How to understand Australia’s new energy mess

On August 14, a clear majority of the federal Coalition party room endorsed the National Energy Guarantee being promoted by then Energy Minister Josh Frydenberg.
Designed by the nation’s top energy regulators, the NEG was designed to encourage the market to provide a mix of power that would reduce Australia’s carbon emissions but would be reliable enough to avoid blackouts – and reduce household power bills. With the strong backing from business, the NEG appeared to be a policy that could attract bipartisan support and provide a stable framework for investment to end a decade of damaging “climate wars”.

But the Coalition partyroom endorsement did not extend to a minority of Liberal and National MP’s, including former prime minister Tony Abbott, who fiercely opposed the NEG, because it privileged renewable energy over coal. Their opposition fed into the conservative push against Malcolm Turnbull’s leadership that climaxed 10 days later with a Liberal party vote to install Scott Morrison as prime minister. Along the way, the NEG was dumped, to the general dismay of the power industry and business users.

In Mr Morrison’s new ministry, energy policy and climate policy were separated and energy policy became focused on the pressing political target of reducing household electricity bills while keeping the lights on. And new Energy Minister, former management consultant Angus Taylor turned to an alternative policy blueprint delivered in July by Australian Competition and Consumer Commission chairman Rod Sims.
While the NEG sought use the National Energy Market to incentivise investment in a cleaner and more stable electricity grid, Mr Sims’ ACCC report broke from the other energy regulators to claim that the NEM itself was “largely broken and needs to be reset”.
What’s not in dispute is that a decade of policy division has left Australia with some of the highest electricity and gas prices in the advanced world, along with outages and volatile prices that have shaken industry’s confidence. Typical residential retail bills have increased 35 per cent after inflation in a decade, with tariffs up 56-58 per cent for residential, commercial and industrial users alike, the ACCC found.
“Over the last two years, steelmaker BlueScope’s energy bill in Australia has almost doubled, increasing by over $50 million. These significant increases just can’t be good for consumers and certainly not for the international competitiveness of Australian manufacturing,” says BlueScope’s managing director and CEO, Mark Vassella.

Two big events over the past few years have sharpened debate over how the energy system should contribute to Australia’s agreement – endorsed under the Abbott government – to reduce carbon emissions by 26-28 per cent on 2005 levels by 2030.

First, was the September 2016 state-wide power black out in South Australia. While massive storms were to blame for bringing down power lines and towers, the blackout thew the spotlight on South Australia’s extreme reliance, within the NEM, on wind and solar energy. It it sharpened the debate over the grid was not prepared to handle the force-feeding of so much force-fed unreliable renewable energy through the federal Renewable Energy Target.
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