Unplugging the power discord

This year has been marked by a dispiriting debate about electricity supply and provision in Australia, with power price issues unresolved, gas prices rising and retailers bracing for deregulation.

We’re coming up to the Chinese Year of the Horse – a symbol of speed and success – which is a pretty ironic thought if you are focussed on domestic energy supply.

No matter where you look in terms of the power sector, the 2014 prospects are not exactly electrifying and expecting good news for gas users is at least one bridge too far. Actually, make that two bridges – or maybe it should be three.

Consumers are being told they can look forward to power cost pressures “moderating” – the favorite bureaucratic term at present; it sounds better, I guess, than “still going up.”

But they can also expect gas prices to keep rising and prognostications of where these may go keep getting gloomier.

Generators in the east coast market – the “NEM” that turned 15 in mid-December – are confronted by another year of over-capacity, the near-certainty of further demand declines and months (at best) of ongoing confusion about the political fate of both carbon pricing and the renewable energy target.

In this context, it will be interesting to see what New South Wales Treasurer Michael Baird can garner for Macquarie Generation and other power station bits he is getting closer to flogging.

Elsewhere, energy retailers are putting on a brave face about the prospects for further developments in deregulation, but the cowardly lion that is the New South Wales government, facing its next election in March 2015, is as likely to fudge as it is to boldly go – which is also the prospect for it moving to really resolve its coal seam gas impasse.

And you can read the entrails of the mid-December meeting of the country’s resources and energy ministers as long as you like but you wont find any portents of effective early action, either in rolling out smart meter technology and time-of-use tariffs.

Lots of words. Lots of earnest intentions. Just not real action any time soon.

The networks are heading in to a new round of regulatory reviews (to cover five years) of their capex and opex with their heads high – and a sinking feeling in their stomachs. 

Even as, via their lobby group, the businesses point to the efforts they are making to be more efficient, they know that politics require the Australian Energy Regulator, itself faced with being shaken up and torn away from its big brother (the Australian Competition & Consumer Commission), to apply the rough end of the pineapple to them.

Both the AER and the politicians have the woes of manufacturers top of their minds – and the factory types are going to keep up the pressure for the networks to be much harder done by.

Evidence of this comes in the latest outburst from the Energy Users Association, which greeted the AER’s new guidelines on allowed rates of return for networks more in anger than sorrow.

“The outcome falls well short of the changes needed,” said the association’s CEO, Phil Barresi, a former federal MP. “Once again users are called upon to wear the cost of network investment decisions when demand is declining and commercial and manufacturing sector survival is under threat.”

The regulator, said Barresi, has to deliver efficiency improvements and lower prices.

In this context, you can also expect the Newman and O’Farrell state governments to keep coming under pressure over the dividends and tax equivalent payments they take from the networks. “The networks continue to be too highly relied on by state Treasuries to prop up stressed budgets,” said Barresi.

Speaking of stress, the Queensland government seems to be inching its way towards opting to privatise its generators – and the trade union movement is itching for a fight on the issue. How far might this go in the new year?

And so it goes – is there a ray of light?

Short term (i.e., in 2014), probably not.

For the long term, the energy white paper process – green paper promised in May, final policy statement in September – may offer an opportunity for a sensible debate on the hard core of an energy strategy from now to, say, 2030, with a particular focus on the next five years.

(This is what the Queensland government is doing and the federal folk could do a great deal worse than follow its example.)

May, of course, is the operative word. 

The prospects for the EWP process being just another yelling match between polarised parties are not small.

What’s really needed is genuine clarity on the costs and consequences of implementing a transformative energy policy – and the production of a cohesive design for at least the next decade.

What odds would a bookmaker give you on this happening in 2014, given the form of the horses in the field for the past six years?

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.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles