Business lobby urges electrification, network write-downs

One of the most influential big business lobby groups, the Australian Industry Group, has urged households and companies to “electrify” as a way to shift from expensive gas, and has even joined the growing number of groups suggesting a write-down of network valuations to reduce energy costs.

The two suggestions were among the most striking of a new paper released by AiG – From Worse to Bad – Eastern Australia Energy Prices – whose main purpose appears designed to lend support to the besieged National Energy Guarantee.

AiG was one of a number of business lobby groups, along with Business Council of Australia and the Minerals Council of Australia, that was flown in to Canberra last week to try and help energy minister Josh Frydenberg head off a revolt from the back-bench led by former prime minister Tony Abbott.

That didn’t work out too well. Even though these groups were the same that urged and then applauded Abbott for killing the carbon price, leading to the policy mess we are now in, Abbott is doubling down, urging the country to quit the Paris climate pact.

Abbott wants new coal fired generators to be built, and the Nationals are calling for at least three of them if the scheme is to get their support.

AiG doesn’t think much of the idea of new coal, but it does raise the possibility of refurbishing existing plants, to make them more “flexible” in a grid likely to be increasingly dominated by variable renewables such as wind and solar.

It’s main worry is about the cost of gas – both as a commodity for use in manufacturing, and in the production of electricity.

Interestingly, it suggests “fuel switching” – for businesses using gas (may be like Nectar Farms’ decision to electricity its glasshouse and use wind and battery storage instead), and for households to turn to heat pumps and go all-electric. “Household gas is entirely substitutable,” the report says.

And it also suggests wind and solar offer cheaper source of bulk energy, although they still think that battery storage is more expensive.

That’s not clear – looking at recent decisions in the US to replace gas plants (where gas is cheap) with battery storage – because it’s cheaper – but at least it is a start.

Like the Grattan Institute report earlier this week, it also seeks to play down the market “gaming” of the big generators. Grattan attributed 2 per cent of wholesale price rises to “gaming” – even that amounts to $3 billion over two years being extracted from consumers, where AiG barely mentions it.

If you want a clear picture of the impact of “gaming” and “market dominance”, look at the profit results of the big three generators in the December half, were earnings soared even though the cost of generation barely budged.

And if you want to see what can be done about it, look at the example of the Tesla big battery in the South Australia market, where it has busted the cosy gas cartel’s control over FCAS prices. That’s what the Coalition would call Direct Action. It’s the result of more competition.

If business groups hadn’t fought so hard against the renewable energy target, leading to that 3-year investment drought, then maybe the recent prices would not have been so marked, or wouldn’t have occurred at all, because of the extra capacity.

As AiG notes. “The delay in construction of RET capacity, resulting from sustained policy uncertainty in 2014-15, was also unhelpful.” Hey, so who was responsible for that!

Now they say – we need more supply! Are you going to get that through the NEG, which provides no incentive for new generation because of its low-ball emissions targets?. The AiG seems to think so, arguing that low cost wind and solar will be built, because companies will want cheaper power.

But it’s still interesting to see AiG and Grattan poke a stick at the vastly inflated regulatory asset base (RAB) of networks, the primary source of the recent bill shock before the generators took a leaf out of their book.

AiG kind of hedges its bets on this, but recognises that the RAB is excessively high and customers are going to be paying for it for decades. But it does admit it is complicated, with the networks bleating about “sovereign risk” and higher financing costs, and so higher network costs, if it were to happen.

The fact that it is raising it all is interesting. it’s something to work on. Perhaps they can look at the emissions targets too, and urge some action there.

As Reputex says, the light touch on energy in the NEG means that the burden of emission cuts will fall to the 60,000 members of the AiG Group. That can’t be good for business.