NSW turns up the energy shriek scale

New South Wales' litany of domestic energy problems could quickly spiral out of control without skillful handling by the O'Farrell government. Keeping any of the jilted groups happy will be a tall order.

New South Wales looms large on Australia’s domestic energy scene and its wrestling match with supply issues is a metaphor for the country as a whole.

You will get different answers from the state’s inhabitants about “What is our most important energy issues?”  It depends who they are.

For consumers, whether householders, small businesses, factory owners or hospital managers, the answer is the same: “It costs too much.”

This is a state where electricity bills have risen 80 per cent over six years and gas bills almost 60 per cent.

For large-scale manufacturers, this concern morphs into another: “Where is the gas coming from and what will it cost?”

Even large gas suppliers have differing views about the state’s gas future as demand on the east coast is driven up by the LNG developments. 

Origin Energy, for example, says that, while the gas supply and demand balance is likely to be "tight", it has confidence that there is sufficient flexibility and opportunity in the market for it to clear “at a price that reflects the value of gas during this transitional period.”

EnergyAustralia, on the other hand, frets that “after decades of stability, it is currently unclear where the New South Wales economy and households will source gas in the second half of this decade and at what price."

The company claims that, unless new supply is quickly negotiated, the state could become short on gas as early as next financial year.

To which AGL Energy’s chief economist, Paul Simshauser adds, “there will be upward pressure on gas prices over the coming years and genuine risks to the security of gas supply in winter peak periods in the latter half of this decade, adversely impacting state industry and the wider economy.”

These are all quotes from submissions to a NSW Legislative Assembly committee inquiry currently under way.

Politically, this issue has two prongs.

There are 1.1 million New South Wales households for whom both gas and electricity are important energy sources – the “dual fuel” homes – and they need continuing higher prices like a hole in the head.

(Ask a state politician what he or she worries about most in the energy space and the answer is almost always the fact that NSW’s 2.9 million households are highly irritated by the large role of energy in their cost-of-living pressures.)

And there large-scale manufacturers directly employing 15,000 people for whom gas supply is a key input – and the health of these businesses impact on a spectrum of others who provide them with goods and services.

According to Manufacturing Skills Australia, 30 per cent of the country’s manufacturing employment is located in New South Wales and it is all under the pump of higher energy prices. 

This is far from the end of the litany of energy issues confronting the state.

For Premier Barry O’Farrell and Treasurer Mike Baird, what they can glean from flogging off Macquarie Generation, the country’s largest electricity generator, and the remaining bits of Delta Electricity, plus whether they can get away politically with also selling the valuable transmission and distribution network businesses (worth perhaps $30 billion) are not minor questions.

For the green activists and at least some of the farming communities of the state, whether further coal seam gas exploitation should be allowed is the issue of issues. For some rural communities, whether their landscapes should be littered with wind turbines or covered with many hectares of large solar panels is no less controversial.

Lurking in the background is the awkward question of residential rooftop solar arrays, their subsidies, their impacts on networks and how the money-go-round gets shared. Ignoring this issue won't make it go away and, with the incoming Abbott government pledged to double the rooftop PV fleet, New South Wales is right in the firing line of the costs dilemma.

Which brings us round to the O’Farrell government fairly quietly releasing its “renewable energy action plan,” which is hanging its hat, it appears, on a Bloomberg prediction that $36 billion will be spent in Australia in the rest of the decade on renewable energy. The government policy, succinctly, is “we want to make sure we get our share.”

Bloomberg’s estimate is based on a national outlay of $18 billion on more wind farms (assuming the RET stays as is) and the balance on large and small-scale solar PV and solar thermal investment.

The O’Farrell government report reckons that NSW could increase generation from renewable sources (based on projects being built or having planning approval) to 13,000 gigawatt hours a year – up from 7881 GWh in 2012, the lion’s share of which is the output of the Snowy Hydro scheme (4776 GWh in 2012).

In passing, privatising the Snowy company is another piece of unfinished business left over from past Labor (state) and Liberal (federal) eras, with the business estimated to be worth a cool $5 billion (to be shared by federal, NSW and Victorian government owners).

On the shriek scale of confected political outrage, privatising the Snowy rates 11 out of 10.

Finally, and not a small matter, New South Wales is at the heart of one of the biggest challenges facing most east coast governments this decade: the deregulation of retail power pricing, the roll-out of new metering technology and the introduction of cost-reflective tariffs.

Badly handled, this process comes quite high up the shriek scale, too – ask the late Bracks & Brumby government of Victoria.

With the next state election looming in late March 2015, the O’Farrell government has quite a lot on its plate energy-wise and quite a lot that could go pear-shaped without deft handling.

Keith Orchison, director of consultancy Coolibah Pty Ltd, publisher of the This is Power blog and editor of OnPower newsletter, was chief executive of two national energy associations from 1980 to 2003. he was made a member of the Order of Australia in 2004 for services to the energy industry.