The National Energy Guarantee is far from national and guarantees little

Friday 17 Aug 2018

Federal Energy Minister Josh Frydenberg has been on a media offensive over the last two weeks trying to convince the country that the Turnbull Government was finally fixing the problems of the east coast electricity market.

It’s been difficult to escape all the hype being built around the National Energy Guarantee, the latest, greatest energy policy solution being spruiked by Mr Frydenberg and Prime Minister Malcolm Turnbull in recent months.

On Friday, there was much talk of ‘progress’ being made after a meeting with the Commonwealth and eastern states energy ministers to discuss the policy. A statement from Mr Frydenberg after the meeting proclaimed that “ministers have agreed to take the National Energy Guarantee to the next stage”.

And on Tuesday, the Prime Minister claimed victory after a Coalition party room meeting approved the policy, saying the nation was "one step closer to cheaper and more reliable energy".

Sounds great, doesn’t it? Almost too good to be true.

Sadly, when you look closer, the cracks in the façade begin to appear. The states are not on board, WA has been excluded from negotiations, and worst of all, the policy may not actually reduce power prices and could potentially impact on the affordability of electricity, reliability of supply and investment in WA.

Despite the name, the National Energy Guarantee has frozen out WA on the basis that the state is not covered by the National Energy Market, which provides wholesale electricity for the South Australia and the eastern states. That might seem reasonable at face value, but the NEG will have direct and consequential impacts on the WA energy sector.

Mr Wyatt pointed out the numerous reasons why he was “grateful” that WA wasn’t a part of the east coast market to The West Australian on Friday.

The differences have meant WA’s energy sector has not been plagued with the same issues as the Eastern States. Due to arrangements we put in place in 2006 under the former Carpenter Labor government we have not experienced the major challenges to electricity supply reliability experienced by other States.

The Australian Competition and Consumer Commission recently found our electricity prices are among the lowest in the nation and we have the lowest retail margin.

Our domestic gas reservation policy is the envy of other States, along with the low prices it delivers. This in turn means the emissions intensity of our electricity sector is lower than the national average.

Mr Wyatt points out that a coordinated national approach is surely the best way to design a national emissions policy. The exclusion of WA from this discussion creates uncertainty around what national requirements will be imposed upon WA’s electricity sector to reduce emissions.

That uncertainty could cost us all significantly. The WA Independent Power Association has warned that approximately $2 billion in investment in new WA-based renewable energy projects is at risk of not proceeding.

That would be an unacceptable outcome for Western Australia. Especially when there have been ongoing questions about whether the National Energy Guarantee can deliver on its promises.

A new paper from the Australian Institute’s Chief Economist Richard Denniss has pointed out that the projected savings from the policy are under serious debate by energy experts and has warned that potential subsidies for coal-fired power stations would render those forecasts “virtually meaningless”.

Additionally, for all the talk of the importance of private operators creating competition in the sector, it seems that the power business has been quite profitable for private industry. In the last month we’ve seen EnergyAustralia almost treble its first-half operating earnings, while AGL recorded a 27 per cent increase in annual profits to reach $1 billion for the year.

With three private operators, AGL, Origin, and Energy Australia controlling 46 per cent of the wholesale electricity market on the east coast, you have to question just how much competition is really happening.

The Turnbull Government knows that the situation on the east coast is unsustainable. Reliable power at a reasonable price is a necessity for Australian families and businesses. The task of reforming the complex mess of private operators in the National Energy Market will be difficult.

But whatever solution is decided upon, it must be designed in consultation with all of the states to ensure an effective policy that does not adversely affect Western Australia.

The fact that WA’s electricity system has stayed separate from the National Energy Market has been a great asset in recent years. The Turnbull Government must not penalise WA for using their power to put people ahead of profits.