The States are responsible for high costs
What is clear is that in order to create a more affordable and stable energy system, the states need to lift their game — business as usual is not an option.
It is the states, not the commonwealth, that have in the past and still today own a significant proportion of generation, transmission and distribution assets. It is the states, not the commonwealth, that own the resources under the ground. And it is the states, not the commonwealth, that were granted constitutional authority for energy policy.
This is why the national electricity law, which underpins the National Electricity Market, is an act of the South Australian parliament that then applies across other jurisdictions.
So what should the states do to strengthen our energy system?
First, gas.
As Australian households and companies feel the pressure of a tripling in domestic gas prices over the past five years, states are sitting on an abundance of domestic reserves, refusing to allow them to be developed.
How can Victorian Premier Daniel Andrews sit by when a food processor in Echuca and a cold storage company in Cobram see their power bills increase by more than half year on year, threatening regional jobs and regional communities?
By locking up more than 40 years’ worth of domestic gas resources with restrictions on both conventional and unconventional onshore extraction, the Victorian government is looking to import gas from overseas.
How wacky is that?
Where the Turnbull government is empowered to act, it is doing so, namely taking steps to restrict gas exports to ensure more domestic supply.
But the long-term solution is for the states and Northern Territory to lift their moratoriums and bans. Indeed, Australia’s Chief Scientist, Alan Finkel, recommends in his blueprint for reform that states accept the science and approve gas projects on a case-by-case basis as a means of delivering lower prices, more investment and more jobs.
Second, competition.
In Queensland, over the first five months of this year, electricity consumers paid the highest wholesale prices in the NEM, 30 per cent above the average.
The reason for this is that generators in Queensland have been gaming the system. Ever since the former Queensland Labor government merged three government-owned generation companies into two in 2011, there has been evidence that market concentration and late bidding practices have contributed, in the words of the Australian Energy Regulator, to “spot market volatility”, code for higher prices.
With government-owned generators accounting for 65 per cent of capacity in Queensland, from 2014 until today the wholesale prices in Queensland have exceeded $5000 megawatt/hour on 30 occasions. Remarkably, this is almost double the next closest state, South Australia, with 16 incidents during the equivalent period.
The winner has been the Labor government’s coffers; the loser, Queensland consumers.
The Queensland state budget for 2017-18 forecasts a $1.5 billion windfall from the government-owned generators, a 110 per cent increase on the dividend contained in the 2015-16 budget.
An indication of how these high energy prices affect jobs is Gladstone’s Boyne aluminium smelter, where 1000 people are employed. The smelter was forced to cut hundreds of millions of dollars’ worth of production because of higher energy costs, prompting its general manager to say: “Electricity prices in Queensland and the recent bidding practices of generators are putting jobs at risk.”
With a state election imminent and under real pressure from regulators and industry, the Palaszczuk government has dropped its plans to further reduce competition by merging the two remaining generators into one and has belatedly given a direction to its generators to produce more. The fact the forward price curve for electricity has come down by 25 per cent since that direction is an indication of just how damaging the uncompetitive behaviour has been.