Competitive market is in all our interests
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