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Energy divide: Frontier attacks AEMO, wants it abolished

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Frontier Economics, one of the most prominent and influential energy consultancies in the country, has launched an extraordinary attack against the Australian Energy Market Operator, accusing it of being a “danger” to investors and calling for it to be abolished.

In a speech in Melbourne last week, and since posted on his web-site, Frontier founder and boss Danny Price accuses AEMO and its “chairwoman” (presumably CEO Audrey Zibelman) of a “power grab” and over-reaching on emissions reduction targets.

He says:

“There are other changes that are necessary. The Australian Energy Market Operator poses a clear and present danger for investors. Recently, the Chair of AEMO boasted that she could achieve bigger reductions in emissions than either the government or the opposition policies contemplate.

“While this boast delighted the Greens, given it was made in the context of AEMO complaining about the restrictions of the National Electricity Rules on their power, it ought to alarm any right thinking policy makers that may be left in government about what is happening to a key NEM institution.

“Aside from the cancerous effect lack of public accountability has on policy making generally, the fact that one of the key NEM organisations feels it appropriate to make such an audacious, public grab for power is nothing short of alarming for investors. In freeing AEMO of accountability all Australians will be enslaved to their goals.”

Price’s attack on AEMO lays bare the thinly disguised but massive schisms within Australia’s energy institutions over the governance of Australia’s energy markets, and how they should be reformed, and on the integration of new technologies.

In his speech, Price also attacks the federal government’s proposed Snowy 2.0 (leave it to the markets, he says), and urges the states to ignore the Commonwealth and replace the NEM with their own market that factors in a carbon price.

Few will disagree with Price’s assertion that the NEM is broken. Most, however, accuse the main rule-maker, the Australian Energy Markets Commission, for its slow response to new technologies and its perceived favouring of incumbents.

The attack from Frontier, which has been AEMC’s preferred consultant on many key policy areas, including its efforts to kill the renewable energy target, is seen as an effort to switch the focus of attack on to AEMO.

Zibelman, the US energy expert brought in to reform AEMO last year, has been the subject of unpleasant but sadly predictable attacks by right wing commentators, as have many of her initiatives such as on demand response.

(You can listen to our interview with Zibelman last December in this Energy Insiders podcast)

There is no doubt that she has rattled the cage, and appears to hold diametrically opposite views in some key areas to AEMC’s boss John Pierce, including over AEMO interventions and market signals, but most particularly over the future of the grid.

AEMO has even upset some in the renewables industry, mostly over its conservative handling of “power security” in South Australia, which has resulted in curtailments, and strict new conditions on new solar plants.

Price’s attack highlights the extraordinary divide and the high stakes over energy policy in Australia at this crucial juncture, with solar and wind technologies falling in cost, battery storage emerging, growing interest in pumped hydro, and a lack of clarity over federal policy.

Price’s criticism of AEMO’s apparent over-reach on emission targets refers to AEMO’s draft Integrated System Plan that was published before Christmas.

RenewEconomy reported on it here last December –  AEMO plans for future (clean) grid, with no mention of base-load   – but the biggest controversy was AEMO’s decision to model Australia’s commitment to the Paris climate treaty.

Price is outraged that AEMO’s modelling should go beyond any of the “mainstream parties” – it is double the Coalition’s, and slightly above Labor’s – but AEMO made clear it was merely using the bottom end of CSIRO’s estimates of what needed to be done to meet that treaty.

When Fairfax published what it described as an “exclusive” on the publicly available document, “Radical blueprint to slash emissions”, Zibelman responded in a tweeted statement, saying AEMO was not making any comments about policy, just preparing for possible scenarios.

“The analysis is part of a consultative process in our role as the independent system and market operator in working with stakeholders to identify the needs to operate the power system reliably and securely into the future,” she wrote.

Price, however, accuses AEMO of using the lack of any policy leadership to grab more political power.

“More political power for AEMO means greater costs for consumers. AEMO is trying to take us back to the dark old days of the 70s and 80s when the centralised power authorities told people what they could or could not invest in,” he said

“In NEM 2.0 the industry participant run AEMO needs to be abolished and replaced with a statutory authority the government has proper control over.” (AEMO’s members are made up of Australian governments (60%) and industry participants (40%).

“The focus of this statutory authority should be on operating the power system in a secure state and not allowing them to have unfettered right to expand their role and create further investor risks.”

Ironically, it is this policy vacuum that others accuse the AEMC, and the utilities’ lobby, of seeking to fill with the controversial National Energy Guarantee, a mechanism that – if unchanged – could cement the hold of industry incumbents and slow the energy transition.

