Abbott needs a bright spark to update energy policy

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The Coalition’s energy policy presumes that Australia has too little energy capacity, rather than too much, and hasn’t caught up with the plunging cost of solar. Could it evolve to try and win the debate on delivering cheaper energy? Greg Hunt says he’s on to it.

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Opposition leader Tony Abbott is clearly aware that electricity costs are a hot topic in the political and social debate around carbon pricing and energy policies.

With this in mind, it’s a little surprising that the Coalition’s policies appear to be outdated and out-moded, barely two years since they were formed. Indeed, the 137-page policy cheat notes revealed by Crikey earlier this month shows scant details, and no apparent connection to reality, or even political opportunity – even if they were more a quick guide to media soundbites than a formal policy document. But soundbites are what appear to dictate policies these days.

Among the cheat notes are two claims that can’t go without comment. They are that Labor had:

• Failed to recognise that Australia faces a medium term electricity generation capacity shortage that must be addressed immediately;

• Failed to clarify the future pricing of carbon in Australia, making major energy industry investment decisions unacceptably hazardous.

The first seems to ignore the fact that Australia’s electricity demand has fallen for the last three years, and official forecasts made by the Australian Energy Market Operator out to 2022 have been cut by up to 30 per cent, and no large utility can see the need for any new baseload capacity until that time. The Coalition can’t be blamed for misreading this, because the industry did too. But it needs to update its rhetoric.

The second point seems to ignore the fact that the greatest uncertainty around investment decisions has been created by the opposition’s threat to repeal the carbon price. Energy traders and utility boards are having to make a judgment about whether Abbott is serious about repealing the tax, playing with words, or even if he can implement his threat. Some of those questions can only be answered once the numbers in the Senate are clear.

The other great element of the Coalition’s energy policy may also need reviewing. The Coalition placed great store in its commitment to have one million additional homes connected with solar power – either solar PV or solar hot water.

But at current rates of deployment – and even taking in official forecasts such as that of AEMO – this policy is starting to look a lot less ambitious than it once was. The Direct Action policy acknowledged that more than 1.3 million homes might have solar PV or SHW by the time it is elected, and promised to ensure that another one million homes were connected by 2020.

That policy was based on there being around 275,000 homes connected with solar PV by the end of 2012. But there is already nearly triple that number. (And around half a million had SHW by the end of 2008).

But private and even official forecasts suggest that the slump in technology costs, higher retail prices for electricity and new financing options will mean that around three million Australian homes will have solar PV by 2020 just based on current policies.

The Direct Action document was designed to offer to pay $100 million a year in rebates on the installation of solar systems, or $1,000 to 100,000 homes – although to actually deliver on its commitment it would have to lift that annual target to 143,000 homes or $143 million a year.

But given that the 1kW systems targeted by Coalition only cost around $3,500, and will likely fall further in coming years, this appears to be a hefty subsidy, particularly given the anticipated take-up of solar leasing financing options, which allows households to install rooftop solar with zero upfront cost.

If the Opposition were smart, it would target these support measures to areas which would struggle even with solar leasing – renters, for example, community projects, those whose incomes would still not qualify for leasing contracts, or assisting homes to dump their electric hot water systems for much more efficient solar (effectively relaunching the hot water rebates cut short by Labor).

That will likely deliver more emissions reductions, which seems to be the Coalition’s key criteria. If it can tailor its policy to ensure that more households get cheap access to solar – cutting emissions and reducing their electricity bills – then perhaps it can deliver a solar solution well beyond even the more optimistic private forecasts. And then it can explain to electricity retailers why they have just lost a third of their household business.

Greg Hunt, the Coalition’s climate change action spokesman, told RenewEconomy that while the solar policy does remain in place, it is being worked on. “At this stage there is no change, but we have a watching brief on the solar side and we have got flexibility if we need to adjust,” he said.

