CLIMATE SPECTATOR: Energy retail villains?

The big three energy retailers have faced widespread criticism for playing spoilers to Australia's emissions reduction plans, but there are always two sides to the story.

Climate Spectator

There seems to be a large appetite out there to cast Australia’s electricity retailers as the villains in Australia’s efforts to reduce our emissions.

A few weeks ago I participated in a report on ABC’s 7:30 which implied that the failure of the Solar Flagships program was largely the fault of electricity retailers. Last week, we published a piece by Keith Orchison about a recent AGL paper criticising feed-in tariffs, which also provoked an angry response from readers about AGL. While Matthew Wright, a regular contributor to Climate Spectator, has been rather forthright in his criticism of Australia’s electricity retailers too. And last year I attended a conference where Christine Milne singled out Grant King in particular for strident criticism.

Perhaps I’ve been in this game for too long, and with a growing level of familiarity comes a degree of acceptance, but I don’t see the electricity retailers as villains so much as products of their respective assets. Often there is a simplistic understanding of the various electricity retailers’ business interests and motives, which can drive a misinterpretation of their actions.

I think this has been a particular problem for AGL. Until the acquisition of Loy Yang A, AGL’s asset base was very heavily weighted in favour of strong policy to reduce greenhouse gas emissions. And, for the most part, the company’s lobbying activity and intellectual contribution to the policy debate reflected this.

AGL has the best wind development portfolio of any company in the country and have played an extremely positive role in development of the Renewable Energy Target. AGL should be praised for a paper they produced which showed claims by Origin and International Power about huge hidden costs for wind power were self-serving thought bubbles lacking supporting evidence. Also their paper exposing the huge contribution of networks to rising power prices and the relatively small influence of a carbon price and renewable energy policies has been invaluable in exposing some of the ridiculous myths about the supposed cost of living pressures confronting middle Australia. Lastly I would point out that AGL has been reasonably positive about the introduction of a National Energy Savings Target.

The company’s submission to the government on this issue explicitly distances it from the ESAA’s effort to squash an initiative that will help alleviate pressures from rising energy prices. In a paper we publish today, written by AGL staff member Dr James Hunt, you’ll see how AGL is trying to use energy efficiency services as a hook to make customers more loyal and try to avoid margin destroying battles based solely on lowest electricity price. Also one should be careful to not confuse AGL with Origin in terms of its interests in gas. AGL does have an upstream gas business, but it is far smaller than Origin’s and it has far less to gain in growth of gas fired electricity generation.

Of course the acquisition of the remaining stake in Loy Yang A is likely to shift the balance of incentives faced by AGL to become less favourably disposed towards a strong carbon price and renewables support. That’s business even if it is unfortunate for good policy in this country.

In relation to Origin Energy, I was quite shocked by Christine Milne’s strident criticism of the company in 2011. Back in 2002-03, they actually argued in favour of an expansion of the federal government’s Renewable Energy Target. And prior to 2007, Origin was like a lone voice of reason amongst corporate Australia on the need to introduce a carbon price.

Yet, on reflection, the rapid growth of its upstream gas interests has led to a weakening in its advocacy for progressive greenhouse reduction policies. The turning point was in 2005-06 when Origin was one of the most aggressive lobbyists against the Victorian Renewable Energy Target. It has also continued to lobby against expansion of the National Renewable Energy Target.

The reason is very straightforward – the Renewable Energy Target has largely destroyed the need for new baseload (combined-cycle) gas fired power generation that would monetise its upstream gas resources. The best example is Mortlake power station in Victoria. This was intended to be a 1000MW combined cycle plant that they were hoping to get up around 2010-2012. Instead it will be a single-cycle gas peaker of 550MW that will consume a fraction of the gas that was originally envisaged. Grant King acknowledged this effect of the Renewable Energy Target in a recent KGB interview.

Origin’s investment in Geodynamics has not borne the fruit it was hoping and it seems unlikely that geothermal will play a meaningful part in meeting the 2020 Renewable Energy Target. Grant King has suggested in a Climate Spectator interview in August that the build-up of the target be slowed to 2020 and then potentially accelerated and increased post-2020. This is most likely because it plays well for the timing of its PNG hydro project. But really hydro should never have been included in the Renewable Energy Target in the first place considering its prospects for technological improvement and expansion are minimal.

Also Origin’s strong advocacy in the past for a "long, loud and legal” carbon constraint seems to have gone strangely silent in recent years. This is because Origin’s past strategy for monetising its gas resources by converting them into electricity, has been supplanted by a far bigger opportunity – liquefying the gas and selling it to Asia.

In terms of TRUenergy, it has been largely a prisoner of the Yallourn brown coal power station. While TRU has a significant gas fired power station portfolio, its upstream gas position is the weakest of the big three retailers. Also it lags AGL in terms of large scale renewables, and its solar PV business is inconsequential relative to Origin’s position as the largest seller of Solar PV in the country. TRU, unlike AGL and Origin, was always best served by delaying a carbon price.

In conjunction with International Power it has actively lobbied for the Coalition’s Direct Action policy instead of an emissions cap and trade scheme. And under Richard McIndoe’s chairmanship, the Clean Energy Council became muted on the introduction of a strong carbon price as well as an energy efficiency target. This is even though these were in the best interests the broader Council’s membership.

It should be acknowledged however, that TRUenergy never campaigned prominently against the Renewable Energy Target. This is probably due to its 50 per cent interest in the Roaring Forties wind farm development joint venture (since dissolved).

So overall the energy retailers have sometimes played a positive and sometimes a spoiler role in development of policies to support the clean energy sector. One needs to be careful in applying blanket labels to businesses that are regularly evolving and quite complex.


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