As one industry analyst noted: “Just a subtle change of the arguments and suddenly it’s the AEMO that’s the problem and not the AEMC.”

Price’s position is further complicated by his close workings with the South Australia government.

He designed Labor’s aborted Energy Security Target – a market scheme similar to Pierce’s favoured NEG, that was suspended in the face of searing criticism from battery storage developers, in particular, because it favoured the incumbent generators, and after intervention by AEMO.

On the other hand, Price has played a key role in devising the innovative power purchase agreement that would give life to the proposed 150MW solar tower and molten storage plant in Australia, and in endorsing the Tesla big battery and the newly announced virtual power plant.

Price finished his speech with a withering attack on Turnbull’s proposed Snowy 2.0, and his handling of the electricity market.

“The States should abandon support for Snowy 2.0. If it is economic then let a real investor make that decision. Australia simply cannot afford another NBN,” he said.

“If NEM 2.0 is not pursued as a matter of urgency the country will suffer an ever- deteriorating electricity system that will be increasingly characterised by inefficient Balkanised State based power systems. The States cannot afford to dither on energy policy like the Turnbull government. They must act now.”

  

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  • Peter F

    Much as I support AEMO’s current direction and have strong arguments with much of Frontier Economics analysiss, many of the things Danny Price has said are correct.

    1. A statutory body to regulate power supply should probably not be 40% owned by the industry
    2. AEMO has modelled a future power system that is way in front of future policies and I think that is correct from the point of view of modelling various scenarios. However,Danny Price is also correct in that AEMO is by default wandering far into the policy making rule setting arena rather than its operational focus. This may only be happening because COAG/ AEMC are so hopeless and have vacated the field but it is still not ideal behaviour
    3. Danny is almost certainly correct re Snowy II. The SA examples of multiple different storage owners and technologies is probably far more conducive to competitive power policy than a monolithic long delivery government owned monster. I think Snowy II has some superficial technical merit but I doubt it will survive a proper economic analysis and it has too little power and too much duration. Adding more power would just make it less competitive

    • manicdee

      AEMO modelling various paths for the future has nothing to do with policy setting. Their modelling is about what needs to be done to ensure stable electricity supply.

      There will be no new coal plants started from here out. It’s simply not as profitable as renewables. All the new money coming down the pipe is going to be for renewables, with solar PV, wind, solar thermal, thermal storage, battery storage and small hydro already in the pipeline.

      The market is already speaking. Storage systems will grow in popularity as potential investors become more comfortable with the benefits they provide, especially coupled with renewable generstion plant. Setting a government policy of X% coal power only means bitter disappointment down the road for anyone investing in coal expecting massive subsidies from the Government to pad their profits. The only profits in coal will be for the party sponsors.

      • Peter F

        The point I was trying to make is that this should be the role of COAG and AEMC. Because of a lack of action from those parties AEMO is de facto filling the void, which is not strictly AEMO’s role. I think Danny is correct but he should probably be chastising the governing bodies for their inactivity as much or more than criticising AEMO for being pro-active

        • Mike Westerman

          AEMO is damned if it does and damned if they don’t. They need to mdoel probable scenarios and that some are pushing the envelope is a reflection on how fast the market is changing.

          The rule maker AEMC should be leading not following – the absence of a market mechanism incentivising security is an indictment on them. That we have a government that eschews market reform but intervenes so inappropriately, e.g. with Snowy 2 is the fundamental failure of policy.

  • Mark Fowler

    It seems like Price is suggesting that it is more important to protect investors in traditional generation that is unwilling to evolve than allow a sensible transition to renewable energy. The whole purpose of economics, investors and markets is to enable this transition in a lowest cost way. Companies that choose to change generation methods in line with the economics will no doubt be far more successful at rewarding their investors – those that don’t change deserve to fail.

    • Cooma Doug

      Great comment

    • Tom

      Isn’t “creative destruction” absolutely core Liberal philosophy? What sort of “Liberal” government have we got at the moment?

      • Mark Fowler

        I believe you have it around the wrong way. Liberal philosophy seems today to be more about destruction of creativity.

      • neroden

        Nah, that’s what we call the “big lie”.

        Like all right-wing parties, the Australian Nationals (and their Orwellian-named “Liberal” wing) exists to protect the incumbent aristocracy and prevent anyone else from challenging it. That’s what right-wing politics *is* — and what it has been since the term “right wing” was invented in the French Revolution.

        But obviously this isn’t popular, so the Libs lie about their philosophy to fool voters. It’s the same worldwide with all right-wing parties.

