Incoming AGL Energy chief executive Andrew Vesey will find his management committee are an academic bunch — check out the post-nominals here — and there is even a professor, Paul Simshauser, the chief economist and corporate affairs chief for AGL Energy, who also juggles an unpaid post in the finance department at Griffith University.

Simshauser is not exactly high profile, but his name pops up over and over in Australia’s dysfunctional energy debate. For mine, the professor often sheds more heat than light, but his prognostications are closely followed in energy circles, particularly in government, where his elaborate defence of the incumbent power companies he works for tends to turn into very public policy.

Simshauser was at it again yesterday with a “working paper” claiming Queensland’s electricity grid was caught in a death spiral of worldwide policy significance, caused by hidden subsidies to owners of rooftop solar panels and air-conditioners.

The professor went further in The Australian Financial Review (which neglected to mention the air-conditioners), branding Queensland’s solar feed in tariffs a “scam”. This language is over the top, for a start: feed-in-tariffs, which pay householders for the surplus electricity their rooftop panels generate, are not a scam; they are driving Germany’s energy transformation, for example, and are a well-recognised policy mechanism, with 65 schemes in place round the world.

Simshauser’s actual arguments are too dull and technical for this piece. Suffice to say that, despite the paper’s usual infusion of impressive citations of Simshauser’s own work, mathematical formulas, graphs and charts, topped off with a sprinkling of Latin (ceterus paribus is a favourite), the analysis is not conclusive but was immediately rebutted on Climate Spectator and Renew Economy.

Leaving the debate to the energy aficionados for now, let’s look at the working paper itself, No. 45 in a series posted on AGL’s own not-very-popular blog — is it anything more than a long-winded AGL press release? Rather than being subject to the more rigorous “blind” peer-review, for example, the working papers are considered by the AGL Applied Economic and Policy Research Council — in effect, friends of the company — who might make some constructive comment but do not endorse the method or findings of the papers.

The paper should also be seen as part of a long campaign by Simshauser against feed-in-tarriffs and renewable energy, which threatens the revenues of coal-fired generators.

In working paper No. 25, published in 2011, Simshauser and his offsider Tim Nelson, AGL’s head of economics policy and sustainability (and, by the way, an adjunct associate professor at Griffith), called feed-in-tariffs a “regressive form of taxation” that generated “windfall funding to specific asset owners, who then internalise the benefits of the solar PV system”. Part of their case was to use an opaque analysis of a sample from AGL’s own customer database to argue that rooftop panel owners tended to be high-income earners, with 55% of customers earning more than $62,000. But this chart below in the paper puzzled some in the solar industry, who wondered why it lumped together the income bracket between $62,000 and $104,000. Even accepting AGL’s data, it would be quite easy to make exactly the opposite argument, that 88% of households installing solar earn less than $104,000 — hardly wealthy in a city like Sydney. The truth is that solar panels have been hugely popular among lower-income households in Australia’s suburbs and regional towns, because they help reduce soaring electricity bills.

Working paper No. 30, by Nelson and Simshauser and published in 2012, picked up the same themes but was subject to a comprehensive demolition by Warwick Johnston, MD of SunWiz Consulting, who picked up a “laughable” litany of errors and concluded:

“Though posing as an academic paper, their calculations require more rigour. Their language betrays a lack of impartiality: ‘excessively generous’, ‘too successful’, ‘surely make for sobering reading’, ‘it has been surprisingly well documented in academic literature’, an oversupply of higher cost renewable capacity was purposefully engineered’, ‘would represent courageous assumptions at best’. It is quite concerning that employees of a large utility have created an academic paper with so many shortcomings. Clearly this document cannot be relied upon to factually report the situation and should be read with as much scepticism as any other document that will be employed to lobby government.”

Another running theme, going right back to Simshauser’s days as chief executive of Babcock and Brown Power, a satellite of the failed investment bank, is to argue long and loudly for handouts of taxpayer money under a transition to cleaner energy — the old “wounded bull” theory, which argued coal-fired generators under a carbon price faced depreciated asset values and higher costs they could not pass on and must be kept whole with hefty compensation and free permits or else they would run down maintenance and withhold supply. The argument was swallowed whole by then-energy minister Martin Ferguson, who later paid more than $1 billion in cash compensation and set aside generous free permit allocations for brown coal generators, including AGL, then part-owner and now full owner of Loy Yang in Victoria’s La Trobe Valley. Despite the windfall gain, AGL’s working paper No. 43, published in August, is still arguing for more handouts to remove exit barriers for coal-fired generators that have proved surplus to requirements in a market suffering falling electricity demand.

These recurring themes in AGL working papers are transparently self-serving — of course AGL does not benefit from the lower wholesale prices and network revenues that solar panels deliver, even if consumers do; of course AGL would like taxpayer handouts in compensation for the closure of clapped-out coal-fired generators past their use-by-date. It is pseudo-academic, AGL-onomics.

Energy expert Alan Pears, senior lecturer in the environment and planning faculty at RMIT, told Crikey Simshauser was “among the more thorough economists working the space, but he comes from an energy utility perspective. There is an assumption underlying the whole discussion that they have an entitlement to recover their costs.”

Another highly assumption that is easily challenged — and one with important implications for the pending privatisation of the poles and wires in NSW and Queensland — is that “the asset values being used by the electricity industry are fair and reasonable and are a societal cost that should be recovered,” Pears says.

Most importantly, Simshauser and his colleagues at AGL are not taking into account the pace of innovation and change in the electricity sector, which will introduce smart metering, demand management and energy storage to households in the next few years, and will help ease rapid introduction of rooftop solar to the grid.

Pears said: “[Simshauser] is coming from a traditional energy utility mind-frame, which tends to see these emerging problems but not necessarily see that the next stage of the transformation will mean that a lot of the problems that he perceives now can be dealt with in ways that, historically, energy economists have not had available to them.”

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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