Of particular interest is finding a mechanism to offer solar hot water to low income households. Hunt appears to recognise that, on this, the Coalition could claim greater abatement and cheaper electricity prices.

Along the same lines, Hunt says another aspect of the policy the Coalition is working on is on demand management. He dropped a few ideas about this on the ABC Lateline program a few weeks ago, suggesting that means of rewarding reduced demand should be built into the National Electricity Market, to avoid the “gold plating” of the networks that is now recognised by all and sundry in the political arena.

“Demand reduction is where we’ve signaled that we are going next, and to our complete surprise the energy majors have come on board with us,” Hunt said. That would likely be the generators, though, and not the state-owned distribution networks. But at least it’s a start.

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5 Comments
  1. John D 7 years ago

    If the coalition really wants to provide certainty for potential large scale investors in clean electricity it should be seriously considering using competitive tendering to set up contracts for the supply of clean electricity. (Linked with regulations that insist that, under normal circumstances, power distributors would have to give priority to purchasing contracted clean electricity so long as it was offered at the agreed contract price.

    Contracts to supply give investors certainty and would be very expensive for governments to cancel once set up. Competitive tendering uses market forces to help minimize the cost of clean power.

    This approach might be used for rooftop solar if power companies leased roof space instead be each householder being an investor in solar PV. See:
    http://pragmatusj.blogspot.com.au/2009/12/driving-investment-in-clean-electricty.html

  2. Beat Odermatt 7 years ago

    It is hard to define the length of a sting as it is to guess the current power needs in Australia. I am sure that we all know that on a mild sunny day not too much peak electricity is needed. We also know that we had very mild years with pleasant summers and mild winters. I am sure that the high rate of solar PV installation may have caught a few power gererators with “their pants” down. If the moderation of peak electricity prices could have been forecast, I am convinced that Playford Power Station for example would have never been “re-furnished”.
    What will happen for example when the Northern Power Station in Port Augusta closes? Whilst this seems to be unlikely, it is only a single big storm away from happening. In Leigh Creek parts of the mine is already flooded, the protective bund wall is broken and it does need just a single large event to flood the rest. Where will the power come from for the massive expansion project at Roxby Downs?
    I am sure it is very good for electricity generation companies to be paid to close excess capacity. The closure will again provide for opportunities for having massive peak prices. Do we need or can we afford prolonged black-outs in the future? If you look around you if you think that we may have no power for a few weeks, 20/20 vision of hindsight may a bit late.

  3. mark 7 years ago

    Ironically, all 4 organizations advising Abbott on his “Direct Climate Action” actually SUPPORT Gillards price on carbon.
    Just look at their web sites.

    The Clean Energy Council
    “supports the introduction of an efficient and effective carbon price”

    Green Buildings Council
    “bring together businesses to demonstrate their support for the introduction of a carbon price in Australia.”

    Energy Efficiency Council
    “The Carbon Price strikes the right balance.”

    Property Council
    “The Council supports a carbon pricing mechanism.”

    • Chris Fraser 7 years ago

      Our federal seat has recently done its Liberal preselection. The lovely glossy flyers stuffed two at a time in our letterbox have such pressing priorities in mind like cleaning up graffiti. However the biggest card being played by the Libs is cost of living pressures. Naturally, they are gearing up big on going against carbon tax, income tax, tax of any kind, the cost of utilities, groceries, fuel, owning a car blah blah blah. It just strikes me as bizarre that a political ideology like this thinks it can micromanage the cost of living while expressing a Liberal desire to allow markets to do their work. I’m am thinking ‘Are these the kind of voters you really want to play up to?’. Well OK but you had better not let them down. Break one promise and they’ll tie your leg to a lump of concrete and toss it overboard.

    • John D 7 years ago

      Funny thing is that Australia’s successful RET emission trading scheme demonstrates that you don’t need a price on carbon to drive investment in renewables. Because it is an offset trading scheme all it is is a market driven scheme that sets a levy on dirty power that is used to subsidize clean power.

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