How to solve Australia's energy policy dilemma

In 2015, parliament's biggest challenge will be to confront the supply issues facing the east coast electricity market. But it won't be easy.

Late last year the chairman of the Australian Energy Market Commission described the east coast wholesale electricity market as being at a crossroads. One of the biggest questions for 2015 is whether it will be able to shift in any meaningful way in a better direction -- and just what direction might this be?

This not just a discussion point for energy nerds. The so-called national electricity market (which doesn’t serve Western Australia or the Northern Territory) is the primary source of an essential service for 9.5 million customers with the generators’ annual turnover running at $10.8 billion.

Customers are not to be confused with people. The NEM delivers electricity to 20.6 million of Australia’s population of 23 million. Every sweaty one of them is dependent on its electrons in our searing summer weather – plus just over a million businesses.

Viewed in this light, the energy industry’s parting message to us all in 2014 is not trivial: “The entire generation sector is unbankable as a result of constant policy changes and distortions from successive interference by governments.”

Unbankable means that, regardless of type, there is no finance available for new generation because, says the Energy Supply Association, of “chronic over-supply and weak wholesale prices meaning that any project will only lose money”.

The problem for modern Australians is that a breakdown in generation is unthinkable. One has to go back to the early 1970s and the era of Neville Wran for the last time there was a major failure of east coast supply related to power stations rather than regional network problems.

But the networks, source of so much contention in recent years, are just poles and wires without electrons to flow through them.

The further problem is that a significant generation issue belongs in the “boiling frog” category. It is unlikely to happen overnight without a natural catastrophe (think Fukushima) but it can creep up on us through a failure of adequate planning over years (which is what Wran inherited from his Coalition predecessors).

The nation’s energy ministers apparently don’t want a bar of any such negative thinking.

Meeting in Adelaide in mid-December as the CoAG Energy Council, they declared the design of the NEM “robust and efficient” and dismissed the thought of radical change to it.

Nor are they prepared to consider supporting the exit of aged, emissions-intensive power plants from the over-supplied market. “We oppose the transfer of the costs of retiring assets on to consumers or taxpayers,” they said.

However, the ministers are politicians.

There always has to be a get-out-of-jail card to hand, so they have tasked the AEMC with “further investigation in to appropriate pathways to ensure the exit of generators does not jeopardise power system security”.

The commission’s issues paper for this job and the subsequent submissions to it from stakeholders with all sorts of axes to grind will be well worth reading.

It’s hard to see a report being ready for the Energy Council meeting in mid-2015, so the “crossroads” issue is unlikely to be fully considered by ministers until December.

Just how all this fits in with the timing of the Abbott government’s energy white paper is a good question. It also applies to the reports commissioned from the Climate Change Authority on an emissions trading scheme and a post-2020 abatement target for Australia.

And then, of course, there is the small matter of the renewable energy target, which is at the centre of the NEM over-supply issue, and the rolling maul that passes for consultation on it between the Coalition and Labor.

Are there any good grounds for supposing that the RET row will be resolved between now and, say, the federal parliament’s winter break?  After which, of course, the politicians will go in to federal election politicking mode, having spent the first half of 2015 caught up in politicking in New South Wales and Queensland for the state elections.

Is there a case to be made for the Abbott government to come out and say that the energy white paper process is going on the back-burner until some key issues have been resolved?

Is this what the Energy Policy Institute had in mind when it told the federal government in its response to the green paper: “The task of formulating a reliable energy policy is vital to national well-being (but) it is more important to get it right; we caution against rushing it.”

I’d like to offer a more radical thought to both Tony Abbott and Bill Shorten. Rather than continue to play politics with electricity supply issues, how about agreeing to shift the white paper process specifically to focus on the power sector, make it a project for the CoAG first ministers, set up an independent expert task force appointed through the council and task it to report by November?

The prime minister, premiers and chief ministers could then convene a special meeting -- that’s how Paul Keating led the process to create the NEM in the early 1990s -- and give the country a settled power policy before the nation votes in 2016.

In what way would this be a worse path out of the crossroad than what is going on at present?

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, 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.