13/08/2018

Consumers Aren't The Big Winners Out Of National Energy Guarantee

Fairfax - Nicky Ison*

As with any major policy change, it’s worth asking who benefits from the National Energy Guarantee.
Among the obvious answers are Prime Minister Malcolm Turnbull, Environment and Energy Minister Josh Frydenberg and the big three energy companies – AGL, Origin and Energy Australia.
For Turnbull and Frydenberg, the stakes are clear: a political win they can campaign on before the election.
Josh Frydenberg and Malcolm Turnbull. Photo: Alex Ellinghausen
However, the real winners are the big three. Last week, AGL recorded a 27 per cent increase in annual profit to $1 billion.
 In light of the oligopoly that exists in Australia’s electricity market, it’s reasonable to assume similar performance from AGL’s competitors.
The driving force behind these profits is of course the increases in electricity prices that are hurting consumers.
One of the reasons for rising electricity prices is lack of competition, particularly in the wholesale electricity market, of which the big three control 46 per cent.
As it stands, the NEG coupled with Turnbull’s low targets for emissions cuts does nothing to provide incentives for new generation to enter the market and compete.
Why would these companies want anything to change? It's no wonder that all three companies have come out backing the NEG and suggesting "it’s the only choice now".
The seeds for this were sown in 2014.
The accepted narrative is that the closure of Hazelwood power station is the key reason for a tightening between electricity supply and demand.
However, it is often overlooked that Tony Abbott’s 2014 attempt to kill the Renewable Energy Target brought the large-scale renewables sector to a standstill for two years.
 If the RET had been left alone, there would have been much greater electricity supply available when Australia’s dirtiest power station closed in 2017.
The electricity sector is set to fulfil nearly all its share of Turnbull’s 26 per cent emissions reduction target by 2020. What is the point of the NEG after that?
The modelling suggests that between 2020 and 2030, just 14 megawatts of new renewables generation will be built because of the NEG.
The NEG mechanism is perhaps the most non-transparent of all the policy mechanisms that could be used to align climate and electricity policy.
 It will use a registry of electricity contracts which are commercial-in confidence, so only the Australian Electricity Regulator and state regulators will be able to see whether retailers such as the big three are meeting their pollution reduction obligations.
This lack of transparency will again favour the big three, because they are best placed to enter into long-term electricity contracts.
Turnbull knows the big three energy companies are unpopular.
Only 39 per cent of consumers trust their energy company, a rating even lower than the big banks after they had their dirty laundry aired.
That is why Turnbull made a song and dance of calling energy company bosses to Canberra last year. However, those actions are theatre compared with Turnbull’s flagship energy policy – the NEG.
On Tuesday, when the NEG goes to the Coalition party room, Turnbull and his government have the opportunity to drive more competition in the electricity sector through embracing a higher emissions target.
As it stands, the 26 per cent target, the lack of competition and the policy opacity is a gift from Turnbull to the big three, ensuring that they will continue to enjoy windfall profits at the expense of consumers for years to come.

*Nicky Ison is the founding director of the Community Power Agency and a research associate at the University of Technology Sydney.

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