Inside energy prices
James Brown writes: Re. “Crikey says” (yesterday). The excellent report for Environment Victoria and your editorial suggest rent seeking by Victorian coal generators, and perhaps that is strictly correct. However, it may be “market” operation including exploitation of opportunities to game a contrived rather than true market.
In discussions, reported by a friend with career-long contacts in the industry, one of the senior staff in a brown coal generator said they did not want the prices paid for coal-generated energy to rise, because this might encourage competitors. The implication was the brown coal generator could raise prices if it wished, probably by gaming the market or other means.
The arrival of carbon tax provides a justification for higher generation prices. The Australian energy generated is about 320 billion kWh, i.e. 320 million megawatt hours, and the impact of carbon price is estimated at about $20 per megawatt hour i.e. $320 x 20 = $6400 million per annum.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
There was no intent for the government to use compensation to hold energy prices down; it could not afford to to do so, nor was that the aim of the Clean Energy Act. The government wanted to make lower carbon electricity sources more attractive. The purpose of the changes to tax and benefits to consumers was to reduce the direct impact on consumer disposable income and to make consumers realise that by reducing electricity consumption they can be better off.
In fact, all of this has come to pass, helped by the electricity distributors whose charges dominate retail prices and whose guaranteed 10% return on assets is a goldmine that hopefully will soon be brought to an end. Wind generators are now generating profits, consumers are reducing energy consumption, local generation by rooftop solar provides a real return on investment and electricity-generated CO2 emissions have dropped.
What has also been demonstrated is that compensation for risks to energy security was totally unnecessary, as asserted by John Garnaut and most expert opinion. Who bought into generating assets over the last 20 years unaware of the risks and opportunities presented by climate change?
The conclusion is that these artificial markets need constant examination, enquiries and revision. Administration by the Australian Energy Management Organisation (AEMO) and other easily captured institutions run by insiders is not sufficient. For a sample of the minute details but vast flows of money that is the daily business of AEMO, look at some of the vast public documentation.
Double trouble in WA?
Doug Carpenter writes: Re. “Labor insider: Barnett’s re-election not entirely certain” (yesterday). The article by Luke Walladge had Tim Hammond running for both Swan and Canning. Unless he had an identical twin brother by the same name, I think you would find that it was Alannah MacTiernan who ran for Canning. It would also be electorally illegal to run for two federal seats at the same time. Otherwise an interesting article.