SIX YEARS OF ENERGY POLICY CHAOS – THE ULTIMATE SMALL BUSINESS KILLER
COUNCIL OF SMALL BUSINESS ORGANISATIONS OF AUSTRALIA, ENERGY SUMMIT, MELBOURNE
WEDNESDAY, 20 MARCH, 2019
Thank you for the kind invitation to address your summit. This is a great opportunity to outline Labor’s Energy Policy
Before I do this, I think it’s important to outline the current state of the electricity sector and analyse how we got there.
Depending upon the industry the small business is competing in, energy prices can be a key driver of total business costs and hence the competitiveness of that small business. Sky rocketing energy prices are undermining the ability of small business to compete.
Current Picture
Electricity and gas prices have risen significantly over the last six years. According to the Australian Bureau of Statistics, since September 2013 residential electricity costs in real terms have risen by 15.8 per cent and for manufacturers it has been a staggering 21 per cent.
It is a similar picture for gas costs where residential gas costs have risen 15.2 per cent while manufacturing gas costs have risen by 10 per cent.
According to the ACCC, the wholesale cost of generating electricity has increased 63 per cent in real terms between 2014 and 2018. This is especially significant for SMEs as 42 per cent of a typical SME’s electricity bill is the cost of generation.
This has led to a very significant deterioration in our international ranking on electricity prices. According to the ACCC, Australia’s position in terms of electricity prices deteriorated from the fourth cheapest in the OECD in 2004 to the tenth cheapest in 2016. By 2018, Australia had the fourth highest prices among OECD nations.
The Energy Minister, Angus Taylor, admitted his Government’s failure last week when he stated:
“We are seeing SMEs really struggling with rising power bills over many years now and that has been a big issue for a surprising number of businesses you go to, a gym, cafe or restaurant.”
Well it’s no surprise to anyone in this room or anyone who meets with business operators. If only Minister Taylor and his colleagues had the opportunity to do something about these rising energy bills? But they have only been in power for six years, I’m sure they’ll get around to fixing it soon.
Liberals’ Failure
Why have we seen this very significant rise in power prices?
The very large investment in the electricity network drove price rises in the first half of the last decade. But since 2014 the key driver has been the massive increase in the cost of producing electricity.
Why have wholesale electricity costs risen so dramatically?
The principal cause has been the failure of the current Government to establish and implement a stable and coherent climate and energy policy.
We have had nearly 5,200 megawatts of capacity retire in the last seven years, in fact nearly 4,000 megawatts of capacity has retired since August 2014. This has led to a tightening of the wholesale energy market as insufficient supply has been added.
This has led black coal and gas generators increasing their share of time as the marginal generator, thereby setting the price. Beyond being more expensive forms of generation, the cost of black coal and gas has risen at the same time leading to higher wholesale prices.
Why has insufficient supply been added to the market?
Simply due to the policy instability in Canberra; the Abbott-Turnbull-Morrison Government has had 12 energy policies since the 2016 election. In fact there were four different energy policies in a 14-day period in August last year.
Other than investment driven by the RET, the policy vacuum on energy policy, specifically emissions policy, has meant that the energy sector has been unable to make investment decisions cognisant of the future treatment of carbon. A sector that makes investments with forty year time horizons has seen twelve energy policies in the last two and half years.
This chaos is continuing with policy after policy junked.
This has led to a spike in future wholesale electricity prices with ASX 2020 prices recently rising by 40 per cent in Victoria and 35 per cent in New South Wales.
Make no mistake, this policy chaos is leading to higher power prices and it must stop.
Unfortunately the current Minister has given the sector little cause for hope.
Minister Taylor’s main message was that he would not “even try” to end the investor uncertainty which lies at the heart of the country’s energy crisis. He said:
“Frankly, I think there is some naivety in the idea that governments can largely eliminate uncertainty, or should even try.”
This is a direct contradiction to the views of energy policy experts and key stakeholders.
For example AEC Chief Executive Sarah McNamara has stated that:
“a lack of robust or bipartisan energy policy means there is a lack of investment confidence, which means there is more risk to be managed, and this in turn leads to higher prices.”
And S&P Global have stated that:
“Australia's continued energy policy vacuum risks delaying planned investment in new dispatchable generation capacity across the NEM, affecting wholesale power market competition and further reducing investor confidence.”
Minister Taylor has compounded this irrational approach by stating that
“the [RET] target reaches a peak in 2020 and we will not be replacing that with anything.”
