Renewables Debacle Rolls On: Power Politics Always & Everywhere About Power Prices

That a government decides to entertain a moment of self-congratulation – simply because the lights might stay on – would be understandable, if the Country in question was North Korea or Cuba. However, the primary purpose of Malcolm Turnbull’s National Energy Guarantee is just that: allowing the Federal government to claim ‘mission accomplished’, if Australia avoids mass load shedding or blackout events this Summer, when the wind stops blowing and/or the sun goes down.

Quite reasonably, however, Australian households and businesses have formed a dogged expectation that, not only will power be delivered to them as and when they need it, but that they will also be able to afford the bill when it is presented by their retail provider.

For as long as the Large-Scale RET is in place, the NEG is unlikely to do anything to reduce power prices. At least in the short term. Which tends to cut against power consumer’s expectations.

The fact that power prices still matter, is a matter dealt with by the AFR’s, Jennifer Hewett below.

Business prefers energy policy devised by regulators
Australian Financial Review
Jennifer Hewett
19 October 2017

Any dream in business of achieving bipartisanship on energy policy in Canberra is quickly losing altitude.

Federal Labor’s condemnation of the lack of modelling and the government’s failure to guarantee exact price reductions is political code for rejecting the new energy framework while minimising its share of the blame for lack of progress.

But for once, the numbers in the Senate are largely irrelevant in this drama, certainly in the short term. The real action is with the states.

The question is whether Malcolm Turnbull and Energy Minister Josh Frydenberg can get enough state Labor governments to decide it’s in their interests to go along with some version of the energy security guarantee, even as they quibble.

That’s at least still possible even though Victoria, South Australia and Queensland made it clear their immediate political preference is to strangle the new scheme at birth while singing “renewables forever”.

Against this, most of the big energy companies have already decided that, despite the lack of detail, this policy still offers the best available option from such a dysfunctional political process.

It’s a mark of how much business expectations have deteriorated that a policy devised by a bevy of regulators is regarded as far less risky than anything produced by a bunch of politicians.

As the industry now appreciates, an extraordinary amount of government intervention is now just as acceptable to the Coalition as it is to Labor. The more “unprecedented” it is the better it seems.

In contrast, the proposal by the Energy Security Board is an attempt to allow the market a little more space to decide on the lowest cost way of achieving the goal of both curbing emissions and increasing the system’s reliability.

No one in politics wants to explain that this combination still costs consumers money, but to much of the industry, it sounds a slightly more practical way of meshing those countervailing forces.

Despite Labor’s mockery about the absence of detail in a quickly developed idea, the regulators have long been focused on the interaction of the dramatic changes in the energy market and in pricing.

Malcolm Turnbull is clinging onto that expertise, both nationally and internationally, to justify the Government’s acceptance of their latest recommendation.

Something practical

That doesn’t make their predictions of the impact exact – or even necessarily correct. But it does mean the Energy Security Board has a better chance than most of coming up with something practical to try to deal with the many contradictions now in full bloom after a decade of policy incoherence.

Nowhere are those contradictions more obvious than in the political focus on just how much money will be “saved” – or otherwise – from average household bills.

The price rises are due to a combination of factors, some within the responsibility of governments (including the states), and some independent of it. As Rod Sims from the Australian Competition and Consumer Commission keeps reminding everyone, there’s no silver bullet to this.

But that doesn’t stop outrage from industry and from households about recent price rises – nor the political posturing suggesting a “fix” can be quickly and painlessly done.

Labor’s concern for prices and proper modelling of the energy security guarantee, for example, blithely ignores the Opposition’s own lack of modelling when it comes to the cost impact of increasing renewables to 50 per cent or reducing emissions by 45 per cent by 2030. At what cost?

Despite the finding of the latest ACCC report into retail pricing that environmental costs only account for seven per cent of the average retail bill, this figure doesn’t include the indirect cost.

These costs include the impact on base load generation like coal and gas, meaning such investment had become less viable over recent years leading to them shutting down without replacement.

Geoff Carmody, co-founder of Access Economics, maintains cost increases attributable to fossil fuels also reflect state policy decisions to ban development of gas resources and some closures of major fossil fuel generators.

He also points to bidding rules – “aided and abetted by the Renewable Energy Target – giving first call to renewables, thus driving up needed rates of cost recovery over smaller operating times for other sources.

Expected carbon price

“More generally – and beyond the ‘shadow carbon price’ implicit in the RET and its ilk, there is the broader, longer-term ‘expected carbon price’ that long term investors must allow for and which, because of uncertainty about its level and likely path over time, must attract a large uncertainty margin on top,” he argues. “Surely all of these should be sheeted home to renewables? If so, the renewables cost share jumps.”

Such analysis doesn’t detract from the rapid growth of generation from renewable sources, particularly as the cost of the technology continues to drop while its sophistication increases. But it still requires attracting considerable private sector investment during the uncertainty of “transition”. This is still in doubt.

Despite Tony Abbott’s urgings, the Government is still committed to the Paris Accord of a 26 to 28 per cent reduction in emissions on 2005 levels by 2030, including a key role for the electricity sector. That looks to be a much tougher target than either the Coalition or Labor are prepared to concede.

But it also means that the greater the percentage of intermittent renewables, the greater the need to simultaneously ensure stability of the network. At the moment, for example, the Australian Energy Market Operator is having to regularly intervene in South Australia.

“AEMO is finding itself in the position that we actually have to direct generators to come online to provide that stability at the spot price, which is quite expensive,” chief executive Audrey Zibelman says.

Making it all less expensive, as well as more reliable, remains the challenge for everyone.
Australian Financial Review