Politics of Power

Monday 25 September, 2017

Energy prices are now the number one issue for businesses in Queensland.

In the recently released CCIQ Suncorp Pulse Survey Report, the price of electricity has become the biggest constraint on business growth and viability.

What are small businesses saying?

CCIQ members have told us “government is doing nothing about rising electricity costs” and “the absolute fiasco around electricity costs is preventing me from growing my business”. It is a sad story that an essential service is crippling small business, therefore putting a handbrake on the economy.

Major Constraints

Rank
ConstraintJun-16Mar-17Jun-17
1Energy costs and standard of infrastructure48.448.760.5
2Political and economic stability63.556.658.9
3Insurance premium costs50.050.054.9
4Level of demand/economic activity63.559.854.9
5Level of business taxes and government charges (State and Local)52.849.853.5
6Level of business taxes and government charges (Federal)49.447.553.4
7Direct wage costs51.047.452.5
8Compliance and complexity of business taxes and government charges50.048.650.7
9Indirect wage costs (Superannuation, Workers Compensation etc)48.944.748.6
10Compliance and complexity of IR laws (awards, agreements, unfair dismissal)44.344.947.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 The Pulse survey painted a grim picture if prices are not brought under control. The results showed:

  • 28% of businesses will pass on costs to consumers;
  • 27% will reduce their profits;
  • 14% of businesses will reduce staff; and
  • 6% would close their doors.

Over 170,000 jobs are at risk across Queensland if this crisis is not solved.

Why is electricity so expensive in Queensland?

As prices have risen over the past five years Queenslanders have been asking themselves, how did we get here? This is not a simple answer but some of the key contributors to the current price hikes are:

1. The gold plating of electricity networks:

Queensland Transmission and Distribution networks, colloquially known as the ‘poles and wires’ went on an investment spree roughly ten years ago. Some of it was required to update old systems but a Senate Inquiry found that investment had by far outstripped what was required, driving up costs of network charges. By increasing investment in the network, it has driven up the ‘value’ of the asset meaning when there is a shortfall in earnings, Energex, Ergon and Powerlink will charge more to cover the gap. Network charges make up over 50% of a consumer’s bill. Rod Sims, of the Australian Competition and Consumer Commission (ACCC) said at the National Press Conference yesterday that Queensland Government took advantage of the loosened regulation around networks inflating prices by 41%.

2. Government Owned Corporations (GOCs):

As a result of the Queensland Government retaining ownership of the State’s electricity assets, they remain wholly responsible for the rising costs. In Queensland, 65% of electricity generated is from Queensland owned corporations. 100% of all electricity is transported around the state on wires belonging to the Queensland government. The Queensland government is expected to net $6.3 billion over the next four years from the GOCs. The Queensland government is quick to tell you we still own them, but boy do we pay for them.

Qld Gov Elec Reciepts

 

 

Qld GOve Reciepts 2

3. Lack of Federal Policy:

Ideology has hijacked the energy policy debate over the past 10 years. For the past decade, there has been a policy vacuum with respect to energy. As a direct result, investment has ceased in electricity generation due to ideological conflicts on all sides. An unpredictable market is not a place to do business in. Small businesses owners understand risk versus reward and return on investment and that is what energy investors and financiers want and need before they sink billions of dollars into the Australian economy.

4. Bidding practices:

Generators in Queensland have worked out the magic formula which allows them to push prices up due to the outdated legal framework currently governing this space. In short, generators bid in 5 minute increments specifying how much energy they will supply for what price. However, as settlement occurs every 30 minutes with the price averaged over the six 5 minute intervals, generators have been using rebidding practices to profit, whilst the end user’s costs sky rocket.  

5. Marginal Gas Prices:

As coal generators are retired and renewable energy increases in the energy mix, generators which can smooth out renewable spikes and lows are required to keep the system stable and synchronous. Batteries and gas generators currently provide that service. Unfortunately, due to our gas been exported overseas the domestic gas market lacks supply. Meaning, what little gas there is, is a highly-valued commodity which in turn drives up the price of electricity generated from gas.

Energy Solutions

With a State election to be held in the next 6 months, energy prices are now arguably the most important platform for both major parties to campaign on. But for an effective campaign both parties need to provide policy that will drive electricity prices down in the short and long term.

What CCIQ is advocating for is immediate price relief, with long-term collaborative planning across all levels of government and industry to drive prices down and keep them down. CCIQ recommends a policy platform which includes:

  1. Abolishment of the Solar Bonus Scheme altogether;
  2. Removal of unnecessary charges, namely the competitive neutrality charge on networks;
  3. Review of bidding and settlement practices;
  4. Removal of 50% state renewable target; and
  5. Introduce retail competition into regional Queensland.