      • Liam Cranley

        To the extent that Price is sharing the agenda of LNP, he is also consigning himself and Frontier to obscurity come the next government. Its not like there is a shortage of consultancies.

  • Sir Pete o Possums Reek

    Are those sooky la la idiots still here ?

    Has Nobody mentioned the “Space Goats” to Frontier economics.
    Are their Quants asleep ?

    Elon Muskoxen is taking payment in blockchain validated leveraged buckets of futurised Unicorn poop for seats on the escape vessel “Black Swan” as we speak.

    Or they could go Short with Mike Hughs (Flatearther Rockets inc) , ((! USA !)) if they feel they need to defray the risk …

    https://youtu.be/meQ330BnSZA

    FFS.
    I keep forgetting that nation states (or planets) exist primarily for the benefit of speculation junkies [*]

    • john

      Unfortunately when a Person goes look at the Ocean it is not flat and what relevance to the situation to to with the rules of generations does your post have?

      • Sir Pete o Possums Reek

        None.
        Not a scrap.
        Zilch.
        Null Nill Void.

        Its just frustration.

        You would need a context to understand it.
        Or understand what a Black Swan is …
        (my fail really)

        i.e. Its wriggling full of useless late 20 C early Naughties cultural and economics references.

        Its really about:
        – Catchy Hitchhikers Guide to the Galaxy references.
        – The repeated failure of *Speculative* and Poorly (Un)regulated capitalism.
        – Rejection of pseudo science,
        – Repeated mistakes in planning and forecasting.

        and my extreme allergy to Unicorn Fur.

        so:

        The Ocean is meant to be flat ?
        Who decrees this flatness you speak of ?
        How many leaves would it take to keep it at the required level of flatness ?
        What colour is flatness ?
        What colour should it be ?
        Does it come in sizes ?

        Waves and swell and tides and surges and temperature gradients aside, it does generally, more or less, find a common *sea level*.

        Me ?
        I’m off to bang some more rocks together.

        • john

          No I did not say the Ocean was flat i said look at the ocean is it flat.
          Your point.
          The Ocean is meant to be flat ?
          Who decrees this flatness you speak of ?
          No it is not FLAT.
          Degrees of FLATNESS absolutely zero nothing.
          In fact if you build a long say 3 kilometer structure over the ocean it will not be horizontal but follow the earths curvature.

  • Chris Fraser

    Readers wouldn’t have a problem if AEMO models according to the Paris agreement. Don’t we remember Greg Hunt flying out to sign it ? Hope that’s not an inconvenient detail.It’s not as if AEMC had any public accountability.

  • DevMac

    “The Australian Energy Market Operator poses a clear and present danger for investors.”

    Investors in fossil fuels. Boohoo.

    This is a fair escalation in the conservatives increasingly confusing battle against renewable energy. Do they know what Gupta is doing in Whyalla?

    “The States cannot afford to dither on energy policy like the Turnbull government. They must act now.”

    South Australia, at least, acted a long time ago and hence are leading the country and the world in various metrics.

    • Cooma Doug

      My experience is full of circumstances where decisions were made with confidence because of AEMO. If this bloke gets a lot of say…that confidence wont move from AEMO. It will become stronger.

  • The Awul Truth

    Isn’t this just the whining of a consultant who lined his pockets with endless pages of equivocations on limited merit reviews? He also seems furious that a government agency is doing planning and scenario analysis with detailed modelling. God forbid Danny loses that business too.

    • Ren Stimpy

      Seriously, govt needs more broad advice than this extremely narrow farce

    • Cooma Doug

      He also says things about the grid that have the hands on traders and controllers thinking WTF.

    • BushAxe

      Sounds like he’s got the shits on with AEMO because they’re setting the agenda and driving the change with the blessing of COAG.

  • Kevfromspace

    1) How on earth is AEMO’s Integrated System Plan (ISP) a power grab? It’s simply a modelling exercise (which Danny Price should know all too well) to assist in future planning and operation of the NEM. In no way have AEMO attempted to gain more power*.

    2) The ISP has only stirred controversy because of its emissions reductions scenario being far ahead that of the major parties. The Greens’ emissions reduction policies are currently the closest in line with our Paris commitments. For Price to imply that the Greens’ policies (and AEMO’s modelling) are too ambitious is a sign of just how twisted the energy debate in this country has become.

    3) Price’s stated support for vertical integration of market participants leading to an efficient market suggests support for the bidding practices of the large gentailers, such as in the South Australian FCAS markets. I was gobsmacked to hear Price attack Rod Sims as too heavy-handed in his views on vertical integration, when Sims’ own weak approach involves slapping the gentailers across the face with a wet lettuce. Pathetic.

