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Hits and misses in energy policy reset

"The latest energy policy statement from the Commonwealth includes some sensible ideas that should attract broad support, as well as some serious gaps, and two elements that need great caution," Australian Industry Group Chief Executive Innes Willox said today.

"High energy prices are the most obvious and painful sign of serious challenges in Australia's energy markets and deep policy and political dysfunction. An otherwise thriving manufacturing sector is challenged by sustained high electricity prices and wholesale gas prices that are once again marching upwards. Meanwhile, reliability will decline in coming years without fresh investment, and national emissions are far off track to our Paris commitments. Action is needed across the board to address the energy trilemma of affordability, reliability and emissions.

"We are glad to see the Government re-endorse the Reliability Obligation from the previously proposed National Energy Guarantee. This mechanism remains the most widely supported option to ensure the market has sufficient dispatchable energy resources. The States should support this push, though more consultation will be needed to finalise the Obligation in the months ahead, given significant changes proposed by South Australia.

"Measures to improve transparency and competition, including a soft cap of 20% on generator market share and a default offer to households, are worthy and should be effective if developed in close consultation with stakeholders and the States. The final rules should promote competition without undermining the innovation that the energy system badly needs.

"The absence of a clear long-term policy on emissions is unfortunate and if sustained will significantly undermine the case for investment in new assets and reinvestment in existing generators. That would undermine not just emissions, but also the investment that can moderate prices and sustain reliability.

"The Commonwealth should also take up the ACCC’s recommendation to work with New South Wales and Queensland to reduce the impact on energy users of the overinvestment in electricity distribution networks over the past decade.

"The price of gas is effectively setting the price of electricity today, and oil-linked export parity is sending gas prices soaring again. Measures to moderate gas prices are not part of the latest package, and there is no explicit effort to break the link between gas and electricity prices.

"Legislating to allow the Treasurer of the day to forcibly break up private businesses would be an extreme step. Australian businesses and households rightly expect that energy suppliers should be making the most competitive offers they can to customers of all sizes, and as we saw with the Australian Domestic Gas Security Mechanism, the potential for emergency intervention can sharpen the mind. But forced divestiture would set a dangerous precedent for the whole economy, and was specifically ruled out by the ACCC in their recent comprehensive report on improving electricity prices.

"Finally, the proposal for Commonwealth financial backing to underpin new and upgraded electricity generation capacity is on its face a welcome effort to increase competition and reliability. The ACCC's original recommendation would encourage more projects like the energy user-led coalition that is bringing a new entrant to the South Australian segment of the electricity market. However, no idea is so good that it cannot go wrong in practice. The much broader set of options now proposed could fundamentally alter the way the National Electricity Market works and grows. They need to be fully coordinated with the energy market authorities and deeply consulted on with energy users and other stakeholders. The brief timeframe flagged for finalising this embryonic policy risks cruelling what could be a worthy effort.

"Overall, it is good to see that the Commonwealth is not retreating from the field of energy policy. Industry will work with the Government, the States and the market to foster the good and improve the bad," said Mr Willox.  

Media enquiries: Tony Melville – 0419 190 347