Time poor, running hard

As a summation of a bad situation, it seems pretty good: “Eastern Australia is presently experiencing very high prices for electricity and gas, there are greater threats to reliability over time and we are falling short of our economy-wide emissions reduction goals. In other words, we are failing on all elements of the ‘energy trilemma’ identified by the Finkel Review, despite the considerable progress underway on energy market and policy reforms in recent years.”

Thus the Australian Industry Group in a new submission to the federal government on energy policy (reacting to the “underwriting new generation” thrust currently on the table). AiG adds: “Our strongly preferred solution to this uncertainty is for all sides of politics across the Commonwealth and the States to agree an efficient, pro-competitive, stable and scalable framework for integrating climate and energy policy. Even following the collapse of the national energy guarantee and several previous efforts towards an agreed outcome, the logic of a durable and effective national policy framework remains compelling.”

For the Minerals Council of Australia, the core issue comes down to “repeated pivots and a lack of consensus in energy and climate change policy by successive governments for well over a decade”. (And MCA reminds the politicians that 70 per cent of total national energy consumption is by business, including 12 per cent by mining and resources, as it points out that “irrespective of what projects come forward – whether upgrades to existing thermal plants, new thermal facilities or renewables combined with firm capacity – the policy should aim to deliver low cost power which meets the needs of Australian industry.”)

The miners see the NEM facing “serious challenges from the erosion of baseload power generation capacity, with this tightening of supply/demand balances driving price outcomes which are adversely impacting Australia’s industrial sector and households,” a reflection, it says, of “unmanageable policy risk for investors in long life assets in the power generation sector.”

The Australian Energy Council, representing gentailers, adds the accusation that “any apparent lack of competitiveness in the wholesale electricity market is directly due to repeated governmental policy failure over the past decade,” repeating its long-held view that “government intervention in the investment process distorts the wholesale electricity market”.

And the Clean Energy Council asserts “the current political environment is complicating any effective program development,” claiming that the collapse of the NEG and the political reality that Australia has had a recent leadership change, with a federal election impending, represents too much risk to investors in the energy sector.

These views need to be seen against the background of the declaration by the Australian Competition & Consumer Commission earlier this year that “it critical for there to be a stable energy policy which incorporates the need for Australia to meet its climate policy obligations but at the same time does not distort the way in which new generation capacity enters the market.”

The current point at issue, really, is one of timing. Politics dictate that the Morrison government must pursue change targeting affordability and reliability of electricity supply helter-skelter, still hoping for a miraculous resurrection of its fortunes in mere months or at least sufficient traction to save it from the level of seat losses (or worse) that befell the Labor regime in 2013 . Politics also dictate that Labor fends off its opponent’s plans until after an election it expects to win handsomely, enabling it to pursue its own energy agenda (although there is always the issue of the make-up of the Senate).

AiG focuses hard on the time factor, warning that “the implementation timeframe envisaged in the paper is too aggressive.”  Given the complexity of the issue and the potential risks inherent in what Morrison & Co are proposing, “we strongly recommend that the government slow down,” it says.

Looking at the situation from a non-partisan position, the Energy Policy Institute gives a tick to provision of financial support for investment in new NEM generation providing that the measure is technology-neutral and funds are made available on a competitive basis.

EPIA suggests that, to reduce the potential burden on taxpayers, the mechanism should be a special-purpose statutory vehicle with the federal government providing credit enhancement as required – and that it be designed to “have enduring value not only to proponents of present-day projects but also to those that are some years short of feasibility and where critical decisions such as siting have yet to be made”.

Now there is an obvious over-arching risk in what the government is currently proposing – as Engineers Australia observes: “It would not be an ideal scenario to end up with an over-supply of capacity in the system.”

The engineers also point to another aspect of the government proposal that should be heavily flagged “handle with care.” This is the suggestion that the measure could include capacity payments for the availability of firm or firmed generation. Engineers Australia points to the advice of the Finkel task force: “A capacity market is a significant market reform, which would require a long-term and costly departure from the existing market framework. Such a reform should only be considered in circumstances of irresolvable failure of the energy-only market to bring forward sufficient new capacity to ensure reliability.”

Meanwhile, ousted prime minister Malcolm Turnbull, in a supposedly behind-closed-doors talk to an Australian Bar Association event, is reported as saying that the Coalition at present is “not capable of dealing with climate change as an issue,” a statement of the bleeding obvious if ever there was one.

Finally, there is an interesting contribution to this debate in the latest Essential Report opinion poll. Respondents were asked whether they “approve or disapprove of the government giving support to new coal-fired power stations, including indemnifying them against the future risk of a carbon price?”  The “approve” vote was 39 per cent versus 35 per cent for “disapprove” with 26 per cent opting for “don’t know.” One in three of respondents professing to support Labor went for “approve” versus four out of 10 of them being strong disapprovers — and with 27 per cent of them in the “don’t know” category.

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