What are Queensland Politicians proposing?

To date, Queensland Labor put forward their Powering Queensland Plan (PQP) a few months ago. A few weeks ago, the Queensland LNP released their plan, Powering Renewable Energy (PRE).

The first thing to note is the political language, ‘plan’. All very high level with connotations of decisive action and forethought, both stating to ‘support’ and ‘deliver’. The current government has listened somewhat and removed the Solar Bonus Scheme from consumers bills and placed the burden on taxpayers to halve an expected increase in May. The current government also directed Stanwell (a GOC) to review their bidding practices.  For the record, since the Labor Plan was introduced wholesale prices have fallen[1] however are still higher than where they were 12 months ago, and with summer almost here, prices will surge as demand increases.

Both policies have an infrastructure focus, however the Labor Plan is far more detailed in terms of what and where compared to the recently released LNP Plan. The Labor Plan has a section dedicated to building energy infrastructure in Northern Queensland, however the LNP Plan lacks similar detail. In statements to the media, the LNP have indicated their plan to build a new coal-fire powered station in Northern Queensland.

It should be noted however that under the current committed infrastructure pipeline of energy generators, Queensland will have no shortfalls for the next ten years according to the recently released AEMO report. Therefore, the LNP Plan understands the market should lead the way in relation to further infrastructure investment.

Solar and Renewables

Both policies are pro solar development, at least at face value. Currently the Queensland Government has spear headed some large-scale solar projects through-out the regions, which in the long run will provide cheaper energy. Juxtaposed, despite the document being labeled Powering Renewable Energy, upon reading the LNP policy it becomes clearer that it is veering away from solar and back to coal.

CCIQ holds broader concerns about budgetary impacts if the government chooses to build a costly generator. If there is no private investment appetite, funding would all come from government. We raise concerns that this approach may blow a big hole in the budget, with a government taking on all the risk in an uncertain national energy policy environment.

The LNP plan does address how renewable energy will feature in Queensland as a balanced element to the generation market, taking a more sensible approach compared to the Labor Plan. The LNP Plan aims to align with the national emissions target in accordance with our international obligations set out in the Paris Agreement. National harmonization and approach towards renewables and emissions is a core foundation of CCIQ’s energy advocacy. State based targets, which are overly ambitious, have been found to be a factor of prices rises. We believe the LNP plan to be more realistic than Labor’s, promoting Queensland’s renewable energy industry without an unnecessary, generous subsidy.

Gas

Where the Labor plan has a Gas action plan, the LNP Plan is notably absent. Currently Queensland is able to frack and extract gas unlike some other states. Under the Labor plan, tenders for further gas development and production has encouraged additional land releases for new projects.

Brining gas prices down is a key element of reducing the volatility of the electricity market as the marginal gas cost is responsible gas generated electricity costs. Gas generators are commonly used when there are spikes in demand as they can ramp up supply unlike coal generators. This is a national issue however, as state moratoriums limit the supply for increasing domestic demand.

Now, I want to take the time to take a tangent about Gas and Labor’s plan to return Swanbank E gas-fired power station to operations. The importance of this station will be highlighted this November. Earlier this year in February, Queensland hit its peak demand of 9369MW with limited reserves. This November Queensland is predicted to hit a similar peak. Swanbank E will provide an additional 385MW in reserves, only if it is operational. As Queensland is supplying energy to our southern counterparts if that peak hits, and we are exporting to southern states and we don’t have the reserves as promised, the Government of the day will be faced with the decision, do we cut off the southern states in the NEM to ensure reliability in Queensland or do Queensland businesses and homes suffer load shedding, meaning black and brown outs. Whichever way this goes it will be a political poison pill. Whoever holds power in November 2017 better have a plan.

Political Posturing

Overall, disappointingly both policies still seem focused on what the other did before them instead of looking at the problem and delivering meaningful solutions. Queensland small businesses find cold comfort in the political blame game, what they need is cheaper electricity.

What’s on offer to Queenslanders is an overly ambitious renewable policy agenda that is out of step nationally, or a mere plan to make a plan that reads as contradictory. Both sides of politics can and must do better.

Comparing them side by side you can get a sense of the aims, as lofty as they are. Both parties seem to genuinely want to reduce prices. But if so genuine, why are prices only going in one direction?

Watch this space as we can expect more to come as pressure mounts towards the election.

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