    *Except for AEMO’s attempt to establish a day-ahead capacity market to increase reliability. Zibelman also wants demand response mechanisms to be able to bid directly into the wholesale market, as opposed to through the RERT mechanism. AEMO is simply requesting more tools to be able to do its job, a perfectly reasonable request – and nothing more than a request at that.

  • bruce mountain

    Polemic and bull dust 1, rigour and virtue 0.

    Plus ca change plus c’est la meme chose.

    Good for a laugh though.

  • Ren Stimpy

    Danny Price has been the one prepared to kow-tow to this government which will never get onboard with the 100 other economists who advise a different and more direct path for emissions reductions. I wonder why the govt consistently takes the advice of this one single economist Danny Price?

    • Hettie

      It’s their SOP. Ignore a concensus of scientists, and go with the brainfart of an idiot.

      • Ren Stimpy

        Slightly more sinister than that I think.

        • Hettie

          Sinister? Corrupt, most certainly.

  • john

    There is an attack on AEMO and its “chairwoman” (presumably CEO Audrey Zibelman) YES well what you expect when Australia has been served by people with NO knowledge people; but this Lady Audrey Zibeliman actually has some knowledge; now that is not expected in any type of institution in Australia; we prefer industry yes men or women.

  • Ian Franklin

    It is apparent from much of Danny Price’s involvement in energy policy that he is at the core an economist; one who believes that the governments should establish policy but then leave implementation to the market, despite the failures of the market in this area But above all, he comes across as a gun for hire. He accepted a million dollars from the SA government, for example, taking credit for the purchase of the 9 diesel/gas generators. Perhaps he resents someone like Audrey Zibelman – someone with real experience in managing energy supply – straying into his territory as a energy guru.
    And, of course, she is not directing policy, but modelling likely future scenarios.

    • Hettie

      And she’s a woman!
      How dare she be competent in a male dominated field.

      • solarguy

        I think far less for being a woman, he would resent the fact that she’s very clever and knows what she’s on about and he doesn’t agree. Read possible control freak and or he’s a coal stooge.

        Money talks!

        • Hettie

          All of that, but never underestimate the power of misogyny. Think of all the death threats, gang rape threats that women like Van Badham and Yassmin Adel Magheed are subjected to on social media. Think of the way Gillard was treated by the media and the Coalition.
          It’s a very powerful, hateful force in Australia.

          • solarguy

            I’ve meet a few misogynists and their sickening, it’s as if they forgot that their mothers and grandmothers were female. On the other hand I have also come across men haters.

          • solarguy

            On Julia, I had the pleasure of meeting her at a party function back in 2007. After hearing her speak, I said to her that I thought she would be PM one day, as I was that completely impressed by her. In my mind and others, Julia became one of the most successful PM’s this country has even seen and if the weak heads in our society had not listened to that head case Abbott, she may still be PM and we may not be discussing the fact Australia hasn’t advanced in renewables as much as it should have to date.

          • Hettie

            Given what women face daily, it’s a wonder there are not more men haters, don’t you think?

          • solarguy

            I can’t quantify how many women are men haters in the first place, nor how many misogynists there are in the world. If anyone is discriminated by the opposite sex often enough they may not get over it.

            My wife works for a local building company and she has not had any problems like that. In fact she has been praised for her excellent work by all her of fellow employees, but especially by Craig, her boss..

            Five years ago I was contacted by a women’s refuge to quote for solar. I am usually very comfortable with ladies company, but on this day the all female staff looked at me as if I was the enemy. One lass in particular was defensive and spoke to me in an aggressive tone when I informed her that the gas hws was causing a lot of financial pain and they should go for a small under sink electric and toss the gas as they didn’t need hot water for any other purpose. She took that as if I was saying she used too much hot water. WTF.

            I’d say she has been hurt badly by some arsehole in the past. I found out later from the manager, that about half of the staff had been abused by their husbands.

            I’ve waffled on a bit here, but I just can’t really answer your question, but I will say that not all people are bad, of either gender.

          • Hettie

            So many people of all genders have been told by their parents that are stupid, useless, will never amount to anything, that they find it hard to believe that not everything anyone says to them is direct criticism. Not easy to deal with.
            But I’m surprised that a women’s refuge would not need hot water except in the kitchen. Do they not have showers for the residents?

          • solarguy

            It was an old house used for admin and place of first contact for women seeking refuge. Sorry I did mention that before, but I get interrupted with phone calls frequently at times, so I wanted to be brief.

