Politics of Power 2 - Race to the Bottom

Tuesday 21 November, 2017 | By: Joseph Kelly

As the election date draws closer and pre-polling booths have opened, CCIQ would like to take a minute to review some of the energy and electricity policies on offer. Electricity prices are a key battleground for all parties as the cost of electricity to Queensland small businesses has risen by over 50% in the past two years.

CCIQ has reviewed key announcement’s this election season, digging through the spin and political rhetoric to help small businesses understand who is truly offering the power to put downward pressure on electricity prices for business.

ALP Queensland

First off the block, the Labor Party’s pre-election electricity plan. The Powering Queensland Plan removed the Solar Bonus Scheme (SBS) from consumer bills, a stealth tax that was the result of a generous scheme inequitably smeared across all electricity consumers. The Government received commendation from the likes of Rod Sims, Chairman of the ACCC for this move, which halved an expected increase.

CCIQ has long advocated for the early cessation of the SBS. As highlighted in the Queensland Productivity Commission (QPC), Electricity Pricing Enquiry Final Report, the SBS has been increasing prices for Queenslanders, “The costs associated with the SBS are recovered from all electricity customers through electricity prices. In 2015–16, the cost of the SBS is forecast to be around $300 million. This cost will contribute around $89 to a typical Queensland residential electricity bill in 2015–16.”[1] The SBS also had the added effect of driving up network costs[2]. Additionally, it was highlighted that “a transfer of the SBS to the State Budget is estimated to cost around $2.8 billion over the remaining years of the scheme, at about $235 million per annum on average.”[3] We know that the Labor Party has costed the move to be $770 million for the next three years. So, the question is will the Labor Party move the SBS back onto the consumer bill, once more delivering a price increase in 2020 or will it remain on the State Budget?

The Labor Party did put downward pressure on prices by directing its Government Owned Corporation, Stanwell Corporation, to alter its bidding practices and provide more capacity into the market. In a media statement released 22 October 2017, Minister for Energy, Mark Bailey stated “When we launched the Powering Queensland Plan, wholesale prices dropped overnight and have stayed down,” and he was correct, prices did go down. Which begs the question; if all it took was a direction to alter bidding practices to drive prices down, does this confirm that Stanwell was previously gouging Queenslanders, and using the framework of the bidding practices to drive prices up to increase profits? Even more curiously Stanwell Corporation is one of two Government Owned Corporations in the generation sector, the second being CS Energy. CS Energy was not directed to alter its bidding practices.

Labor’s Powering Queensland Plan also included the long-awaited promise of a Gas Action Plan. As yet, not a whiff of detail has surfaced. Considering gas prices are a major driver of the electricity price currently and the commitment to secure gas to restore Swanbank E to operation, a gas plan for Queensland is important. The Gas Action Plan has reportedly been delayed due to confusion created by Federal Politics in this policy area. The Labor Party has thus far committed to releasing further acreage for gas tenements (450km2).

On 22 October 2017, the Labor Party announced its Affordable Energy Plan. For many small business owners this was a tad insulting, our commentary on the announcement, Sugar Hit Doesn’t Sweeten Energy Bitterness, did not win us any friends, however when businesses are shutting up shop, reducing staff and are unable to invest in their future, a 0.33 cent saving a day was not well received.

The Labor Party also committed to limit electricity price increases to below inflation for the next two years for the average small business. The error with this policy is that it assumes prices are at a sustainable level currently. They are not. Small businesses have repeatedly told us they will close, reduce staff or take their operations offshore if electricity prices are not reduced.

A plus of the plan was its commitment to remove Ergon’s non-reversion policy, allowing for greater consumer choice in regional Queensland. This was a key recommendation of the QPC and was further being reviewed as of April this year.

Under the Labor Party’s election commitments, Powering Queensland’s Future, they remain consistent and committed to:

  • 50 per cent renewable energy by 2030 – despite modelling from the Climate Change Authority indicating this could increase bills by $200.[4]
  • “Renewables 400 reverse auction, which will deliver up to 400MW of new diversified renewables, some of which are not currently being deployed on a fully commercial basis, including 100MW of storage.”
  • “Remain committed, subject to the outcomes of the current feasibility study, to delivering 50MW of new hydro generation at Burdekin Falls Dam with $100 million reinvestment of Stanwell dividends committed to the project.”
  • CleanCo – new publicly-owned generation company to deliver 1,000MW – previously promised under the Powering Queensland Plan, now with further details. A third generator will create more competition in the generation sector diluting some of the concentration, however CS Energy and Stanwell Corporation will still dominate with a majority of the capacity.
  • “Deliver at least 1,000MW of new renewable energy generation by 2025, focusing on flexible dispatchable energy generation like hydro and solar thermal with storage that can supply clean energy around the clock.”
  • “Commit up to $50 million in capital funding towards the development of a concentrated solar thermal plant with storage, providing clean baseload power.”
  • “Commit $97 million to deliver new and innovative solutions to reduce energy costs and embed energy sustainability solutions in state schools. This investment includes $40 million for 35 MW of solar PV generation and $57 million for energy efficiency measures.”
  • “Provide a clean energy future for our kids while cutting more than $10 million in energy costs each year for Queensland state schools.”
  • “Roll out clean energy solutions to remote and isolated communities which currently rely on diesel generation under our Jobs and Regional Growth Fund.”

Overall, there are elements of long term action which could bring prices down, however the Labor Party has not achieved the correct policy settings to immediately bring prices down. It must be recognised Labor’s plan has committed to several renewable infrastructure projects under their policy, providing a clear indication of future capacity in the market, allowing regulators to have a detailed overview of the future of the technology mix. This level of detail is absent in other policies to date.

Liberal National Party Queensland

Prior to the election being called, the Liberal National Party released its Powering Renewable Energy, Fair Go for Electricity Customers and Electricity Executive Bonus Freeze. Some comments regarding Powering Renewable Energy can be found in our previous blog. Since the announcement of the election, the Liberal National Party have released a fully-fledged plan to tackle the issue of electricity prices in Queensland. Cheaper Electricity was announced on 5 November, 2017. The overall policy included some new commitments along with re-announcing some old ones.

Some comments on the older policies included in the plan:

Freezing executive bonuses – the policy aims to create metrics and place the onus of putting downward pressure on prices on top executives of CS Energy, Stanwell Corporation, Powerlink, Ergon and Energex. An interesting policy, however hard to quantify what the total savings for business will be. Concerns this will act as deterrent to recruiting top quality talent are valid.

Putting consumer representatives on the boards of network businesses – Another interesting policy, which again is difficult to quantify. This is not a new approach to Boards as countries in Europe have similar approaches. Consumer representatives do bring a different set of skills and will in theory assist with decision making that keeps consumers in mind. Greater detail on how representatives are selected will be sought following the election in the event of an Liberal National Party victory.

Earning a tick of approval from CCIQ was the promise to write down the Regulated Asset Base (RAB). CCIQ has long been calling on governments to write down the RAB to place immediate downward pressure on prices. The commitment is to write down the RAB by $2 billion, a cost to the State budget bottom line of $160 million a year.  Although a 10% write down is conservative, it is an example of policy action which will have results in the short and long term. Our Energy Alliance with CANEGROWERS and Queensland Farmers Federation (QFF) called for a 50% write down. We would encourage all parties to consider this policy and make commitments of a greater or equal amount as the Liberal National Party.

The Liberal National Party has also committed to creating a third Generation Government Owned Corporation. However, unlike the Labor Party’s policy, it has committed to unwinding the 2011 merger of Tarong Energy, which was split into CS Energy and Stanwell. Queensland’s highly concentrated wholesale market was cited as an area of concern in a recent ACCC report. The policy is said to reduce prices by 8 per cent on average. Greater competition in the market is a welcomed policy.

CCIQ has long been advocating for a national approach to the energy market and welcome the commitment from the Liberal National Party to support the National Energy Guarantee (NEG). The NEG may have some flaws in its construction, but we believe it is important all States and Territories come together and unanimously support policy to ensure certainty.

The Liberal National Party also committed to removing Ergon’s non-reversion policy. This is a win for regional Queensland consumers, who now have the support of both major parties to remove the ineffective policy.

And finally, the commitment to build a High-Efficiency, Low-Emissions (HELE), coal-fired power station. CCIQ supports technology agnostic solutions and productive infrastructure that create jobs, stimulate economic activity, and puts downward pressure on electricity prices. However, based on the facts available we do not believe a power station is warranted as the business case does not stack up. The report commissioned by the Department of Energy and Water Supply (DEWS) did say that HELE power station was viable, if in the next 40 years there are no changes to, coal prices, carbon pricing, innovation and technology, and if prices remain at the level they are currently at. It should be noted the report was not based on economic forecasting, but linear forecasting. The HELE plant was also predicted to take 8 years to build. There is also a serious concern that the asset would become stranded.

