Poor policies ‘crimping’ power

Queensland electricity player ERM has slammed substandard government energy policy for crimping potential investment.

ERM founder Trevor St Baker in Brisbane. Picture: Glenn Hunt

The Queensland electricity player scooped up by oil and gas giant Shell to shake up the east coast market has slammed substandard government energy policy for crimping potential investment in new power generation.

After recommending a $617 million takeover offer from Shell, ERM’s top leaders told The Weekend Australian that governments need to focus on providing stable policy to encourage new supplies and reduce prices rather than embarking on ideological missions.

“Electricity supply needs to be about providing power to businesses to create the jobs so that people can pay their home bills,” ERM founder Trevor St Baker said. “The main issue isn’t whether I put a battery in my house. It’s whether or not I’ve still got a job and my employer can still afford to pay electricity before they’re forced to move operations offshore.” Mr St Baker stands to make a $170m windfall from his 27.5 per cent stake in ERM but will still retain a powerful presence in the national electricity market through his private ownership of Vales Point coal plant, which supplies 4 per cent of power for the grid.

The energy veteran said the looming risk of blackouts this summer shows the need for long-term planning by governments and the market operator to ensure enough baseload generation in the grid to replace the impending exits of big coal plants like Liddell in NSW.

“We have some of the highest renewable energy penetration in the world and we should be very proud of that.

“But there has to be some way for us to take stock of that variable supply to keep the existing power stations in service to prevent them closing.

“It needs to be a planned and well thought out transition. You can’t determine a power system based on that renewable ideology alone.”

Shell has been combing the Australian market for the past few years as part of its global push to become the biggest power company in the world by the 2030s.

It wants to use ERM’s reach into the commercial and industrial sector to further its own ambitions as a major player in the Australian market. On the generation side, it will likely tap its considerable gas resources with new investments in renewables and the rollout of batteries via its recent Sonnen acquisition.

While the deal hands Shell a strong position to strike a new model as the industry shifts to cleaner forms of energy, ERM chief executive Jon Stretch cautions that it remains a volatile industry to consider investment in generation.

“It’s difficult to make a call because of the risk — government or state — of regulatory interventions which is going to blow up your long-term investment case,” Mr Stretch says.

“What we do for a living is manage risk and that includes long-term investment in peaking generation but the market does not support that at the moment. We need enduring policy to allow that.”

The Australian Energy Market Operator has been forced into increasingly frequent and expensive market interventions, such as leasing diesel back-up generators and ordering expensive gas-fired plants into the market to guard against the risk of a thermal generator failing or a change in the weather knocking out renewable generation.

State and federal governments are worried the closure of Liddell in 2022-23 may cause a repeat of the market chaos that followed the closure of the giant Hazelwood coal plant in Victoria two years ago, which contributed to a 40 per cent surge in power prices.