Vital calls loom

THE Northern Territory Government soon will make some of the most important economic decisions it faces in this four-year term: shaping the future of energy, a commodity vital to all Territory households and businesses.

The government will need to pick its way along a tricky path to solving the ‘energy trilemma’: delivering energy that is affordable and competitive, secure and reliable, and sustainable.

Key government decisions include on the best pathway for achieving its 50 per cent renewable energy target; on electricity market reform; on electricity tariffs; and on climate change policy.

While there are many enthusiastic advocates for renewable energy, incorporating much more of it into the Territory’s already fragile electricity systems creates both technical and cost challenges.

Fast introduction of renewables in the eastern and southern states has led to summer power shortages and blackouts.

Meantime, east coast power prices have been rising.

There are lessons here for the Territory. Knowledgeable organisations are already sounding warning bells.

The government-owned Territory Generation has warned its viability as a business is threatened.

Rapid renewables take-up is reducing use of its generators and therefore its revenue. At the same time, those generators are needed to back-up renewables to maintain supply security during the day, and all power at night.

Part of the TGen response has been to write off a third of its valuation in 2018, seek a taxpayer-funded bailout, reduce costs, raise wholesale electricity prices, and pay no dividends to government for the foreseeable future.

Taxpayers and consumers are paying for this.

The Utilities Commission, independent regulator for the Territory, urges a staged introduction of renewables to allow for less risky transition closer to 2030 than 2019.

This will help to ensure supply security and manage costs of too-rapid renewables introduction. Even then, the UC warns that investment in new gas-fired generation will be needed in addition to renewables to ensure the lights stay on 24/7 in all weather.

That’s going to increase overall costs to consumers or taxpayers, or both.

Faced with the complexities of resolving the energy trilemma, government could be tempted to wind back longstanding electricity market competition, involving the private sector, to be able to exert more control. That would be calamitous for private sector investor confidence, and not just in the electricity sector.

The 2019 Australian Infrastructure Audit by Infrastructure Australia says unsurprisingly that energy affordability has become a major concern for users.

Costs in the Territory have risen less than in most other states, however. That’s because of government caps on price rises, plus large taxpayer subsidies – this year $92.5 million for electricity and an additional $14 million for gas to generate it. That highlights another component of the wicked problem facing the government: the subsidy applies to all household consumers and small business, but the consumers who get the most out of it are those who can afford to use a lot of electricity or put solar arrays on their roofs.

Imagine though what better uses $106.5 million worth of annual subsidies could be put to! The Territory’s response to climate change will also present some challenges for government.

Unlike the rest of Australia, electricity generation, which government can influence, is quite a small contributor to greenhouse gas emissions. Emissions from natural processes plus agriculture make up more than half of the Territory’s emissions.

Expansion of gas extraction and processing from both onshore and offshore sources will generate a lot more emissions in the future.

The Territory needs to play its part in global emissions abatement but its options are limited if it’s to continue to grow its economy.

Solving the energy trilemma requires that all three components – affordability, security and sustainability – are addressed simultaneously.

That’s going to be one of the most difficult and far-reaching challenges the government will face for the remainder of its term.