Business, be careful when you wish for reform

Business lobby groups have been demanding action on energy policy, but without a concrete set of proposals for Tony Abbott they risk stepping into the fire.

It’s interesting how one thing leads to another.

This particular trip started with a commentary piece on energy policy in The Weekend Australian by Business Council of Australia chief executive Jennifer Westacott. I stared with astonishment at a sentence that read: “If we want reliable and competitively-priced electricity we need to increase supply.”

“What on earth made the BCA say that?” was my immediate reaction, given the seriously over-supplied state of the east coast electricity market. It’s estimated that there are about 4,000 megawatts of superfluous baseload generation capacity in the system at present.

Who is going to foot the bill for extracting this capacity from the market? 

The Grattan Institute’s Tony Wood is not the only one reacting sharply to suggestions that government should pay (or contribute to) the cost of shutdowns. He argues that the writedown of asset values should be met by shareholders, a few of whom are investors in companies included in the Business Council membership.

Before launching in to a 'what the hell' commentary for my This is Power blog or Business Spectator, I thought I should check the council’s website. Sure enough, it had also put up the Westacott commentary, only this version stated: “we need to increase gas supply.”

Pleased that the council hasn’t lost its marbles, I was set to move on, before spotting a speech by the organisation’s recently re-appointed president, Tony Shepherd, delivered at the end of September to a University of Wollongong forum.

In it, Shepherd — dwelling on population growth and the national infrastructure deficit — had a message for the body politic: “Get on with it. Make decisions. Get work under way. No more task forces. No more time wasting.”

In this talk, he mainly focused on construction – road, rail, a new Sydney airport and so on. But laid alongside Westacott’s comments, the common thread is the urgent need to talk less and implement more.

Just how hard this is to actually achieve is immediately thrown up by the fact that Westacott’s argument is for more planning – achievement, in fact, of integration of Australia’s energy policy. By this, she means the whole gamut from driving towards more LNG development, meeting east coast domestic gas needs and completing “NEM” reforms to deliver reliable and competitively priced electricity.

This comes at a time when the Australian Energy Market Commission is calling for development of a 10 to 15 years strategic plan for domestic gas production and marketing.

In Queensland, we have the Newman government trying to create a 30-year electricity strategy with what appears to be a rolling five-year horizon.

Meanwhile, the Australian Chamber of Commerce & Industry, the Business Council’s rival for the ear of the federal government as the key voice of business, is taking a hard line.

In a commentary published during the election campaign, clearly anticipating Tony Abbott’s big win, ACCI wants abolition of the carbon price, the renewable energy target “and other green programs” and, yes, a review of regulation to “place more weight on the views of energy users.”

The association also wants “a far more neutral policy” for choices of the fuel mix for electricity and an abandonment of “the deliberate skewing of policy away from less-costly options including modern, coal-fired generation.”

This “don’t just stand there, do something” approach both organisations are pushing undoubtedly has its merits.

There is a strong case for completing east coast privatisation of electricity supply assets. For cutting through the cat’s cradle of multi-government project approval regulation. For attacking peak power issues through rolling out new metering technology and allowing time-of-use charges. For deregulating retail electricity prices. For resolving the mess the RET has become.

But there is also a strong case for governments to ensure that they know where they are heading and that they are carrying at least a majority of the community with them.

The last time our governments decided to “do something” big time with electricity supply, they rewrote the power network regulations to drive investment in infrastructure.

That was in 2006 and, seven years later, the current crop of pollies are struggling to cope with the impact of a $42 billion capex outlay that has almost doubled power bills, made worse by a number of jurisdictions allowing trade unions to persuade them to substantially increase network reliability standards, adding to the costs.

Equally, a form of collective madness over solar energy has led to a situation where the unforeseen consequences of impacts on a GFC-afflicted power market and on new stresses for networks plus the subsidy cost burden thrown on to the bulk of households has created another cat’s cradle. This one is even more entangled because the solaristas are striking back by calling (not without reason) for the impacts of the huge, decade-long splurge on air-conditioning, and its impact of network costs at the expense of those without air-cons, to be taken in to account too.

And so on.

It seems to me that a considerable part of the new energy agenda can be given momentum by Tony Abbott and his team very carefully assembling an energy action plan for the Council of Australian Governments and then providing an effective incentive for the other jurisdictions to actually do what they promise.

Julia Gillard ranted less than a year ago about taking a big stick to the premiers at CoAG to push her power price agenda.

Well, that’s history.

What Abbott needs, I suspect, is a big carrot – like the one Keating waved to get quite a lot of reform accomplished in the early 1990s.

But we need a workable plan before the carrot.

The bottom line?

The Business Council leadership is undoubtedly right that things can’t go on as they have for most of the past decade. But they need to also remember to beware what they demand — they may get it.

Collectively, can they, and the other industry associations, come up with one set of proposals for an action agenda on energy in time for Tony Abbott to digest it and then sell it effectively to the CoAG meeting he is planning before the year’s end?

They don’t have long to do it.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.