CLIMATE SPECTATOR: The hazards of power politics

Stop-gap solutions on power prices might appease the electorate, but industry will remain in limbo until voters are told some harsh truths.

Climate Spectator

On Monday, Business Spectator ran a piece by Keith Orchison in which he laid out how in the Western Australian state election the Labor Party is using power price rises as a political weapon to bludgeon the Barnett Liberal government. Orchison was absolutely right to complain.

Western Australian power prices were frozen for close to a decade while the costs of fuel and peak demand rose quickly, such that prices were completely divorced from costs (Barnett's power price blackout, March 4). Even after price rises over the past few years, they are still at unsustainably low levels. While that might be politically popular, it’s a fool’s paradise. These voters might benefit as electricity consumers but they still have to pay via their taxes.

Yet the thing that makes you throw your hands up in complete despair is that Liberal leader Colin Barnett did precisely the same thing when he was in opposition. Unfortunately, this is symptomatic of a far wider malaise in Australian politics.

Over the last few years politics has become mired in a particularly immature form of policymaking and debate, something Lindsay Tanner insightfully diagnosed as a "sideshow”. Politicians have always been prone to populism, but in the last six years, across all sides, they seem utterly incapable of standing up to voters and telling them some harsh truths. Instead, they pander to a sense of victimhood in the electorate that life is unfairly tough.

It’s like a bunch of parents unwilling to say ‘no’ to their tantrum-throwing two-year-old. The end result is policy that actually makes things worse in many respects for households.

We’ve seen this writ large in electricity over the last two years. This all hit home to me during a conference discussion involving a journalist from The Daily Telegraph and another formerly from The Sydney Morning Herald.

The journalist from The Daily Telegraph was unashamed that they had executed a dedicated campaign against electricity price rises. As he saw it, they had stood up for the needs of numerous electricity consumers who had been ignored by government and electricity companies.

And you know what – it was right for The Daily Telegraph to highlight this problem. Consumers should be angry about the price rises because a substantial proportion of the rise was due to poor decisions by government.

Unfortunately, while The Daily Telegraph and other newspapers have done a great job of fostering community anger, they have done a particularly poor job of directing that anger in productive directions. The end result is that politicians have grasped in a panic for levers that won’t address the fundamental causes behind the price rises – such as restructuring network regulation, altering the way network capacity is priced and encouraging greater energy efficiency. Instead, we’ve seen stop-gap solutions that are quick to implement.

The Queensland government, for example, imposed price freezes. Then, guess what? The next year the regulator put forward greater price rises to make up for the gap, causing even greater bill shock.

The Victorian government imposed a moratorium on time-of-use pricing, temporarily halted the roll-out of smart meters, and then required peak pricing to be smeared from 1900 AEDT to 2300 AEDT, making it impossible to shift demand out of the peak.

New South Wales flat-out rejected recommendations from the Australian Energy Market Commission.

The list goes on. And then, of course, there are the scapegoats. Carbon pricing and renewable energy are given most of the blame for price rises, when 85 per cent of the increases are due to poor decisions by electricity regulators and the unwinding of electricity subsidies.

The use of carbon reduction policies as scapegoats has thrown the electricity sector into a state of investment limbo. Energy retailers are holding out on signing power purchase agreements because neither Labor nor the Coalition makes it clear whether they’ll leave the renewable energy target as is or if they’ll change it, and in what way.

Meanwhile, uncertainty about the carbon price makes it impossible to invest in conventional generation other than expensive-to-operate gas peakers. Abandoning these policies will create such investment uncertainty and heightened perceptions of risk amongst financiers that it has the potential to actually drive prices up, not down, as shown by AGL analysis here and here.

So what do consumers do? Depending on the state, somewhere between one in 10 or two in 10 households go out and buy solar panels to escape price rises, thereby making life even tougher for politicians trying to hold back the inexorable tide.

Politicians have resorted to these types of short-sighted solutions because that’s what they heard the electorate and the newspapers asking for. But do the electorate, and the journalists claiming to represent them, spend all that much time researching the electricity system and its challenges?

Journalists, for the most part, are asked to cover an incredible breadth of subject areas, and do so with extremely little time. The journalist formerly from The Sydney Morning Herald explained how subject-matter, specialist journalists with a focus on, say, science are disappearing. What’s easiest for journalists, and typically popular with readers, is not informing the readers so much as reinforcing their pre-existing beliefs and interests.

A media that reflects widespread and deeply held anger in the community plays a vital role in an effective democracy. Politicians should, and thankfully do, pay heed to that anger.

But they must also be brave enough and wise enough to act not just on the basis of anger, but also detailed research and the advice of learned professionals. Otherwise they’ll actually fail the interests of those angry people, and the anger will just resurface later to bite politicians on the bum.