energy market power lines

The latest report on the health of the east coast electricity market shows how the Coalition’s inability to determine a coherent energy policy is punishing consumers, hurting energy reliability and undermining the economy.

COAG’s Energy Security Board released its annual Health of the National Electricity Market report on Friday, in the wake of recent reports that investment in renewable energy in Australia had slumped 40% in 2019.

Renewables investment has been a relative bright spot in an economy that has seen overall investment flatline since 2017, with new spending on wind and solar farms and battery storage reaching over $9 billion in 2018.

But, contrary to claims by Scott Morrison that Australia is a “world leader” in renewables investment, that fell to just $5.6 billion in 2019, and the ESB’s report shows why.

Calling for a “a credible long term vision” to guide governance in the sector, the board makes clear where the impediment lies:

The lack of a strategic direction has led to stakeholders deferring investment in the maintenance and construction of new generation, especially in flexible dispatchable generation. This has increased reliability risks, undermined affordability and slowed progress on emissions reduction. It has also raised barriers to entry and constrained competition in the market. With political uncertainty investment planning becomes very difficult and this has impacts well beyond the electricity industry.

Remember that the Energy Security Board was established by the government itself in 2017, giving credibility and authority to its analysis that it is harming affordability, emissions reduction, competitiveness and system reliability through its deterrence of investment.

The board report shows that it isn’t merely investment in generation capacity that has been deterred. Investment in new transmission capacity has flatlined since 2015, at levels below not merely the 2008-14 period of high expenditure, but 2006-07 as well. Distribution expenditure has also fallen away since 2015 but lifted a little in 2018.

The lack of transmission and distribution expenditure is in turn deterring renewables investment, with the Australian Energy Market Operator in effect preventing renewable generation plants worth hundreds of millions of dollars from operating at full capacity because of reliability concerns, slashing revenue for owners.

The board report downgrades its assessment of the investment environment from “moderate” to “critical” since its last report, “because of issues being faced by some new renewable generators in connecting to the existing grid”.

The report also concludes that the current level of regulation of the market is badly flawed.

It is clear that the rules are barely manageable. They have grown to a point of incomprehension for most people and are far too prescriptive. A review in due course should change many rules to guidelines that can then be varied as technology changes. Far too specific data requirements that were set before the digital age are a good example.

The only bright spot was that laborious rule change processes have now been speeded up — though not fast enough for Victoria, which has signalled it will override national regulations to accelerate access to renewable generation.

The report notes that consumers are likely to see electricity prices lower by, on average, 7% in coming years “as new low cost renewable capacity enters the system” but “it is important to note the need for significant investment over the next decade in both transmission and distribution networks.” It’s only five years since then-prime minister Tony Abbott railed at renewable energy on the basis that it drove prices up.

At a time when the level of business investment is causing serious concern among policymakers, the government is halting billions of dollars of much-needed energy infrastructure investment by caving in to climate denialists, while spending its own money encouraging coal-fired power and gas development on an ad hoc basis.

The real victims are consumers and business, who are enduring higher prices and poorer reliability of service.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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