ALEX TURNBULL. Coalition embraces economic vandalism with worst possible energy policy (The Guardian 27.10.2018)

When I saw the government’s latest energy policy proposal, I was disappointed but not surprised.

Just a few weeks ago I was speaking with a few utilities analysts and players, wargaming the absolute worst thing a party with just a few months to live could do to Australia’s energy policy and how far they could roll back some commendable progress to date.

What we came up with revolved around the Australian Competition and Consumer Commission recommendations. They were very sensible but we figured they had substantial scope for selective and perverse implementation. At one point, we joked about the possibility that this good advice could be turned into a policy to subsidise companies that own coal plants and coal.

Turns out that is exactly what has happened.   

It’s worth starting with the original ACCC recommendations and how and why the regulator was trying to achieve greater competition in wholesale electricity markets. The ACCC had opposed the sale of New South Wales’s generation assets to AGL in 2014 over concerns about what it would do to competition. With the benefit of hindsight most would now agree they were absolutely correct in doing so. Their suggestions about limiting further concentration in the market were sound and had precedents elsewhere. The proposed changes to the market operation rules were positive and so was the suggestion that some kind of settled policy to reduce greenhouse emissions would be helpful.

And then there was recommendation four, which in essence said the government should offer to underwrite new generation projects by promising to guarantee contracts in their later years at a fixed rate – an idea designed to make it easier for new players to enter a heavily concentrated market.

The problem with power markets in general, much like any portfolio, is that diversification reduces risk and to be diversified you have to be very large. As with other capital-intensive businesses it is a hard sector to enter without the capacity to borrow. After a decade or more of climate chaos, a carbon tax and a renewable energy target that has had a few near death experiences in the Senate, Australian banks quite rightly look at lending to this sector with some trepidation compared to other markets. Not losing money does not just depend on the laws of supply and demand but the utterly chaotic behaviour of our politicians. It has gotten so awful that it has earned rebuke from that hotbed of socialism, the Australian Industry Group. On that basis having the government break the deadlock to get more capacity built and ensure some peaking assets are held by someone other than the usual gentailer suspects makes a great deal of sense.

So what has the Morrison government’s energy minister, Angus Taylor, done with those largely sensible suggestions to come up with this perverse policy?

First, he set a comically low emissions hurdle, apparently suggesting that a project is fine so long as, on its own, it won’t lead to an increase over the emissions target by 2030. This is disingenuous. No single project is likely to do this unless someone is building a very large brown coal power plant. Essentially, it means there is no emissions component to this plan, in direct conflict with ACCC suggestions.

Second, it allows redevelopment of existing projects, to extend their life. Which could these be? It is unlikely to be AGL, Origin, Alinta or Energy Australia, who all have commitments to decarbonisation and plans to gradually replace coal with renewables, gas and hydro. It could, however, be Sunset Power owned by Brian Flannery and former National party candidate and LNP donor Trevor St Baker.

Third, the divestment proposal would appear to be designed to compel AGL to sell Liddell. St Baker has previously expressed a strong interest in this asset, and he could now also be eligible for a generous loan and off-take agreement from the government.

This is a far cry from the ACCC suggestion that getting simple gas turbines in a box and more wind and solar to more players would be a better approach to increasing competition.

And the most disturbing thing about current policy is that it is market intervention to the direct benefit of only some apparently favoured players.

The sooner this ends – or the government ends – the sooner Australians can look forward to a cessation of this wholesale assault on free markets with integrity, which I vaguely recall were once what the Liberal party stood for.

Alex Turnbull is a fund manager based in Singapore


This post kindly provided to us by one of our many occasional contributors.

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5 Responses to ALEX TURNBULL. Coalition embraces economic vandalism with worst possible energy policy (The Guardian 27.10.2018)

  1. Billie Glover says:

    The Victorian government has been inviting consumers to compare their gas and electricity bills to find the best deal and receive a $50 cheque. Some think the timing of this is a cheap election stunt promoted 6 weeks before the state election but I also wonder if it isn’t a data mining exercise for a state government that has no data on energy consumption and energy bills from a privatised market that is quick to cry “Commercial – In Confidence” at any attempt at government oversight. I wonder if any Victorian state government can even forecast demand because of the way the privatisation contracts were initially drawn up in 1992 by Kennett and the Liberal Party

  2. Malcolm Crout says:

    After reading this article I’m convinced that privatisation of the energy market is an unmitigated disaster. The industry is full of shysters picking the pockets of the public. The idea that an invisible hand of competition in an open market would deliver a public energy service at a reasonable price is so ridiculous it can only be described as ideology. Pure neoliberalism evident in the privatisation of numerous other public goods.
    Business consumers are now in the process of generating their own energy supply and selling any surplus to households. Households were alert to the bullshit at an early stage, hence the continuing installation of roof top solar with an uptick in storage which will become the second stage leading to freedom from the grid. The producers, wholesalers and retailers won’t survive without Government welfare and they are already circling the wagons with an attack on solar rebates with their whining excuse about grid stability. Of course they don’t want to spend money to stabilise it themselves.
    When these parasites want out then let them sell their assets back to the Government and nationalise energy in this country. Let’s see if the ALP can muster their nerve and stare down the industry next year.

    • Stephen Lusher says:

      No doubt an unintended consequence of the rush to privatisation has been the loss of (state) government control of generation assets. We will never know whether the offsetting benefits from use of the funds generated by privatisation have resulted in better outcomes overall.

      In terms of electricity infrastructure it is clear that the interests of shareholders rule. Perhaps that should have been foreseen but perhaps climate change was not front and centre at the time.

      Still it’s an interesting argument that decries a generation industry that ‘won’t survive without Government welfare ‘ and in the same sentence defends solar rebates.

      The history of governments of all shades picking winners has not been a happy one. As a general rule subsidies should be avoided. Both sides of this debate need to get Government out of the game. Whatever Government does will result in distortions, misallocation of resources and unintended consequences.

      Might I point to the $12 billion investment in desalination plants in South Australia, Queensland, NSW and Victoria that have all been mothballed without producing a drop of water. Do we want those in charge of the public purse to go down that track again?

      Mr Turnbull (Jr) might have ridden to the nation’s rescue in recent weeks but he is just one more voice calling for intervention and there is no particular reason his interventions might be any better than any others.

  3. Alison Broinowski Alison Broinowski says:

    Alex our hopes for proper climate and energy policies rest on you and your generation. I am in western Japan where there’s a mothballed nuclear power plant surrounded in all directions by solar arrays and wind farms. The locals welcome the, and don’t nuclear power to return – let alone coal! The majority of Australians fell the same way so what has happened to democracy? Your father should be able to answer this publicly now and I hope he does, very soon.

  4. David Brown says:

    thank you Alex

    we, the unwashed voters, thank you very much for your constructive contributions attempting to bring some sanity to the management of future Australia

    pity your Dad got trapped by the RWNJs and worse the Religious RRWNJs that have taken over the Liberal and National party coalition

    Religious are worse because they have explicitly given up their ability to think rationally in favour of interpretations of some old books usually used by non-tax-paying, greedy, malign religious gurus for their own un-Australian purposes

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