Not confident

Quote of the week: “Everyone has to emote like shrieking banshees to be noticed these days on our cluttered political stage.”

Thank you Katherine Murphy of The Guardian. That nails the situation and the problem in one, not least for the energy sector, exemplified currently by one commentator feeling the need to label the proposed “national energy guarantee” as a “Frankenstein’s monster” for Fairfax media.

So much is going on in the energy space at the moment that it is hard for even those with a special interest to keep up; for householders and those in small business, it must border on the impossible to gain much more than is available from shrieking headlines and tabloid-style reporting.

It is not surprizing, therefore, to see a new Australian Energy Market Commission report recording that, for these consumers, trust in the energy sector has fallen from 50 per cent last year to 39 per cent – and that confidence consumers’ long-term interests are being served is down to 25 per cent despite 25 actions taken by governments and market bodies in the past year aimed to improve user experience in the retail market.

Worryingly for those who want to see the competitive market sustained, the AEMC’s research indicates that 38 per cent of those polled for this report are not confident that NEM is working in their long-term interests versus 25 per cent who still think it is, leaving 37 per cent “neutral.”

AEMC chairman John Pierce says that: “The conduct of retailers is making it difficult for all consumers to access the benefits of competition even though more retailers are operating in the market and more customers are switching plans and accessing new technology. Competition continues to increase, but retailer inertia and a lack of transparency have emerged as significant barriers preventing consumers gaining the maximum benefits in terms of prices and services.”

(It is not at all clear to me why the Australian Financial Review chose to headline its story on this “Fickle consumers lose confidence in energy market.” Fickle? If you want an “F” word, “frustrated” might be appropriate.)

The core accusation against the energy retailers is that they have been “slow to innovate on tariff, pricing and products” and, damningly, householders now rate them lower in delivering value for money than banking, insurance, water utilities and broadband and mobile providers.

Hence the federal government, in the form of Josh Frydenberg, being in the media soon after the AEMC report appeared doing a Julia Gillard – remember “waving a big stick”?

Unless retailers “pick up their act,” Frydenberg declared, “they will see more government intervention.” The politics of this are clear. The pricing issues are imposing severe pressure on government attempts to achieve a long-term improvement in the supply environment through the NEG.

(In passing, there is an overseas object lesson available this month for our pollies across the jurisdictions about just how snarky Them Outdoors can get over power issues: the Canadian province of Ontario – their New South Wales – has been a poster child over the past decade for how to get power supply policy wrong, accompanied by deeply unpopular costs for consumers and taxpayers, and in the past week the community struck back at the polls. The long-serving Liberal government – their Liberals are our Labor – got just 19 per cent of the vote and lost party status in the provincial parliament after an election campaign in which electricity was a hot-button issue.)

The retailers’ lobby group, the Australian Energy Council, has pushed out a statement in the wake of publicity about the AEMC report arguing that “re-regulation of energy prices is not warranted” and declaring that it is clear its members “need to do more top accelerate innovation and improve energy marketing to customers while supporting all measures to bring down the cost of energy – the market needs to evolve faster.”

The big problem for the retailers is that this horse (let’s call it Light-handed Regulation out of Hilmer by Keating) may have bolted and re-corralling it won’t be helped, on all indications, by the Australian Competition & Consumer Commission report due on the last day of this month. Especially in the gun are the “Big Three” gentailers, who have increased their market share in generation from 15 per cent in 2009 to 48 per cent now while holding the accounts of seven out of 10 NEM electricity end-users.

Frydenberg made a point of telling reporters this past week that the Turnbull government is “open to any recommendations for further regulation” that the ACCC may produce on 30 June – and this was followed by a frank acknowledgement from EnergyAustralia CEO Catherine Tanna, who is reported as saying “it’s pretty hard to argue that the market is working as intended in the best interests of customers when the prices go up as they did last year.”

As a long and vocal supporter of both privatization and the competitive market for energy supply, I’d have to say that the present situation makes it pretty damned near impossible to argue this.

The critical issue is what steps can be taken to deliver quite rapid improvement for consumers without driving the market in to a ditch? And, equally importantly politically, to achieve outcomes acceptable to voters without populist steps, driven on by all that fore-mentioned shrieking, that inevitably won’t work long term?

None of this is helped by the ongoing noise about promoting renewables as the sine qua non of policy. As an overseas colleague has put it this weekend in an email, “so many start from the premise that renewables electricity generation is all important and we must adapt the energy system to fit around this rather than recognising that what is important is an affordable, secure low-carbon energy system, however achieved.”

PS: Have you focused on the just-released BP Statistical Review of World Energy? Among many things, it reports that, in 2017, the world needed 25,551 terawatt hours of electricity – to which the NEM provided barely 200 TWh – and had a contribution from coal-burning plants of 9,723 TWh and from gas 5,915 TWh. The next highest inputs were 4,026 TWh from hydro systems and 2,635 TWh from nuclear reactors. The total for other forms of renewables was 2,151 TWh. 

 The non-OECD nations had a 14,538 TWh share (almost 57 per cent) of this production – to which fossil fuels (oil, coal, gas) contributed 10,317 TWh (nearly 71 per cent) and hydro 2,668 TWh. Also there was 679 TWh of nuclear generation and 804 TWh of non-hydro renewables. This is where most of the coal Australia mines and the gas we produce is going. And then there is our uranium production.

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