Dangerous time

A question eastern Australian business executives are asking themselves with increasing frequency and increasing frustration is what they can say with certainty about their outlook for energy supply over the next three to five years?

The answer for most of them is not a helluva lot beyond a gut feeling that all talk about “putting downward pressure on prices” is not the same as, and perhaps not even close to, making their current bills smaller. And they won’t have been thrilled to see Snowy Hydro CEO Paul Broad reported (in the Newcastle Herald) as saying “Whichever way you look at it, power bills are not going to come down again in the foreseeable future” when you take in to account the steps Australia must pursue to pursue carbon abatement under its Paris commitment. He added “In my view, Australia’s time of having a cheap energy source as a comparative advantage will be no more.”

It is not surprising that business people are focused to a large extent on their own corporate bottom lines and are impatient with the “electricity revolution” because they can’t see it resolving their dominant need.

More than a few have rallied behind the complaint that the current debate does not focus sufficiently on the eastern market’s “national electricity objective” – which is to take care of the long-term interests of consumers.

One of the more outspoken on this is the Energy Users Association, representing substantial retail, mining, manufacturing, materials and food processing industries.

In its submission to the Energy Security Board on the “national energy guarantee,” EUAA takes the stance that the proposed measure is far from perfect but represents a chance to return energy costs to bearable levels. “A third, fourth or fifth best policy is better than no policy,” it says.

The association’s nagging concern, however, is that the NEG will deliver a gold-plated solution for supply reliability, a re-run of what happened to networks in the past decade.

EUAA argues that the NEG as so far explained is not taking in to account the ability of consumers to pay for a grand design and will – again – lock in costs they will go on paying for years, perhaps decades.

There is also increasing focus on what may need to be spent to provide grid support for pushing large amounts of wind and solar power in to the NEM at the expense of technology alternatives. Big investment on high voltage transmission is obviously a key aspect of the paper the Australian Energy Market Operator is currently preparing on integrating renewables in to the NEM through “renewable energy zones.”

Taking advantage of Anzac Day to catch up on my reading, despite being frustrated for a week by Optus being unable to resolve a “complex problem” with its local Internet service, I was struck by comments in the trade magazine Energy Source & Distribution by Robert Barr, the long-serving president of the Electric Energy Society of Australia.

“It is evident,” writes Barr, “that we are gearing up for very major increases in (NEM) transmission capability at a time when customers are suffering from historically high electricity costs.”

There needs to be very careful scrutiny, he says, of the costs and benefits that will accrue to the community from the expansion and investment being considered.

Barr writes: “Where transmission investments do not meet the required (by regulation) rate of return, we either have to scrap (them) or have them at least partially funded by those generators who wish to take advantage (of them).

“This is basic commonsense economics,” he adds, “that can easily be overlooked in the enthusiasm to connect more renewable generation and spend other people’s money.”

The Energy Network Australia lobby group, meanwhile, has told AEMO that the current regulatory test (the RIT-T in the market’s acronym soup) was designed to assess transmission investments responding to demand growth where today’s planning mindset is about unprecedented changes to the generation mix. The present approach of the test, it says, “is unlikely to deliver the best solutions for customers.” A key objective now, it argues, should be accelerating the process for grid investment approvals to “deliver the transformation” at the lowest cost.

Others are arguing that policy aiming to provide an incentive or subsidy for particular technologies won’t meet what should be national objectives of reliability and affordability for power supply. The key contextual setting for planning, they say, should be to ensure the broadest range of technology solutions are available for selection and application in an integrated system.

No question, this whole situation is madly complex, allowing the disputants much room for tub-thumping and self-interested claim and counter-claim, not to mention political posing, contributing to the business community’s sense of unease. However, the issue of just what supporting infrastructure will be needed by the rush towards REZs is not a minor matter and miss-steps could literally be extremely costly.

The Energy Policy Institute is making the point that “this is a dangerous time for energy policy formulation” and arguing that “independent policy thought is indispensable for properly addressing” the next steps so that decisions will survive electoral cycles and lobbying of beleaguered governments for further intervention to achieve ends activists want pursued more quickly.

It seems to me that the backlash to today’s state of affairs will pale by comparison with what will happen if energy costs become too great for many businesses to bear and there is a big fallout for employment.

In this context, a warning last year from contributors to a Minerals Council paper remains valid: “A number of major businesses (are) openly questioning their future viability because of energy costs. The hollowing out of Australia’s industrial base is a real prospect (that will have) severe consequences for living standards.”

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