Energy policy
Energy policy – parties compared
In an 11-minute session on Radio National, Tim Buckley of Climate Energy Finance and Bruce Mountain of the Victoria Energy Policy Centre discuss how energy policies will shape the election. They see substantial savings for households – around $1000 a year – in Labor’s battery policy, and some practical challenges in the Coalition’s gas reservation policy. Mountain sees Dutton’s gas policy as a means of distracting the electorate from the Coalition’s even more costly nuclear policy.
If a picture is worth a thousand words, a well-presented video is worth ten thousand words. The ABC has a 17-minute video, narrated by Laura Tingle with contributions from energy experts, explaining all the main issues in energy policy. (Spoiler: renewables offer the most assured path to low-cost energy.)
Labor’s battery subsidy
This is the policy Albanese should have announced the day he took office in 2022.
ABC climate reporter Jo Lauder has an excellent description of the policy, covering not only its benefits for households, but also the system-wide benefits, all in plain language.
Renew Economy’s Sophie Vorath provides a more detailed description of the policy, including its interactions with state-based battery rebate schemes.
Importantly, the benefits are enjoyed not only by people with panels and batteries, but also by all electricity users, which is one reason a subsidy is well-justified.
The immediate benefits for others result from a lower demand for peak power. You arrive home at 6 pm. Your panels are no longer generating, nor are anyone else’s in your time zone. Everyone else is coming home, turning on lights, air conditioners, and cooktops, putting demand on the system when solar is no longer generating. That’s when your battery comes into use, for yourself and for others if you still have enough to spare.
That means there is less demand for electricity generated by gas, which for some time into the future will provide “firming” capacity. As the power economists keep reminding us, it’s those expensive fossil fuels that set the price for electricity. If we can use less gas-generated electricity at those peak times, the price of electricity comes down for everybody.
The other, longer-term, benefit Jo Lauder describes is the reduced need to transport electricity over long distances. It is efficient to generate electricity near where we use it. That means our energy transition can go ahead with less investment in expensive very high voltage long-distance transmission lines.
In a separate article Sophie Vorath writes positively about Labor’s policy. She believes the Coalition will come up with a similar policy, but that’s difficult to imagine, because batteries are part of a “dispatchable” electricity system, while the Coalition’s policies, particularly its nuclear policy, are centred on “base-load” supply.
The Coalition’s gas reservation scheme
As for the Coalition’s gas reservation policy, Dutton said in the leader’s debate on Tuesday night that modelling by Frontier Economics shows that it would lead to lower prices for households: 7 percent for gas and 3 percent for household electricity.[1] Importantly Dutton did not commit to a timeline, but he hinted that it would take about two years to take effect.
Frontier Economics’ modelling is on its website, where the Coalition’s mechanism, a gas security charge on exports is explained. The model’s assumptions and calculations are spelled out, leading to those 7 percent (residential gas) and 3 percent (electricity) figures on the last two pages. Samantha Hepburn of Deakin Law School has a summary of Frontier’s work in The Conversation: The Coalition’s domestic gas plan would lower prices – just not very much.
Not very exciting. That modest reduction in electricity prices will be achieved “ultimately” according to Frontier. The gas price reduction may have some appeal for households using gas, but only in Victoria and Tasmania are households heavy users of gas, and Tasmanians are rapidly switching away from gas. And it should be borne in mind that these price reductions are for the average household: those who use gas only for cooking would not enjoy much of a percentage reduction in their bills because they would still be paying a high fixed daily supply charge.
In fact it is not clear from Frontier’s analysis that they have factored in the likelihood that the daily supply charge for gas – the charge that covers pipelines and distribution pipes – will rise as more customers abandon gas in favour of electricity. Those fixed costs have to be covered over a shrinking customer base, and as the ABC’s Daniel Mercer explains, consumers are angry: Consumers left footing the bill as gas companies see asset values dwindle.
Stranded asset (household gas meter)
Gas is yesterday’s fuel: households still using gas are well advised to switch to electricity. Some businesses find gas to be a cheaper form of heating than electricity for a while, and about 17 percent of industrial gas is used as a chemical feedstock, but in time there will be affordable renewable substitutes for gas.
The Australia Institute sees merit in the Coalition’s plans for a “gas export tax” – which is a valid way to describe the gas security charge. Their post – Peter Dutton’s gas export tax is a good idea – and a turning point – congratulates the Coalition on having the guts to take on the gas giants and to use a tax to achieve a better allocation of resources.
This is a turning point because the Coalition, in cahoots with its mining industry supporters, has consistently mounted scare campaigns against Labor when it has had similar proposals. This proposal has not gone down well in the mining sector, and has left Gina Rinehart rather peeved. And at last the Coalition has abandoned its claim that Australia has a shortage of gas – an argument it has used to justify its strong support for exploration.
But the Australia Institute is not endorsing the Coalition’s idea that gas should be used as a “base load” fuel for generating electricity.
The Coalition’s energy plan would see much more use of gas than in the government’s plan, would involve extending the life of coal-fired power stations, and would stop new renewable investment. Combined these would blow apart our emission abatement goals.
1. it was not clear from press reports whether Dutton was referring to gas bills or prices – journalists often use the terms interchangeably, even though they are quite different, and Dutton has relied on this confusion to mislead people about the cost of nuclear energy. In his otherwise well-informed article about the policy the ABC’s Jacob Greber appears to be confused about bills, costs and energy use. ↩
Electricity comparison sites: good for one, dumb for all
One of the curses of the National Electricity Market has been the emergence of electricity “retailers”, whose task is to buy electricity from wholesalers – AGL, Origin and other big firms – and sell it to consumers as a package, smoothing out some of the volatility, while taking a hefty commission on the way.
With such contrived competition, it is up to the shopper to go on line and look for the best deal. For example on Radio National Breakfast Alison Reeve of the Grattan Institute has a 6-minute session advising consumers to shop around for ways to reduce their power costs.
This sort of advice falls into the category of "good for one, dumb for all". If you have time to record your electricity use, to go on line and look at the "retailers'" web sites, to construct a spreadsheet of comparisons, and to change your direct debit arrangements, you will save a bit of money – until the "retailers" bring out a new set of tariffs and you repeat the exercise.
These "retailers", most of whom are actually subsidiaries of the big generators, are masters of price discrimination – that is segmentation of the market according to customers’ ability to strike a deal. It works a wonder for retired engineers who have time to play with spreadsheets, but it doesn’t do anything for those who are time poor and those who lack analytical skills. They’re the people who finish up subsidising the retired engineers, but in the long run everyone loses because even retired engineers have better things to do than to shop for electricity.
That advice is not in line with the Grattan Institute’s general approach, which is to look at public policy from a system-wide perspective, rather than outcomes for individuals in win-lose contests.
There are some sites that claim to do the search, but the consumer organization Choice finds that these are not always as independent as they appear to be: CHOICE investigates bias in energy comparison site. (ABC Radio National 7 minutes). Choice suggests that customers turn to the Commonwealth’s Energy Made Easy website, which covers New South Wales, Queensland, South Australia, Tasmania and the ACT. It’s as user-friendly as such a site can get.
But the policy question we’re not asking is why we need a set of “retailers” – high-cost commission agents with no physical connection to the product, selling exactly the same product, unable to offer any innovation (230 volts, 50 cycles, power factor close to 1.0), and covering their fixed costs and advertising costs by charging some people more than others.
This function was once done by government-owned electricity utilities, more fairly and at a much lower cost. Re-nationalizing this function could take a significant amount off your electricity bill – permanently.