December 04, 2018


TICKY FULLERTON: A clear set of policy choices seem to be emerging up into the lead up to next year’s federal election but none more so than in energy. Labor has recently put forward its energy policy, which includes returning to something remarkably like the original NEG which is what got thrown out by the Turnbull Government, notwithstanding its broad support from business. Well today Energy Minister Angus Taylor has been quick to jump on the Energy Market Operators warning that Victorians will face the risk of one in three that there will be blackouts over the Christmas period and he is staunchly defending his right to hold a big stick to the energy companies which he says Labor is cosying up to.
Joining me to talk Labor’s energy policy is Mark Butler Shadow Energy and Climate Change Minister. Mark, good to talk to you, first can I ask you about the Market Operators news on the risk of these blackouts. Surely that would be a concern to both sides of Parliament?

MARK BUTLER: Of course, and the Market Operator has been doing really good work over the last couple of years to ensure the summer months, when demand really does go very high because of the prevalence of air-conditioning, all the great things we have in our society now, to make sure there isn’t going to be unserved demand. They have this thing called the RERT, which allows the Market Operator to effectively buy a demand response to periods of peak demand, where there might not be enough supply in the system. In addition to that we know, for example, there are some emergency diesel generators in the South Australian system that will also be able to kick in in the event there is this unserved demand that AEMO has talked about in their report today.

It just goes back really to the importance of having an energy policy that is going to pull through enough investment. Yes Hazelwood closed but there will be other coal generators closing in coming years – 75 per cent of our existing thermal generators are already operating beyond their design life. It just goes back to reinforce the importance of a bipartisan energy policy to ensure we have enough supply in the system.

FULLERTON: I think the Government would jump on you pretty quickly there and say that well no this goes to the issue of reliability, where Labor in a way got us there in the first place by having this very high emissions reduction target, by pushing renewables at the expense of dispatchable power into the market too fast – this is how we’ve got ourselves into this mess. And they would say that they are now preparing us with reliable, dispatchable, underwritten, firming up the renewables side; a much better plan for reliability.  

BUTLER: Except it is very difficult to see where the new investment is going to come from with the demise of the National Energy Guarantee. The problem is the supply/demand balance has become too finely balanced if you like. What everyone says in the energy market, experts and academics who look closely at this market will tell you that we need more supply into the system. Now of course we also need investment in firming technologies like more pumped hydro, battery technology, gas peaking plants and the like. That really is going to be the big challenge of the decade of the 2020s as more renewable energy comes into the system.

FULLERTON: If I could just pick you up there, we need more supply but we need more dispatchable supply, so unless you’re going to firm up that renewable energy simply by tipping more and more renewable energy in you are going to hollow out your coal-fired plants, you’re going to create more of an unstable grid, more of this anarchy that Kerry Schott talks about. How are you going to assure Australians that they won’t be having blackouts and indeed in South Australia as well?

BUTLER: That was the point I was starting to make Ticky. The big challenge over the coming decade is particularly getting enough firming technology into the system so that when we do have a system more reliant upon intermittent renewable energy, and we will everyone accepts that that is the future of generation investment, that there is firming technology into the system. That’s why the National Energy Guarantee was such an important proposal for the Parliament to consider. It brought in the reliability obligation; on the one hand, a market signal that did ensure there was going to be enough firming technology in the market. But also on the other hand a generation investment signal that would give investors the confidence to put the very substantial amounts of money on the table to start to renew our ageing, increasingly unreliable energy infrastructure.

You can’t just have half of it. That’s what the Government is trying to do, effectively to continue work on the reliability obligation – work that we support; it’s good as far as it goes. But without that market signal, that investment signal for new generation, we are really only half doing the job.     

FULLERTON: Does Labor take any responsibility for not having supported the Turnbull Government when they were trying to get this across the line?

BUTLER: We did. We made it very clear, Bill Shorten, Chris Bowen and I made it very clear that this was a model we could work with. There were obviously some conditions we placed on the legislation, we made that very clear upfront. But in those final days of Malcolm Turnbull’s Prime Ministership, if this legislation had been allowed to be put to a vote in the Parliament I suspect it would have got in the order of 140 votes, maybe 135 votes out of 150 in the House of Representatives. We made our position clear that there was a difference between the two major parties on levels of ambition but what investors had been telling me and the rest of the Labor team, whether that’s investors or energy companies themselves, was what we needed for investor certainty was an agreement around the rules. They recognised there was not going to be agreement between the two major parties around levels of ambition but they said to me that they could price for that risk, the same way they price for the risk involved in commodity price movements or currency movements and suchlike. They could price for the risk involved in changing targets, they couldn’t price for the risk of not knowing what the rules were at all. We got so close; we really got so close before Malcolm Turnbull was defenestrated.  

