Turnbull weighs coal fix for energy wars

A proposal to guarantee new dispatchable power generation is expected to be taken to cabinet with the PM’s support.

Malcolm Turnbull has confirmed he would seriously consider the key recommendation of a report by the competition watchdog. Picture: AAP

A proposal for the federal government to financially guarantee the construction and operation of new dispatchable power generation, which could include clean coal-fired plants, is expected to be taken to cabinet with the backing of the Prime Minister.

Malcolm Turnbull yesterday confirmed he would seriously consider the key recommendation of a report by the competition watchdog to underwrite and potentially subsidise new “firm” and cheap power generation for industrial and commercial users.

Signalling a possible end to the energy wars within the Coalition partyroom, the recommendation was immediately endorsed by ­Nationals MPs, who have interpreted it as a green light for government to intervene in supporting the future of coal generation.

Tony Abbott, one of the most vocal opponents of the government’s national energy guarantee, also backed the recom­mendation, saying it was a “vindication” of calls for more baseload power in the national electricity market.

Senior government sources said Mr Turnbull was personally “very supportive” of the idea and it could be considered by cabinet before the end of the year. A formal position from the government is not expected until after a meeting of the Council of Australian Governments next month, which will seek to ratify agreement for the national energy guarantee.

The recommendation was among 59 handed down in a 400-page report yesterday by the Australian Competition & Consumer Commission, which said nothing less than a radical shake-up of the national energy market would bring down prices for households and businesses.

Local energy stocks were hit by the call for pricing reform, falling 1.04 per cent as a sector. It slashed almost $1.6 billion from the market valuations of the two biggest listed power players, AGL Energy and Origin Energy.

Among key recommendations, the ACCC said elevated prices had been driven by “high and entrenched levels of concentration in the market’’ and singled out Queensland for a major overhaul. The watchdog said the state’s power generators should be split into three entities, leaving open the possibility of a sale.

State and territory governments did not escape the blowtorch, with inflated networks costs caused by unrealistic, government-imposed reliability standards identified as still being the chief culprit in rising power prices.

The report recommended writing down the asset value of the network companies to limit the rate of return on investment which dictated the annual cost recovery the companies sought, or offer rebates on network charges of up to $100 a year to customers.

The report, led by ACCC chairman Rod Sims, is being examined closely by Energy Minister Josh Frydenberg, who yesterday said he would not rule out any of the recommendations, having privately signalled to colleagues last month that there would be a deal for new coal or gas in addition to the NEG.

A source within government told The Australian the recommendation to underwrite new generation was almost certain to be adopted.

Mr Turnbull yesterday signalled the government’s intent in a speech in Brisbane.

“We’ll look further at this proposal over the coming months … but this recommendation has the distinct advantage of being thoroughly technology-agnostic and, well-designed, should serve our goal of cheaper and reliable energy.”

Resources Minister Matthew Canavan said the report had vindicated the Nationals’ position on pushing back on the NEG and arguing for high-efficiency, low-emissions coal-fired power.

“Many of my colleagues had raised genuine and heartfelt concerns over the current adequacy of investment in power generation. Those concerns have been vindicated,” Senator Canavan said.

“The ACCC has now recommended the government underwrite baseload power investments. If people didn’t want to listen to the Nationals, then they should definitely listen to Rod Sims.”

Nationals leader Michael McCormack also welcomed the ACCC report, signalling it could end the internal dispute over the NEG and allow the Coalition parties to reach a consensus.

The ACCC said there was a case for government support in the financing of new large-scale generation projects that required considerable up-front investment and carried significant risk. “Where private-sector banks are unwilling to finance projects due to uncertainty about the future of an industrial or manufacturing business, the ACCC considers there is a role for the Australian government in providing support for such projects in appropriate circumstances,” the report said.

“This can be achieved at little cost to government. Specifically, the ACCC proposes the government introduce a program under which it will guarantee offtake from a new generation asset (or group of assets) in the later years of the project (say years six-10 or six-15) at a low fixed price sufficient to enable the project to meet financing requirements.”

As the fallback customer, it has not been determined whether the government would actually buy the power to on-sell to another customer or simply bankroll the operation until it found new commercial customers.

But if the spot price were to fall as low as $45 per megawatt hour, as a senior government source said, the “government would have done its job”.

The ACCC report said the recommendation, which would apply only to new market entrants and require they have at least three commercial customers, would involve “little cost”, as energy prices would have to fall significantly for the government to be disadvantaged.

In recommendations on the behaviour of the energy giants and the lack of competition, the report called for a prohibition on acquisitions to limit the market share of any one generator to 20 per cent in any NEM region.

EnergyAustralia, a major wholesale and retail power company, said “artificial limits on ownership of generation capacity seem unnecessary when the ACCC already has the authority to review proposed mergers and acquisitions for impacts on competition”.