Government must lift its game to make power prices fall

Government must lift its game to make power prices fall


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Bold policy and bipartisan support needed to fix broken energy market

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The most significant thing you need to know about the consumer watchdog’s comprehensive plan to lower sky-high power prices by about 25 per cent is that it’s just that. A plan.

First, the Commonwealth will have to convince the Labor and Coalition state governments to implement complex, challenging reforms to fix what the Australian Competition and Consumer Commission called the broken National Energy Market.

The ACCC listed four key regulatory issues: Gold plating, lack of competition among vertically integrated ‘gentailers’ that generate and retail more than 60pc of power in most states, a complex electricity market which lacks transparency, and a merits review system which allows networks to challenge price rulings from the Australian Energy Regulator (AER) in court.

On top of that, the ACCC said it is crucial for the states to sign onto the Turnbull Government’s National Energy Guarantee.

Basically the ACCC’s 56 point plan is aimed at winding back costly retailers and energy network regimes which have caused prices to ratchet up over the past decade.

The NEG is designed to send the right signal to the market – without favouring any type of power over another – so investors can build a efficient power generation for the future.

The ACCC said favouring one type of technology would repeat the bad policy of the recent past and Malcolm Turnbull said the government is reviewing the ACCC’s plan. 

Nationals leader Michael McCormack and his Resources Minister Matt Canavan have backed the technology agnostic design of the NEG, but pro-coal rumblings continue within the Coalition. 

But Mr Canavan public comments make sure the potential for coal remains front and centre in the debate.

“It's very clear from what (the ACCC) said that coal and gas and all other types of fuel should be included here. This should not be treated like a Baskin and Robbins ice-cream shop where you go in and say my favourite ice-cream is choc-mint and I don't like rum and raisin. Who cares what the fuel type is, it's the outcome that matters,” Mr Canavan said on the weekend.

All of which means the poor policy and political divisions of the past decade which created the dysfunctional market must be reversed before we see lower power prices.  

Short circuit to savings

The Government says the NEG would slice up to $115 off household electricity bills by 2020, while the ACCC says its reforms would deliver households up to 25 per cent savings ($290-$415 a year), while the more than 2 million small to medium businesses could save an average of 24pc on power bills and larger commercial and industrial customers could see costs decrease an average of 26pc.

Many regional businesses are drowning in power costs. They need reform to keep their heads above water.

So while these are tempting totals heading into an federal election year in 2018, they’ll remain aspirational until the Federal Government gets its fractious party room to commit to the NEG and the full suite of ACCC reforms. Not to mention securing agreement among the state governments of various party persuasions.

A coalition of primary industry groups made a joint submission to the ACCC’s inquiry

It said that since 2012 average dairy farm electricity costs have risen on average 48pc across the country and that electricity accounts for a significant proportion of a dairy farm’s shed cost, which vary from $17,000 to $40,000 on average per year across Australia with a national three-year rolling average $24,200 a year.

Brussel Sprout growers the Cranwell family, in South Australia saw the cost of their electity contract shoot up 126pc in 2017 when it came up for renewal  -rising from $50,000 to $113,000.

Reform agenda

The NEG is an overarching policy designed to insert coherence into the chaotic energy sector, which has been riven by policy uncertainty for the past decade.

It delivers a signal to private investors in energy generation by requiring retailers source a minimum amount of “dispatchable” power (i.e gas, hydro or coal) while also ensuring other sources comply with greenhouse emission reduction targets (likely to be so-called intermittent wind and solar power).

The ACCC reforms target the costs created by electricity distribution networks and retailers deal with consumers.

Average household prices rose 63 per cent in the past 10 years.

Residential and especially industrial consumers have seen prices double, or even triple where there is limited competition for tenders.

But this is no fresh argument. For years processors and primary producers have railed against the impact of bad regulations.

Powerful problems

The ACCC has proposed a range of measures to make retail bills less opaque and increase competition among retailers.

A whopping 48pc of the average power bills is down to network charges, which have been inflated as the ‘poles and wires’ asset bases grew 400pc over the past 15 years, greatly exceeding actual demand.

The ACCC said Tasmania, NSW and Queensland should tackle the gold-plating with either refunds to consumers or government-funded write-downs of public electricity assets.

As the publicly-funded component of this plan mean higher taxes to reduce power bills, this may be a tricky political proposition.

Tariff trouble

One recommendation which will be particularly popular with farmers is the ACCC’s call to shift retailers to cost reflective tariffs.

It’s been a sore point for years among businesses that run power hungry equipement, like meat processors, irrigators and dairy that they are bumped into the highest rate of charges, even when their overall power is low.

Tariffs are ostensibly a component of network charges and can be set by the highest rate of use over a billing period, which means turning on the pumps to water a paddock for a short period incurs high charges even when overall power use is relatively low.

Cost reflective tariffs could address this issue by spreading network charges evenly.

The ACCC cited examples where residential users get off too lightly. Installing an air conditioner adds $1000 to annual network costs, but the household using the system only pays $300 of this through higher bills. Similarly, the modelling found that a customer using an average-size north-facing solar PV system will save about $200 a year in network charges, but will only reduce network costs by $80.

The National Irrigators Council was a member of the agricultural group that wrote to the ACCC for action on power bills.

“Our submission provided case studies of agricultural businesses installing diesel generators because being connected to the grid had become too expensive; of vegetable growers priced out of export markets and even an entire irrigation district in danger of closing down,” said Council chief executive Steve Whan.

“We provided independent research showing that profits at every level of the energy supply chain were unjustifiably high. With network costs a particular problem.

“The ACCC has made some scathing findings and tough recommendations. It is critical Governments implement them.”

The story Government must lift its game to make power prices fall first appeared on Farm Online.

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