There can now be no doubt that in their ultimate commitment to putting the politics of ongoing climate wars above the policy needs of the Australian community, this Government has completely broken with the efforts of the last 12 years to establish a bipartisan emissions reduction policy to provide certainty to the energy sector.
Restoring this stability was a critical driver of Labor’s energy policy which we released late last year.
Labor’s Agenda
Our policy was predicated on delivering a 45 per cent reduction in greenhouse gas emissions from the electricity sector, as part of our broader climate change policy.
To do this we will ensure that by 2030 50 per cent of Australia’s electricity supply will come from renewable energy.
Labor’s preference is to achieve a bi-partisan agreement on energy policy. That is why if elected we will pursue a bipartisan market mechanism, a National Energy Guarantee that will deliver on our commitment of 50 per cent renewable energy by 2030. The NEG was overwhelmingly supported by industry, policy experts, states, NGOs and in fact the vast majority of the Government party room.
We have signalled, though, if the legislation to establish the NEG framework is not supported by the Coalition Opposition we will not pursue the NEG.
We will not allow the energy sector to be hostage to the repeal politics we saw at the turn of the decade.
Instead we will progress a 10-year energy investment plan that will deliver certainty to the energy sector through long term contracts: Contracts that will enable massive investment in new generation at the cheapest possible cost. Key parts of the plan include:
Using the Australian Energy Market Operator’s Integrated Systems Plan as our blueprint, the Fund will facilitate investment in:
The Energy Security and Modernisation Fund will help manage the transition to more renewables in our energy system – ensuring households and businesses have the energy supply they need when they need it, at affordable prices.
The good news is that the commitment to 50 per cent renewable energy and the investment in transmission infrastructure to make the renewable energy reliable will actually deliver lower power prices than what would otherwise be.
Modelling by independent body RepuTex Energy shows that in a scenario where we have 50 per cent renewables by 2030 wholesale energy prices will be 25 per cent lower.
This is backed up by the findings of Australian Energy Market Operator that has found that the lowest cost replacement for the many ageing coal fired power stations that are due to close soon will be a combination of solar, wind and storage, complemented by flexible gas plant and transmission investment.
This is confirmed by public statements by Greg Jarvis, Head of Energy Trading and Operations at Origin who said:
“Renewables are cheaper than the marginal cost of black coal at the moment. They are very cheap.”
Jarvis puts the cost of solar in the mid-$40s/MWh and the cost of wind at the low $50s/MWh. That cost of solar is around half the average price of wholesale electricity in most states this year.
This is also confirmed by analysis of the Levelised Cost Of Energy (LCOE) by Bloomberg New Energy Finance and Lazards.
As I stated, transmission investment, building storage and a small amount of peaking gas will make this renewable energy completely reliable and much cheaper than building new coal fired power stations.
Those in the Liberal National parties arguing for new coal fired power stations are arguing for higher power prices as well as greater carbon pollution.
Our policies will deliver lower power prices, greater reliability and through strong local content policies create up to 71,000 jobs.
All of these policies will be complemented by Labor’s commitment to a National Interest Test for new gas projects. This will help ensure more gas being available for domestic industries at lower prices.
Energy Productivity
As well as making the electricity you purchase cheaper, a future Labor Government will help small business save money by saving electricity.
Six years of this Government has seen Australia’s energy efficiency performance deteriorate, with the International Energy Agency now ranking Australia last out of developed countries in energy efficiency policy and performance.
This is confirmed by the latest American Council for an Energy Efficient Economy’s International Energy Efficiency Scorecard, which ranks Australia 18th in the total measure of energy efficiency, and 22nd in terms of industrial energy efficiency, just behind Russia.
This drives up costs for businesses and households, and undermines jobs.
Labor will implement a suite of measures to help Australian businesses improve their energy efficiency and cut their power bills.
We will:
Conclusion
I conclude by pointing out that like democracy sausages, Aussie Rules and kangaroos, spending 15 years fighting about climate and energy policy is uniquely Australian. Unlike the other three I list, the Australian disease of energy policy instability is harming our economy and undermining the very necessary task of decarbonising the world.
Other nations with very strong political contests, such as the United Kingdom and Germany, have managed to enact plans for the transition to a low carbon economy without this chaos.
Labor has a plan to end this chaos through either a bipartisan market mechanism or through long-term contracts that will deliver the investment certainty the sector needs.
Ten million households and millions of small businesses are depending upon us.