Matter of opinion

As we go in to another week in which the Morrison government is dragging energy industry leaders to a “summit” meeting in search of political kudos for being seen to be busy despite what the Grattan Institute labels a major policy failure, it is pretty well pointless to speculate where things may stand by next Sunday, not least because (as the institute points out) a large chunk of remedial action relating to both gas and electricity needs to be addressed by the State and Territory governments.

If you are looking for something to while away the time until the “summit” is held (in Sydney on Wednesday), I recommend reading a commentary on the NEM just published by the Oxford Institute for Energy Studies – which describes it as “an important test case of the impacts of electricity sector transition in a large-scale, liberalized, energy-only market.”  (See www.oxfordenergy.org)

While the study was written before Malcolm Turnbull and then Scott Morrison did their Guy Fawkes impression with the “national energy guarantee,” there is much in it to warrant contemplation – and it comes without all the baggage borne by players in the local debate.

The Oxford authors sum up their review like this: “We argue that an efficient and transparent real-time energy market must reflect the comprehensive operational requirements of electricity dispatch. This necessitates an extension of energy-only design to an ‘energy+services’ model in which efficient price signals are provided for the ‘missing products’ necessary for operational security. Clear service specifications provide transparent signals that enable clear price discovery and facilitate competition from new providers and technologies.“

(Oz consumers might be pardoned for thinking that being academically interesting is fine but, as the South Australians have learned, a laboratory rat’s lot is not a happy one.)

One can’t expect MPs to wade through such a report, more’s the pity, but there’s a point in it that should give a moment’s pause to the more thoughtful ones in Labor ranks, where they are currently living the dream that government is theirs for the taking in the near future. It says: “Increased renewable capacity in the NEM has changed the pricing dynamics in the market. As variable renewables have very low short-run marginal costs, system prices are likely to be low when renewables are generating, but higher and more volatile otherwise, especially in the situation where variable renewable generation is subsidized (such as under the RET). The remaining dispatchable generation in the market is thus forced to recover more of its revenue through a reducing number of high price events which adversely affects the economics of existing dispatchable generators.”

Bill Shorten et al should think about this in the context of reliability and affordability, traps lying across their proposed path of much-expanded wind and solar energy just as they did for the Weatherill of unhappy memory.

What the events of the past 10 years illustrate, it seems to me, is that the trajectory of the NEM, to the cost of consumers, is far too much at the mercy of opinions rather than careful analysis and structuring (which were dominant at its birth in the 1990s).

Such local analysis in recent times by Finkel’s task force and the Energy Security Board has been undermined by opinion within the Coalition’s parliamentary ranks – and all the noises made by Labor indicate their plans are a product of what they believe will be popular in social engineering circles and especially in marginal seats.

In this respect, I also found it interesting in the past week to look at the latest Essential Report polling – as part of my work on the November Coolibah monthly newsletter, now published on this site.

Specifically, I focused on what respondents who say they will vote Labor at the next federal election told the pollsters.

First, in answer to a question about how they rank issues to be given top-three government priority in the next 12 months, the Labor supporters (a) put cost of living first by a long way and (b) put promoting renewable energy way down the list (but ahead of promoting national economic growth, which strikes me as weird for what is supposedly the workers’ party). The cost of living vote was 60 per cent versus 21 per cent for boosting wind and solar.

Second, Labor leaners are more strongly of the view that Australia is not doing enough to address climate change (69 per cent) but they are way behind the Greens (88 per cent) – and their ranks include the highest level of “don’t knows” across the political segments.

How you view such information depends on where you are standing.

As an example, the media have recently run the line that “climate change has emerged as a top concern for company directors” in reaction to the Institute of Company Directors latest testing of sentiment amongst its members.

What the review actually shows is that, in the here and now (and not surprisingly) directors rate energy policy as one of the three biggest challenges facing Australian business – a little behind the growth of global protectionism and rising global economic uncertainty – and they rate energy prices along with reforming the tax system as the next two. The share of respondents concerned about energy bills is 21 per cent – and those fussed about climate change come in at 15 per cent (just ahead of the drought).

Eighteen per cent of directors polled rated energy policy the most important short-term priority for the federal government versus 11 per cent for climate change (and 13 per cent for tax reform).

The respondents also rate climate change top of the list for federal government attention in the long term – hence the media fuss – with a 17 per cent vote, ahead of tax reform (nine per cent), ageing population and infrastructure (each eight per cent) and energy policy (seven per cent). If you add up directors’ choices, climate change gets 39 per cent, ageing population 38 per cent, then energy policy and tax reform (each 35 per cent), then infrastructure (34 per cent) – with international competitiveness (which, personally, I would rate as the country’s top issue both short and long term because so much else flows from it, including having funds for all the services we desire and having jobs for our burgeoning population) getting 33 per cent.

Context, eh? So necessary for real appreciation of the issues on our plate and so little on show in public debate and media coverage.

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