        • Mike Shurtleff

          Coal stooge, with less direct approach.

  • Carl Raymond S

    “right thinking policy makers”, is that code for “right wing coal supporters”?
    “investors”? What kind of investors? New investors accelerating the transition from coal, or incumbents invested in coal? Price didn’t say, so suspect the latter.

    • Hettie

      That phrase, “Right thinking,” gives so much away, doesn’t it. Often found in letters to the editor, signed “Mother of 8.”

  • howardpatr

    It was only a matter of time for the attacks on Zibelman.

    Price knows how much butter John Pierce, the Chairman of the AEMC, puts on his bread?

  • Hettie

    Price sounds like a dinosaur roaring from the swamp into which he is sinking.
    I wonder if he would be saying the same things if our Audrey were Alfred.
    It also sounds a lot like projection.
    He wanted Frontier to be setting the agenda, and is severely annoyed that he’s been pipped at the post, so accuses AEMO of the power grab he was planning himself.
    So yes, some sensible comment, but really!

    • Thucydides

      Yep, what a trantrum and what a sense of entitlement from a bloody consultant.

    • Or … he’s been shat on from a great height by the people who really pull his strings for letting things get out of hand and this is his bizarre attempt at trying to regain position in a game that is inexorably sidelining him. I think things are going to get weirder and weirder in the carbon camp from hereon out, as they rip their collective fingernails out trying to hang onto whatever control they think they still have.

      And believe me, that *is* Price’s camp regardless of the “new clothes” he tries to make us believe he’s wearing.

  • Thucydides

    “… boasted she could achieve bigger reductions in emissions than either the government or the opposition policies contemplate”.
    A government agency that actually thinks and offers opinions about problems in its area of expertise – what an impertinence! Doesn’t she know highly paid consultants have the franchise for that sort of work?

  • mick

    hes got me buggered ok referendum scrap aemo or frontier il go option b

  • Cooma Doug

    Thanks for the article.
    Price speaking “priceless” oxy morons.

    • BushAxe

      I got alot of contradictory statements in there too.

  • Grpfast

    Too many fingers in the pie for Australia’s energy market. All skimmers after the Australian taxpayer dollar.
    Should be Australian/State governments – retailer/generators – consumers. Who are all these other scam artists adding to our power costs a spouting useless conflicting wisdom

  • solarguy

    Pricey, right wing head case or coal stooge or both?

  • Ken Dyer

    J.K. Galbraith reminds us that ‘Economics is extremely useful as a form of employment for economists.’

    AEMC asked Frontier Economics to write a report to prove that operating expenses are better than capital expenses, a clear direction that favors coal fired energy production over new renewable energy production.

    Hence the Frontier Economics attack. Here is the report. Read it for yourself. It is incredibly dense and acronymic and is based on overseas approaches to total expenditure, mainly the UK. I would point out that the UK’s mix of power generation is fundamentally different from Australia’s, but that seems to have escaped Frontier Economics and the AEMC.

    https://www.aemc.gov.au/sites/default/files/content/ae0d3fc5-4b9a-496a-a072-50886bc5c86f/2017-12-20-Totex-frameworks-Final-report-STC.pdf

  • MaxG

    What I said when she came on board: if they can’t get rid of her, they’ll kill the organisation.
    Bring on the election; at least it presents a glimpse of hope for change.

  • BushAxe

    I had some time for Price, not anymore after this piece of garbage. It ignores AEMO’s legal responsibilities and directions given to it by it’s board and shareholders. No doubt it’s part of the ongoing battle between AEMO and the AEMC. Price makes no criticism of AEMC’s poor performance which is a big part of the problem according to him.

  • Robert Comerford

    Perhaps Frontier should be abolished.
    The only over-reach of emissions reduction targets would be when they exceed 100%.

  • DJR96

    It seems Price doesn’t fully understand AEMO’s role in the industry. AEMO doesn’t make the rules at all. It has a very difficult and complicated task in operating the power network and its market within a set of regulations and legislation that has been influenced by so many players that are pushing it in all directions (many backwards). And it has to provide reports on how to improve everything, and do all this transparently. With all that in mind they do a remarkably good job.

    The problems in the market are not due to AEMO. Give them better rules to work with and they’ll implement them.

    • solarguy

      I would say, you have the big picture spot on. So that possibly leaves Price a control freak and or a cash for comment sort of dude.

      What ever the case, he should take his bat and ball and piss off.

  • Lets put all the frightened money bags into their garage with their cars and run the ice engines for an hour or two with the roller door closed. That should take care of their fear, and they can take their end product with them to the next world.