Com­pet­i­tive mar­ket is in all our in­ter­ests

The Weekend Australian - Review - - Clean Energy - BRAD PAGE

BY the end of 2008, the fed­eral Gov­ern­ment will make the de­ci­sions to set Aus­tralia on a new en­ergy and green­house gas emis­sions course. Busi­ness- as- usual will no longer pre­vail. Real and en­dur­ing emis­sion re­duc­tions from the Aus­tralian econ­omy will be a fea­ture; on­go­ing and ever lower emis­sion tar­gets are cer­tain.

This means a sea- change in the mix of fu­els, tech­nolo­gies and cap­i­tal equip­ment to pro­vide en­ergy to homes and busi­nesses. It also means price in­creases. How big? No one knows yet, but fully com­pet­i­tive mar­kets will drive the low­est cost for the ben­e­fit of en­ergy pro­duc­ers and con­sumers alike.

That’s why the En­ergy Sup­ply As­so­ci­a­tion of Aus­tralia, rep­re­sent­ing 44 elec­tric­ity and nat­u­ral gas com­pa­nies, en­dorses the Gov­ern­ment’s de­ci­sion to im­ple­ment an ef­fi­cient emis­sions trad­ing scheme. This will al­low the en­ergy in­dus­try to source low­est cost so­lu­tions to the green­house re­duc­tion chal­lenge. It will be a large mar­ket too, with es­ti­mated val­ues of be­tween $ 4 bil­lion and $ 20 bil­lion per an­num in the years to 2020.

Re­new­able en­ergy is also be­ing di­rectly and strongly en­cour­aged by the Gov­ern­ment through a manda­tory tar­get. Th­ese zero emis­sion tech­nolo­gies have to date been costly com­pared to fos­sil fuel gen­er­a­tion, but with the ad­vent of a car­bon price and the 20 per cent manda­tory re­new­able en­ergy tar­get — com­plete with its own mar­ket for cer­tifi­cates — their day has come.

Th­ese two new mar­kets will op­er­ate along­side each other and the ‘‘ na­tional elec­tric­ity mar­ket’’ ( NEM), the com­pul­sory whole­sale mar­ket that op­er­ates across Aus­tralia ex­cept for WA and the NT. That mar­ket each year is turn­ing over more than $ 8 bil­lion, and ris­ing.

A sig­nif­i­cant ques­tion that has not been openly con­sid­ered is how ef­fi­ciently th­ese three mar­kets will re­late with each other. We don’t know. What we do know is that we are not in good shape to make sure it all works well — to­gether.

The heart of the prob­lem is that the ex­ist­ing ar­range­ments for the NEM and for gas mar­kets re­main the sub­ject of in­com­plete re­form and fun­da­men­tal gaps.

Since 2003 the Min­is­te­rial Coun­cil on En­ergy has been pur­su­ing a re­form pro­gram sched­uled to take three years. Key mea­sures re­main un­fin­ished; some aren’t likely to be done with un­til next decade.

We are yet to achieve na­tional ar­range­ments for the li­cens­ing of en­ergy re­tail­ers and dis­trib­u­tors, some states don’t al­low all con­sumers to choose their en­ergy re­tailer, there is an in­com­plete approach to en­ergy net­work de­vel­op­ment, and all states con­tinue to reg­u­late en­ergy prices for res­i­den­tial con­sumers de­spite all other facets of the mar­ket be­ing highly com­pet­i­tive.

In the worst cases, the elec­tric­ity prices that res­i­den­tial con­sumers pay are be­low what it costs to pro­duce and de­liver.

Yet in a few short years the en­ergy world will be turned on its head.

Elec­tric­ity and gas prices will rise, and sub­stan­tially, to sup­port the in­vest­ment in new tech­nol­ogy and to send con­sumers the sig­nal to change their con­sump­tion lev­els. Yet en­ergy prices for con­sumers are still reg­u­lated by state gov­ern­ments and likely to be that way be­yond 2010, with Vic­to­ria the stand- out ex­cep­tion.

En­ergy net­works will have to grow and change to con­nect the new re­new­able en­ergy gen­er­a­tors and the in­creased num­ber of gas­fired gen­er­a­tors. Huge in­vest­ments will be in­volved, yet plan­ning ar­range­ments are still be­ing de­vel­oped.

En­ergy re­tail­ers will be locked in fierce com­pe­ti­tion to source the low­est cost en­ergy while meet­ing the green­house abate­ment tar­gets, yet the con­di­tions un­der which they op­er­ate are de­cided on a state- by- state ba­sis and not planned to be changed be­fore 2010.

Tak­ing it easy on the en­ergy mar­ket re­form task is a risk- laden course. Chang­ing the face of Aus­tralia’s en­ergy sup­ply sys­tem to meet the green­house chal­lenge re­quires pre­dictable pol­icy set­tings from all lev­els of gov­ern­ment. It de­pends on in­vestors hav­ing the con­fi­dence to in­vest bil­lions of dol­lars, and it re­quires openly com­pet­i­tive and ef­fi­cient mar­kets to de­liver it seam­lessly, na­tion­ally and at least cost for con­sumers.

With the loom­ing im­ple­men­ta­tion of car­bon mar­kets, fin­ish­ing the job of re­form­ing the elec­tric­ity and gas mar­kets — and quickly — is es­sen­tial. Time is against us.

Brad Page is the chief ex­ec­u­tive of­fi­cer of the En­ergy Sup­ply As­so­ci­a­tion of Aus­tralia

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