One Nation

Pauline Hanson’s One Nation Party has indicated they are supportive of building a coal fired power station in North Queensland. Despite electricity prices being a major issue, One Nation has failed to provide any other policies besides supporting a coal power station. Considering the importance of the issue, CCIQ is at a loss to this glaring oversight.

Katter’s Australian Party – Queensland

The policies proposed by the Katter’s are very regionally geared. KAP’s electricity policies hit the nail on the head for a few of the issues plaguing regional small businesses in relation to electricity prices.

CCIQ has lobbied all parties to introduce regional competition and beginning the process of deregulation to create competition for regional small businesses. As a member of the Queensland Competition Authority Consumer Advisory Committee, discussion regarding notified price setting for regional Queensland is passionately discussed by several peak industry organisations. CCIQ has supported the proposals to remove the 5% overhead from the price determination process. The Energy Alliance has also called for the competitive neutrality tax to be abolished as part of our 5 principles.

KAP’s policy commitments include:

  • “Ban the Optimised Replacement Cost valuation methodology used by Powerlink, Ergon and Energex to save customers $500 million to $1 billion p.a. and permanently put downward pressure on prices. “
  • “Remove the Competitive Neutrality Fee, estimated to permanently reduce prices by at least 10%”.  
  • “Remove the unnecessary margins applied by Ergon to the calculation of regulated prices. This will result in an immediate 5% price reduction for residential and business customers.
  • Introduce competition into regional Queensland by allowing any retailer to deliver the state government subsidy (Community Service Obligation) currently only available to the monopoly provider Ergon Energy. “
  • “Put an indefinite freeze on the escalation of transitional tariffs used in irrigation to maintain the competitiveness of our agricultural industry.”

Greens Queensland

Last, but not least, the Greens. In previous commentary, CCIQ has recognised that any policy changes to reduce prices of electricity would come at a cost to the State budget. Despite this however, the Greens’ plan for reducing electricity prices is neither economically or fiscally practical.

The policy includes:

  • “No Profits. Transition all government owned energy network and generation corporations towards efficient public authorities. Force energy companies to stop making profits and paying massive dividends and put the $3 billion back into making our bills cheaper.”
  • “Scrap private electricity retailers and introduce a single public retailer for all Queenslanders.”
  • “Public Ownership. legislate a long-term objective to bring electricity generation under public and community ownership.”
  • “End the dodgy market. Crack down on price-gouging by private and public coal and gas generators by changing the rules of the wholesale electricity market.”
  • “Invest $15 billion over the next 5 years to build publicly-owned clean energy and storage” infrastructure.
  • “Affordable, reliable electricity. Enshrine this mission into Energy Queensland’s charter and make the State Energy Minister responsible for retail electricity prices.”
  • “Take back control” from the Australian Energy Regulator and the Australian Energy Market Commission. “This would bring back regulation of energy networks to the State level in order to stop the rip-offs."

The policy towards the inefficient market bidding (which has driven up prices) is an issue which needs to be addressed, and we commend the Greens for recognising such issues with the market. However, the Greens have failed to articulate a well thought out policy with sensible solutions to solve the electricity price crisis impacting Queensland small businesses. Returning Queensland to a completely regulated market with government owned companies at all levels of electricity will not solve the electricity crisis. As highlighted by the ACCC review, government owned networks are highly inefficient compared to privatised networks, and under current government ownership generators have been allowed to gouge Queensland businesses. Greater competition is required, not populist state-based solutions.

Summary

In sum, almost all parties’ policy positions have merit, with some proposals and commitments which will produce downward pressure on prices in the short, medium and long term. During the election, we are seeking commitments in line with our Energy Alliance with CANEGROWERS and QFF as well as seeking commits in relation to:

  • Abolish the 50% renewable energy target.
  • Set prices for Queensland networks at efficient levels.
  • Remove the competitive neutrality charge from networks.
  • Abolish the Solar Bonus Scheme post 2020.
  • Adopt 5-minute settlement period.
  • Introduce regional retail competition.

Follow our POLICY WATCH for updates on further electricity price announcements and other Election commitments.

 

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Comments

  • Liz Harris 22/11/2017 7:29pm (20 days ago)

    I'm very disappointed to see cciq calling for the abolition of the 50% renewable energy target. It is essential to our state's future in fighting climate change, and small businesses are already being badly affected by climate change through increasing rates of natural disasters. Putting significantly more renewables into the system will also lead to price reductions in the longer term, due to their mostly zero fuel cost.

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