Money Fix climate policy to fix electricity market

08:07  13 july  2018
08:07  13 july  2018 Source:

Abbot says pull out of deal he signed

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Australian Competition and Consumer Commission chairman Rod Sims.© supplied Australian Competition and Consumer Commission chairman Rod Sims.

In releasing yet another report on electricity prices, Australian Competition and Consumer Commission Rod Sims said that the Australian energy market is "broken."

What is needed is not a repair job on the whole electricy market but a clear decision on climate change policy.

The 35 per cent real increase in household electricity bills in the past decade is certainly a significant burden but the ACCC's 398-page report, On restoring electricity affordability, part of a veritable reference library on the topic in the past few years, must not be allowed to muddy the water.

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The electricity market basically works except Australia cannot work out how fast to cut its greenhouse gas emissions and make the transition from coal to renewables. Mr Sims' vague language only encourages the usual suspects to claim that the solution to the problem is building more coal plants.

To be sure, some tweaks are needed in market design. The ACCC rightly points out that about 40 per cent of the rise is the result of "gold-plating" or excessive profits by the monopolies that carry electricity along powers and wires.

To his credit, Energy Minister Josh Frydenberg has already taken a big step towards fixing by handing the Australian Energy Regulator more power in determining a fair rate of return. Thanks to this, the AER this week announced a decision that will cut network prices by $40 a year for households.

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Another major cause of price rises has been gouging by electricity retailers in the wake of deregulation. The ACCCs suggests partial re-regulation that gives consumers standardised information and a default contract. It might help but the sad fact is that electricity contracts are just so boring and complicated that only the more savvy consumers shop around.

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The ACCC also wants more power to fight the concentration of the generation and retail markets in the hands of a few big players who can rig the price, especially at peak times.

But a longer-term solution is to build new generation capacity that will replace the retiring coal plants and ensure competition and reliability. Here, the ACCCs suggests the government  guarantee minimum prices to attract new entrants. This smacks of state micro-management. The market should be left to take the risk of long-term investment.

What is holding back investment is the political confusion over climate policy. Without a carbon price in place, companies cannot decide how fast to wind down coal and switch to renewables, gas or battery storage.

The ACCC report makes this point strongly and Mr Sims would have done well to highlight what it says: "The ACCC considers it critical for there to be a stable energy policy in Australia which incorporates the need for Australia to meet its climate policy obligations."

This is the nub of the debate. The government's National Energy Guarantee proposes a 26 per cent cut in carbon emissions from the electricity sector by 2030. It is a good start. An industry-wide carbon price is more cost effective than the piecemeal subsidies such as the Renewable Energy Target or Solar Feed-in-Tariffs which the ACCC criticises.

But the the NEG target does not appear to be ambitious enough to reach Australia's commitments for its whole economy under the Paris treaty. And if the target is not plausible, the uncertainty for business will only continue. And, of course, global temperatures will continue to rise.

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