Green light to fix our energy mess

The ACCC has given the government a blueprint to fix our energy mess. Now it must follow through.

Let’s face it, wind and solar operators are accustomed to being indulged.

The report by the Australian Competition & Consumer Commission on retail electricity pricing may well be a game changer in the energy wars bedevilling this country.

To be sure, the subsidised renewable energy sector will continue to put up a fight. Several of the report’s recommendations will not be to the liking of the key players and, let’s face it, wind and solar operators are accustomed to being indulged.

But by focusing on competition and the consumer, as the ACCC must, the implementation of the report’s key recommendations by the federal government could lead to lower prices for households and businesses and more dispatchable electricity in the system.

The title of the report is deliberate: Restoring Electricity Affordability and Australia’s Competi­tive Advantage.

Arguably, the ACCC report is at odds with some of the details of the proposed national energy guarantee, as outlined in the papers released recently by the Energy Security Board. However, this could be a good outcome for the Turnbull government.

The NEG requires the sign-off of five states and the ACT. Each jurisdiction has different points of view to push and different starting points. And note the ACT energy minister is a member of the Greens. While the ACT makes an infinitesimally small contribution to electricity generation, its government still can veto the adoption of the NEG. But making concessions to the ACT — a bigger emissions reduction target, say — will alienate some members of the Coalition partyroom. It’s the classic wicked problem for federal Environment and Energy Minister Josh Frydenberg.

So what are the main messages of the ACCC report? Here I’ll use clear expression rather than the bureaucratic obfuscation preferred by regulators in their written reports.

• The subsidisation of renewable energy has pushed out dispatchable generation from the system and pushed up prices.

• The subsidies attached to household solar installations have been excessive, are mainly paid for by other consumers and businesses and should be withdrawn.

• The network companies, particularly in Queensland, NSW and Tasmania, have gamed the system, have added excessive costs and should be forced to take a writedown on their assets.

• The retail companies, including the big three “gentailers” (AGL, Origin and Energy Australia) behave appallingly, deliberately confusing and fleecing consumers.

• The market share of the gentailers should be capped where it is.

• The government should underwrite new low fixed-priced generation projects for businesses.

The ACCC even puts a figure on the average achievable savings by 2020-21 for households and businesses of between 20 per cent and 25 per cent.

“The ACCC is confident that there is much that can be done to boost competition, lower costs and improve consumer experiences in the electricity market.”

From the point of view of the gentailers, the report could have been worse. The ACCC easily could have recommended these companies be broken up, with generation separated from retail.

Having said that, the suggestion retailers will be forced to offer a default product to consumers, at prices no higher than those determined by the Australian Energy Regulator, will not please them. Standing offers will be abolished.

But a reading of the report will convince most people the retailers simply cannot be trusted. They quote “discounts” from unspecified bases; they take advantage of loyal customers by putting them on worse deals; they supposedly reward on-time payment while imposing hefty penalties for late payment; and they offer inferior deals to customers from disadvantaged backgrounds who have difficulty paying their bills.

This part of the market clearly has failed. If the gentailers had any sense, they would have acted as exemplary providers. Their failure to do so was always going to induce a strong reaction from the ACCC.

The report also slams the cost impact and inequity of the small-scale solar subsidies taken up by many households. It is estimated solar customers pay about $538 a year less than non-solar customers. In most instances, the subsidies paid to these solar customers are paid for by other customers, including low-income earners, renters and those who live in apartments, and businesses.

The ACCC recommends the cost of solar feed-in schemes should be assumed by taxpayers rather than other energy customers. But just to highlight the degree of largesse in these schemes, during the next two years it will cost Queensland taxpayers $770 million to meet the costs of the excessively generous feed-in scheme in that state, a scheme that will continue until 2028.

In addition, the suggestion is that the Small-scale Renewable Energy Scheme be wound down and abolished by 2021. This would not affect existing solar customers but would alter financial incentives for new customers. The SRES now offers most customers an upfront discount of up to a third on an installation valued at $10,000.

A pivotal recommendation of the report is that the federal government should operate a program “under which it will enter into low fixed-price energy offtake agreements for the later years (say, six to 15 years) of appropriate new generation projects that meet certain criteria”.

These include: at least three commercial/industrial customers contracting to take energy for at least five years; current major energy providers in the retail or wholesale space will be excluded; the projects will be large enough to serve the needs of many customers; and “be capable of providing a firm product so that it can meet the needs of C&I customers”.

In effect, these anchor customers will set the requirements needed from these new sources of generation. They almost certainly will be thermal plants — not necessarily coal — but there is no reason projects with a mixture of energy sources could not bid to be part of the scheme. An indicative price point of $45 to $50 per megawatt hour is quoted in the report.

So what does the ACCC think about the NEG?

“The ACCC supports the development and imple­mentation of the NEG, incor­por­ating appropriate safeguards for competition in the contract market, as well as a way to achieve a settled policy framework under which new investment is encouraged in a way that reduces carbon emissions at low cost while promoting investment in a manner that ensures demand for energy is met.”

Again, some translation is required. The answer is: yes, but subject to some important quali­fications. The key is the last phase: “promoting investment in a manner that ensures demand for energy is met”. The point is also made that it is important the NEG doesn’t deliver advantages to the large incumbents.

There is plenty of water to flow under the bridge before any settlement on energy matters is reached. Inevitably, there will be pushback on some recommendations. It’s hard to see the Queensland government willingly break up its generators or impose a huge write­down on the value of poles and wires. And will the NSW government really want to rebate a minimum of $100 to each energy customer each year for the overvaluation of poles and wires that have shifted into private hands?

But at long last the ACCC is zeroing in on the issues that really matter: getting a good deal for consumers and ensuring reliable and competitively priced electricity for business.

Let’s hope the government responds quickly by seeking to implement the recommendations.