Federal Government’s Energy Plan

17 October 2017

The Federal Government has today unveiled an energy plan designed to reduce electricity prices and ensure network reliability while also fulfilling Australia’s international emissions reduction commitments and offering greater certainty for investors. The centrepiece of the plan is a National Energy Guarantee (NEG), recommended by the Energy Security Board (ESB) and comprising two elements: a reliability guarantee and an emissions guarantee. The reliability guarantee is designed to deliver the necessary level of dispatchable energy in each state by ensuring that energy retailers source a proportion of their energy from ready-to-use sources such as coal, gas, pumped hydro and batteries. The emissions guarantee – which will be set by the Commonwealth and enforced by the Australian Energy Regulator (AER) – will require energy retailers to provide a proportion of electricity from low emissions sources. See the Government’s media release here.

Agreed to by the Cabinet on Monday evening and approved by the Coalition party room earlier today, the Government’s plan does not include the proposed Clean Energy Target (CET) previously recommended by Chief Scientist Alan Finkel in his recent review of Australia’s energy sector. In order to deliver greater energy reliability, the new plan will require companies to use a portion of dispatchable electricity, with the aim of preventing blackouts and ensuring energy reliability. The Government believes that this will contribute to system stability, as power would be purchased using long-term contracts over the short-term, fluctuating spot price.

The new plan proposes to reduce emissions by removing subsidies and incentives for renewable energy, instead placing the onus on energy retailers to ensure their purchased power meets efficiency benchmarks set under the emissions guarantee. It is not yet clear what penalties will be applied to companies who fail to comply. The current Renewable Energy Target (RET) will end with its expiration in 2020; the Government has indicated it is no longer needed due to the increasingly competitive nature of renewable technologies.

Prime Minister Malcolm Turnbull has promised the energy plan will deliver “cheaper, more reliable electricity for Australian families and businesses”, saying it presents an “opportunity to break from the climate wars of the past and forge a sensible, sustainable path forward”. The Prime Minister also emphasised the plan is “truly technology-neutral” and will facilitate investment in “whatever technology the market needs – solar, wind, coal, gas, batteries or pumped storage”. Deputy Liberal Leader Julie Bishop described the plan as “a very secure way of ensuring reliability, affordability and meeting our Paris commitments”, while Energy Minister Josh Frydenberg called it a “credible, pro-market policy” that will deliver lower electricity prices. See coverage here.

Politically, the plan is crucial for the Prime Minister, who has had to contend with weeks of internal party debate over energy policy. The plan also represents an opportunity for the Government to reset the agenda and regain lost ground in the polls; the Coalition trails Labor 46 to 54 per cent in two-party terms according to Monday’s Newspoll.

The Government’s energy policy narrative continues to focus on reducing household energy prices, encouraging investment and “keeping the lights on”, with Mr Turnbull referring to modelling by the Energy Security Board which indicates the plan could save the average household between $110 and $115 each year for a decade from 2020. In spruiking the plan during Question Time in the House of Representatives this afternoon, the Government has attacked Labor’s approach to subsidising renewable energy, with Prime Minister Turnbull challenging the Opposition to “get on board with the plan to guarantee Australia’s energy future”.

Labor has slammed the Government’s plan, with energy spokesperson Mark Butler saying the Coalition is “hell bent on destroying renewable energy” and Deputy Opposition Leader Tanya Plibersek accusing the PM of reacting to opponents of renewable energy within the Liberal Party. Meanwhile, Greens Leader Richard Di Natale likened Prime Minister Turnbull’s actions to those of US President Donald Trump, saying Mr Turnbull had effectively pulled out of the Paris Agreement.

In related news, the Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017 has passed Parliament this week, ending the Limited Merits Review (LMR) process for energy network companies. The new legislation will amend the Competition and Consumer Act 2010 (Cth) to prevent companies from challenging decisions of the AER via LMR. Minister for the Environment and Energy Josh Frydenberg has indicated that since LMR was introduced in 2008, consumer energy bills have risen by $6.5 billion as a result of nullified AER decisions.

Additionally, the Australian Competition and Consumer Commission (ACCC) has made available its preliminary report into the Australian electricity market this week. The report indicates that residential electricity prices have risen by 63 per cent over the past decade – the primary cause being significant rises to network costs across the country, excluding South Australia where the greatest increase was observed in generation costs. ACCC Chairman Rod Sims has commented that “It’s no great secret that Australia has an electricity affordability problem” and that considerable price increases “are putting Australian businesses and consumers under unacceptable pressure”. The repeal of the LMR process for network companies was also advocated by the ACCC.

In terms of recommendations, the report proposes that further resourcing is provided to the AER ‘Energy Made Easy’ website, which allows consumers to compare offers; that state and territory governments ensure concessions are accessible for consumers; and that the AER is able to easily investigate potential regulatory breaches and penalise contraventions. The ACCC inquiry into the electricity market will continue to June 2018, when a final report will be delivered to Treasurer Scott Morrison. See the ACCC media release here.