Australia could save save a lot of productivity pain if we took a few leaves out of America’s energy policy manual.
“The US puts a national priority on policies which effectively safeguard low energy costs as a critical driver for the economy, but in Australia we’ve effectively encouraged a cost blow-out,” says Warren Males, economist with Australia’s peak sugarcane industry body, Canegrowers.
“While the US makes driving down energy costs a priority to promote economic growth and export competitiveness in manufacturing and agriculture, we’ve let poor planning and monopolistic energy companies run amok, and we pay the price.
“A decade ago Australia had some of the lowest electricity prices in the OECD. Today they’re among the highest.”
His comments are echoed by Olam Australia’s executive director, Bob Dall’Alba.
Olam’s cotton ginning and nut production business has calculated NSW and Victorian power costs are at least double those paid by equivalent processors in the US.
Queensland and South Australian prices were even higher – at least 130 per cent and 150pc above average US prices.
“Like many in the ag sector, we’re always looking at how to expand to take advantage of new opportunities, but it’s very hard to plan ahead when when you can’t control or predict power costs,” Mr Dall’Alba said.
“Electricity is now a major operating cost for us – it’s more than twice as costly as five years ago.”
Despite the development of a host of new gas reserves to potentially drive power generators, plus a huge uptake in use of solar power by industry, and investment in more efficient electric pumps and machinery, agribusiness power costs were out of control, said Canegrowers’ Mr Males.
He attributed much of the blame to unrealistic network charges, partly caused by wasteful over-investment in distribution capacity at the expense of base-load generation which was under-funded.
Network costs represented about 20pc of a Queensland canegrower’s electricity bill 10 years ago, but 60pc today.
Regulatory policy actually shielded network operators who spent money “gold plating” their infrastructure because they were entitled to claim a 9pc return on asset valuations via consumers’ power bills.
“Typical sugarcane farmers with irrigation pumps to run now pay 120pc more for power than in 2010,” Mr Males said.
“As more people try cutting costs by using solar, or swinging back to diesel powered pumps, fewer are left paying the exorbitant network charges which power companies are allowed to embed in their pricing structure – it’s a death spiral.
“Governments shouldn’t be surprised energy sector monopolies will take full advantage of poorly designed regulation which encourages them to transfer investment risks to the consumer.”
He said sugar mills had been early adopters of alternative energy options to save costs, but despite much investment on cane trash-fueled cogeneration plants, and solar power, savings had been overtaken by price gouging, stifled innovation and “a broken system”.
Cotton Australia’s chief executive officer, Adam Kay described the energy sector’s pricing strategies as infuriatingly opaque, making it difficult to understand and compare electricity costs.
At the same time, despite an abundance of gas supplies in Australia, gas use in electricity generation was declining just when coal fired power generators were alsi reaching the end of their lives.
“You’ve got to ask how is it that SA has blackouts and only gets access to 4pc of the Cooper Basin gas – which comes from SA in the first place?” he said.
“I’m concerned we’re being set up for a mass gas exploration push by the energy companies, which may well impact on growers’ land management and water security.
“But even if new exploration and development goes ahead, extra gas probably won’t be available for another five years, if at all.
“The power crisis is happening now. We need guarantees to deal with power costs within two years.”
Olam’s Mr Dall’Alba, whose 10 cotton gins and almond processing plant run on gas and electricity, said gas was a low emission energy choice of politicians yet, strangely, Australia lacked strategic resource management to ensure our reserves were available to domestic consumers.
“A lot of things about the gas market are difficult to understand,” he said.
“Clearly there needs to be some co-ordination of our resource use for the sake of the economy.
“We sell into a very competitive marketplace where end prices are not going to move just because we have to pay uncompetitive energy costs.
“If processor margins are squeezed and growers can’t get a fair return to cover their costs, agriculture will not grow to be the export earner everybody’s expecting.”
Until more strategic energy policies were in place, gas and electricity companies would do “whatever they can to make the most money they can”.
The story Why we’re leading the OECD’s high energy cost race first appeared on Farm Online.