’s a fundamental step before that: ensuring the long term stability and security of the energy market.”

If this isn’t done first, he told the lunch, “we won’t have to worry about reducing emissions because the industrial base of the economy will be in terminal decline.”

And he accused both federal and State governments of not only being the font of “ongoing political uncertainty” about energy policy options but also of failing to inform the community of the costs and benefits of the choices with which we are confronted. It is irresponsible of State governments, he said, to announce emission reduction and renewables targets “without first disclosing the true costs and impacts” on households and industry.

“We urge policymakers to be honest about policy costs and to carefully consider the consequences of all available options because the flow-on impact on future investment is very real.”

In particular, he said, there is a need to differentiate between mining and energy intensive heavy industry assets such as smelters and refineries which operate 24 hours a day, 365 days a year and rely on affordable, secure and reliable electricity.

“A number of heavy industry players, including our own copper processing business, have been clear about the need to consider their future in Australia in light of the current high energy prices and uncertainty around future supply,” adding that “unless something happens quickly” such businesses will shut.

In answer to an audience question, he said “if there has to be something ultimately that gives, let’s get energy and affordability right and then work emissions reductions in to this in an orderly way.”