FULLERTON: Business was supporting it too of course.

BUTLER: Every single business organisation. Scott Morrison said he had not come across a proposal in his ten years in Parliament that had a broader base of support than the National Energy Guarantee and it has gone up in a puff of smoke.

FULLERTON: Well moving on, one of the other areas and of course in Question Time the Government has come right back, they are calling your policy carbon tax on steroids. I’m going to move now to the cost side of the argument. This NEG, how much will it reduce power prices? You said in the order of $550 but doesn’t that assume a RET of much lower than 45 per cent?

BUTLER: That $550 figure, Ticky, comes from the modelling from the Energy Security Board about the National Energy Guarantee as you know.

FULLERTON: But not on 45 per cent?

BUTLER: I’ll come to that. But what the modelling also said was failure to implement the National Energy Guarantee would see bills go up by almost $300. We are already seeing that in the prices of the futures market for 2019, which has seen prices increase by about 40 per cent just in the last several months because of the increased uncertainty.
The question about different targets is an important one Ticky. We have modelling provided by Reputex, a very reputal energy analytics firm out of Melbourne, that indicates a higher target would see wholesale power prices, particularly from about 2022 onwards through the next decade, as much as 25 per cent lower than the 26 per cent target. That just reflects our experience right now which shows that putting more renewables into the system is putting downward pressure on wholesale power prices. 

FULLERTON: But not to the extent, not to the $550 extent. You mention the fact that –

BUTLER: That’s additional to the $550.

FULLERTON: You said that prices would go up if you didn’t have a NEG but that doesn’t include the Government’s position now, which is to have this big stick, and to force energy companies to bring power prices down. Surely that will deliver on prices?

BUTLER: Of course they have shown no modelling to indicate that that is actually going to have any effect on power prices going down. You’d think that after having conducted an exhaustive inquiry for 12 or 18 months that if the consumer watchdog, the ACCC, thought this was going to be in the interest of consumers they would have recommended the big stick or the divestment power and they didn’t. As you know Ticky they considered it and did not recommend a divestment power. The same way Ian Harper did not recommend a divestment power in his competition policy review. There is no indication this is going to do anything other than create further investor uncertainty which will lead to power prices going up. We’ve already seen this because of the investor uncertainty created by Malcolm Turnbull being toppled along with the NEG, as I’ve said futures prices are going up.

FULLERTON: I was just going to say business again have written in, obviously they are concerned too about investment certainty. But here we are, a few months out from an election, clearly the sensitivity around power prices the Government thinks is overwhelming. They’ve put this big stick in notwithstanding the ACCC thinks they don’t need it, for the same reason presumably they were wrong footed in the Royal Commission into banking and they feel that given the profits being made last year and predicted this year by the big companies, that a big stick is needed to translate profits into lower prices?

BUTLER: I’m not sure it is right to infer from the ACCC’s report that they thought the Government simply didn’t need it. I think it is more reasonable to infer that the ACCC thought that it would actually do damage in the same way that the Harper policy review thought that this sort of power, used in the hands of a Treasurer, without judicial review, there is a whole lot of very serious questions about the way in which this power is being developed, will actually do damage. Not that it won’t do any good, but it will actually do damage to the market, which will be borne by consumers.

FULLERTON: So if you were in government you would not use the big stick?

BUTLER: We’ve said we will be opposing the legislation when it is finally introduced into the Parliament. We think probably this week. This has been a real rush job. A whole lot of people have not been able to look at this legislation, including some seasoned journalists who have wanted to have a look at it and kick the tyres on it. It has lacked transparency, it has been very rushed. There are very serious constitutional legal questions as far as we know of the power at least. I think again there has been a complete failure to provide any evidence that this will do anything other than harm the electricity market.

FULLERTON: Well a lot to go on this week, Mark Butler I thank you so very much for your time putting Labor’s position forward. Thanks a lot.

BUTLER: My pleasure.