Four steps to fix our energy policy – Grattan Institute

Source: Grattan Institute

26 Apr 2019

The Grattan Institute released the Commonwealth Orange Book for 2019 this week, with policy priorities for the federal government moving past the 2019 election.

The report is particularly scathing on Energy, with a recent health check by the Energy Security Board (ESB) rating the security and reliability of the National Electricity Market (NEM) at moderate/critical:

  • Electricity and gas prices have increased, with only minor relief on the horizon. Government actions designed to ‘ease price pressures’ have had little impact. The Australian Competition and Consumer Commission (ACCC) produced a major report on electricity affordability, but only a few of its recommendations are being pursued.
  • The 2016 SA blackout triggered the Finkel Review of security in the NEM. The COAG Energy Council endorsed almost all of its recommendations, yet many of them have not been implemented. Concern about the tight supply-demand balance is high after the closure of large power plants and then rolling blackouts in Victoria during the 2018-19 summer.
  • Australia is on track to meet its 2020 target of a reduction of 5 per cent below the 2000 level of emissions, but it is not on track to achieve the Coalition Government’s 2030 target of 26-to-28 per cent below the 2005 level. There is no policy framework that could credibly deliver this target, let alone one that could be ramped up to meet Labor’s proposed 2030 target of 45 per cent below the 2005 level.
  • Australia’s electricity produces a lot more emissions than comparator countries, even though it is also among the most expensive.
  • Multiple reports and reviews over the past three years have provided a multitude of recommendations to reduce costs and emissions and increase reliability. Many of them are sensible and should be adopted. But Australia does not have a cohesive plan for delivering a comprehensive market reform agenda based on this work. Instead of the hard work of market reforms, governments seem to prefer intervening in the market and criticising the big energy companies.

Businesses and households want action on climate change. Whoever wins the election should focus on four priorities to deliver the biggest results over its three year term:

  1. Implement the emissions obligation of the National Energy Guarantee (NEG) for electricity, integrated with specific mechanisms in other sectors.
  2. Lead the COAG Energy Council to implement the reliability obligation of the NEG.
  3. Negotiate a new Australian Energy Market Agreement with the states and territories that commits to national markets, the policy making role of governments, and the implementation role of the market agencies.
  4. Develop and deliver a clear, credible and compelling narrative for an energy transition that will win public support. Failure on this task destroyed the prime ministerships of Kevin Rudd and Malcolm Turnbull. It will be a tough journey, weighed down by the baggage of the climate wars. But it’s a journey Australia must make and complete.

During and since last summer, concerns about the security and reliability of the National Electricity Market were intense. Technical improvements to maintain grid security are now catching up with the rapid adoption of solar and wind. But commissioning of new capacity has been slowed by a combination of connection difficulties for distributed generation and climate policy uncertainty. Neither of these processes has been helped by the recent political and media blame game, which has been disproportionate to any actual change in the reliability of Australia’s electricity supply.

Electricity prices remain too high due to a nasty combination of coal plant closures, higher coal and gas costs, poor regulatory outcomes and, again, climate policy uncertainty. Some price relief is on the horizon from investments in new generation and lower regulated network prices. But this relief has been too slow to reduce the political pressure on governments.

Energy and climate change policy needs to be a core priority for the Commonwealth Government. A patchwork of ‘flip-flopping’ policies has eroded investment incentives and contributed to high prices and high emissions.
The Commonwealth Government should be honest and explain to the public that Australia must continue the transition to a low-emissions economy, and that it will cost money. This will require a compelling narrative, covering a vision for a very different energy system and a long-term commitment to get there.