Another regulator smashes Angus Taylor’s energy rhetoric

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Another regulator smashes Angus Taylor’s energy rhetoric

Oh, and need we also remind you that Snowy Hydro is owned by the Commonwealth.

The IQ-heavy minister also refused invitations to advise what “excessive” wholesale prices might mean or to confirm any sort of dollars-and-cents target on what an average annual power bill should be.

What “excessive” means is important only because it is the adjective used in the triggers for the proposed divestment law. The government’s plan is that “excessive” wholesale prices can force a divestment recommendation from the ACCC to the Treasurer, who can then apply to the Federal Court to exercise the bust-up.

The government justifies the big stick of divestment with claims that wholesale power markets have been abused by generators. Like his predecessor in the energy portfolio, and like his stick-waving boss, Taylor continues to draw sinister links between the abrupt closures of two coal-fired power plants in 2016-17 and the higher wholesale prices they generated.

In succession, Australia’s electricity challenges have now been laid bare by the ACCC, the Australian Energy Market Operator, and the Australian Energy Regulator.  David Rowe

On Tuesday evening Taylor said he did not have a problem with companies making profits but he does with anti-competitive behaviour.

Taylor implied that generators had deliberately abused the opportunity offered by the coincident closures of the Northern power station in South Australia and the bigger brown coal Hazelwood plant in Victoria.

He said that, under the proposal he is tilting for, divestment would be possible if companies withdraw supply from the market “with a clear motive of reducing competition”.

And he also suggested that the potential of systemic gaming had been identified by the Australian Competition and Consumer Commission in its landmark review of retail electricity markets. But neither the ACCC nor, far more recently, the AER found the level of systemic abuse that would justify the big stick the government is reaching for.

If Angus Taylor had more of a free hand to tackle our trilemma then surely we would see a more comfortable, productive Energy Minister. Dominic Lorrimer

The ACCC certainly revealed suspicions of market manipulation but its report focused on apparent misbehaviour by two state government-owned power stations that appeared for a time to put government dividend payments ahead of customer comfort. If the ACCC held concerns about privately held generators then it did not reveal them.

No private pirates or gougers found

If this debate needed a last straw then it landed on Tuesday courtesy the Australian Energy Regulator’s first whole electricity market review. In a double blow to the government’s standing rhetoric, the AER identified a host of causes for increased wholesale electricity prices and rejected the potential that generators had excessively exercised market power.

The loss of Hazelwood, which closed because it was increasingly uneconomic, means that Victoria’s brown coal stations are setting the price less often than in the past. As a result more-expensive hydro, black coal and gas generation is, at various times, setting the price. Coal and gas prices have been pushed higher by a combination of factors including export demand and local shortage.

The AER’s report assessed that the big three gentailers certainly owned significant market power but that the review “did not identify short-term behaviour as a significant factor contributing to recent energy prices”.

In other words, the regulator is unable to spot the community of pirates and gougers that the government has called out.

The regulator did, on the other hand, “identify longer-term trends that will require ongoing monitoring”.

“In particular, average offers from some black coal generators in NSW and Queensland have increased due to the increase in coal costs. But the increase in coal costs alone does not appear to explain all of the increase in offers.

“Specifically, in Queensland average offers have increased significantly despite some evidence of a slight reduction in average coal costs. In addition, we identified issues related to participant conduct in South Australian frequency control ancillary services markets, but it seems unlikely these issues will be sustained as new participants have entered the market and the requirement for additional local services has been removed.”

In succession, Australia’s electricity challenges have now been laid bare by the ACCC, the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator.

And if Taylor, who really is an energy economist of some note, had more of a free hand to take a strategic approach to our trilemma then I am pretty sure we would see a more comfortable, productive Energy Minister.

To be clear here, everyone but everyone says Taylor knows what he is talking about. They know, too, that the nation needs a cogent strategy that, at once, embraces the aligned challenges of renewable energy and climate, encourages and embeds new competition, and recovers and fosters system security.

Not a time for stick waving

There is a time for three-word slogans and big-stick waving. But this is not it.

Just a week ago one of the nation’s most respected energy analysts, Danny Price, argued cogently through the pages of The Australian Financial Review that the core platform of Australia’s wholesale market required urgent and material reform to cope with the arrival of effectively zero-cost power.

The National Energy Market is designed for an era of baseload generation that was actively supplemented by higher-cost peaking capacity. Pricing was supposed to reflect high fixed costs and the cost of generating power. You bid your way into the NEM with the lowest-cost bid taking preference. The thing is designed to identify the lowest marginal cost of supply.

The problem now is that wind and solar have high fixed costs but cost very, very little to operate. When the sun is out and the wind is blowing they are in the system.

The spread of commercial and domestic renewable generation has flattened demand peaks and changed their daily patterns, pushing evening peaks ever later and thus crimping access to market by baseload and peak generation.

For all of that, some argue that the NEM remains dominated by the three large gentailers who profit from its current levels of volatility. Certainly too, that group of three prefers the current structure of the NEM as it provides no ability to contract long term and that inability stands as a roadblock for new entrants to large-scale generation.

Many nations in the developed energy world, from the US to the UK and right across the European family, have been moving more to a mix of private and public investment models.

This blended response has been made sensible by the transition to renewables and the consequent need for firming dispatchable generation.

Having this underpinned by some form of government underwriting or a form of capacity payments is a tried and true way of providing a system that is secure and affordable.

Naturally, industry incumbents receive government intervention as an unwelcome disruption to pre-existing and long-dated investment schedules. This is fair enough.

And it is one of the many points of debate where fulsome engagement by someone as clever as Taylor would be a real positive given the national circumstance revealed by the AER report.

“A constant theme was that there is not the policy stability and predictability necessary to support ongoing generation investment in the NEM,” the report said.

“Investment in long-lived generation assets requires long-term consistent policy signals to support investor confidence. Emissions policy instability in particular was identified as a key impediment to investment in the NEM. Interventions to address other energy policy objectives, such as reliability and affordability, were also cited as factors stifling investment by creating uncertainty.”

In the end, the government waves big sticks to solve problems that don’t exist while the real issues of the moment stand unaddressed and therefore unresolved.

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