Nats’ coal call risks energy errors of the past

Nats’ coal call risks energy errors of the past


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Market must decide the best investment for power generation

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Politicians are finally talking about lasting reform to fix the broken energy market, but divisions over coal risk repeating the errors of the past.

Customers, particularly farmers and other regional industry, are struggling under the cost burden of soaring network costs, an opaque retail market and punitive tariff regimes.

The Federal Coalition is considering the Australian Competition and Consumer Commission’s 56 point plan to reform the energy market.

Paraphrasing ACCC commissioner Rod Sims, he argues poor policy and bad decisions have broken the market and it falls to politicians to fix it.

“We must move away from narrowly focussed debates; addressing affordability requires change across a broad front,” he says.

Related: Government must lift its game to make power prices fall

Malcolm Turnbull says the government is preparing its response to the report, but notes “the one thing we know is that government subsidising one technology or another, as [ACCC chairman] Rod Sims said today, is only going to result in higher prices”.

The Nationals’ Deputy PM Michael McCormack and Resources Minister Matt Canavan, say they agree with “technology agnostic” approach to new power supply.

But their insistence that coal remains part of the energy mix leaves a question mark over the government’s capacity to agree on policy to deal with the power problem.

“I’m a big supporter of coal, I know my party is a big supporter of coal, and I know Malcolm Turnbull has said that whilst we are technology-agnostic, the fact is coal is going to play a very important part of Australia’s future energy needs going forward,” Mr McCormack says.

Mr Canavan agrees, arguing that “It's very clear from what (the ACCC) said that coal and gas and all other types of fuel should be included here”.

Recommendation Four is the most contentious element of the ACCC report. It appears to open the door to public investment in coal power.

In it, the ACCC calls for public investment in debt finance for new power generation - where investors do not have sufficient off-take commitments from commercial and industrial for the later years of an energy generation project.

By letting the market determine the technology, public funds could be used to support new power supplies while encouraging competition and driving down prices, the ACCC says.

Government could fund off-take agreements for low fixed-price projects that cost between $45–$50 a megawatt hour for the last 10 years (years 6 to 15) of projects with a 15 year investment cycle.

However, Grattan Institute associate Lucy Percival describes the ACCC’s recommendation as “a risk sharing mechanism” which could spur beneficial investment in power supply, but coal would likely miss out.

“Could that investment be coal, in conjunction with the NEG coming in? It doesn’t seem that would be a likely technology,” Ms Percival says.

“It’s probably better suited to smaller projects. I don’t know if a coal fired power station fits the bill of what the ACCC expects - particularly because it needs to work with the NEG.

“All major generation companies in Australia are moving away from coal.

“It’s unclear if coal plants would be an attractive investment under this mechanism - given they require a 40 to 50 year commitment and the ACCC is looking at a 15 year investment horizon."

ACIL Allen principal Owen Kelp said government intervention to encourage private investment was a “slippery slope” that could scare off private investment.

“The ACCC has argued policy uncertainty has been part of the problem in wholesale markets, but having government intervene won’t increase certainty for private investors,” Mr Kemp says.

Either way new coal plants are unlikely, he argues.

“A new coal fired generator would not stack up commercially, even if you took the investment risks from energy and carbon emissions policy away.”

Coal fired power plants are a 40 year minimum investment. Government has been shown to be a poor judge of the power market in the past.

Using public money to guide the market into a particular type of long-lived power supply risks locking in elevated prices for years to come.

The ACCC has shown us what to do. The Government should leave the market alone.

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