Car­rot, not stick, will win change

The Weekend Australian - Review - - Clean Energy - CAMERON O’REILLY

PUB­LIC con­cern about cli­mate change has in re­cent years trans­lated into higher sales by Aus­tralia’s clean en­ergy re­tail­ers. Cus­tomers of ac­cred­ited ‘‘ GreenPower’’ grew by 6000 a week in the fi­nal quar­ter of 2007 and by the end of the year some 724,000 cus­tomers were con­nected to GreenPower — trans­lat­ing into 349,000 megawatt hours of gen­er­a­tion.

Many of those cus­tomers pay a pre­mium to sup­port cleaner en­ergy, re­flect­ing a will­ing­ness to vol­un­tar­ily con­trib­ute to the fight against cli­mate change. Those cus­tomers amount to around 8 per cent of po­ten­tial users. Growth con­tin­ues un­abated.

Hid­den in the na­tional fig­ures are some strik­ing out­comes. In Vic­to­ria over 265,000 house­holds, or nearly 15 per cent of res­i­den­tial cus­tomers, have con­nected to GreenPower. By con­trast in NSW, de­spite its higher pop­u­la­tion, the fig­ure was 189,000 house­holds. Rather than be­ing a re­flec­tion of height­ened con­cerns in Vic­to­ria, it is more likely that the dif­fer­ence stems from the more com­pet­i­tive re­tail mar­ket ex­ists in that state.

Re­tail­ers un­der poli­cies of Full Re­tail Com­pe­ti­tion ( FRC) must ac­tively com­pete for mar­ket share as all cus­tomers are con­testable. In Vic­to­ria this com­pe­ti­tion has seen up to 25 per cent of cus­tomers switch­ing sup­plier each year.

The switch­ing, or ‘‘ churn’’, is largely in re­sponse to ex­ten­sive in­dus­try mar­ket­ing to cus­tomers. Through that mar­ket­ing, sup­pli­ers can dis­tin­guish them­selves by of­fer­ing lower prices, bet­ter ser­vice or more en­vi­ron­men­tally con­scious ‘‘ green’’ prod­ucts. Vic­to­ri­ans have more re­tail­ers bring­ing Greenpower to their doorstep.

While to date the re­sponse by house­holds to sup­port­ing cleaner en­ergy has been vol­un­tary, the Na­tional Emis­sions Trad­ing Scheme ( NETS) is about to rev­o­lu­tionise the gen­er­a­tion sec­tor in favour of cleaner sources. As a re­sult, all house­holds will be sup­port­ing cleaner en­ergy, and in the process pay­ing higher prices.

Through the cre­ation of the Na­tional Elec­tric­ity Mar­ket ( NEM) and the de­vel­op­ment of com­pe­ti­tion in gen­er­a­tion and re­tail, the eco­nomic di­rec­tion of ear­lier re­forms was in favour of the low­est- cost en­ergy sources. That en­ergy ar­chi­tec­ture will re­main in place, but the iden­tity of the low­est- cost en­ergy source will change once the new car­bon mar­ket is es­tab­lished.

By putting a price on car­bon, the NETS will overnight al­ter the com­pet­i­tive po­si­tion, or the dis­patch or­der, of gen­er­a­tors op­er­at­ing in the NEM. Coal- based gen­er­a­tors will find a price on car­bon emis­sions takes away their com­pet­i­tive edge against lower emis­sion sources such as gas and wind.

Most will wel­come this de­vel­op­ment as the price to pay for re­spond­ing to cli­mate change. It does mean, how­ever, that the dis­tri­bu­tional im­pacts of the NETS will be un­even. There will be win­ners and losers in the gen­er­a­tion sec­tor and the higher level of over­all prices will hit lower- in­come house­holds hard­est. This has been ac­knowl­edged by Gov­ern­ment cli­mate change ad­viser Ross Gar­naut.

For re­tail­ers it will be a chal­lenge to ex­plain the ris­ing prices to cus­tomers caused by the NETS. As they do with whole­sale prices, re­tail­ers will help con­sumers man­age the volatil­ity of car­bon mar­kets but passthrough mech­a­nisms will be cru­cial. Such mech­a­nisms will make re­tail price reg­u­la­tion in­creas­ingly il­log­i­cal.

Higher prices are likely to trans­late into more fo­cus on en­ergy ef­fi­ciency to off­set the over­all im­pacts of more ex­pen­sive en­ergy. Re­tail­ers through their cus­tomers have the best un­der­stand­ing of en­ergy ef­fi­cient prac­tices, al­though they do not in­flu­ence the ap­pli­ance pur­chas­ing and build­ing de­sign de­ci­sions that cus­tomers take.

Nev­er­the­less, in a world of more ex­pen­sive en­ergy the role of a re­tailer is likely to change from mar­ket­ing GreenPower to one of help­ing cus­tomers ad­just. Mar­ket in­cen­tives for en­ergy ef­fi­ciency rather than costly and pre­scrip­tive gov­ern­ment pro­grams will achieve the best out­comes in this new world of en­ergy re­tail­ing.

Cameron O’Reilly is Ex­ec­u­tive Di­rec­tor of the En­ergy Re­tail­ers As­so­ci­a­tion of Aus­tralia

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.