A new report has warned the Turnbull government the national electricity market is at “crisis point”, with rising energy prices for consumers and increasing concerns the grid cannot meet demand.
The report by the Grattan Institute says urgent action is required before summer to safeguard against the risks of blackouts, but it also cautions against political “fixes” – like Malcolm Turnbull’s Snowy Hydro 2.0 plan or the South Australian government’s plan to boost energy self sufficiency.
“There is an acute danger of politicians panicking and rushing to decisions that push electricity prices higher and make the task of reducing Australia’s emissions harder,” said the Grattan Institute’s energy program director, Tony Wood.
The much anticipated Finkel review into the national electricity grid is scheduled to be handed to political leaders at a Council of Australian Governments (Coag) meeting on 9 July.
Industry stakeholders expect the Finkel review will continue to champion an emissions intensity trading scheme for the electricity sector – despite political opposition from the Coalition – as one policy response to promote orderly investment in infrastructure and emissions reductions consistent with Australia’s Paris commitments.
On Sunday, ahead of the resumption of federal parliament, one key crossbencher also intensified pressure on the government to deal with Australia’s energy challenges.
Nick Xenophon warned Australia was approaching “an Argentinian moment” and said the government needed to take concrete steps to reduce gas prices.
“Years ago Australia and Argentina were the richest countries in the world, Argentina went down a path of bad strategic decisions and policies, and slid down a road into poverty and chaos,” Xenophon told the ABC.
“If we don’t deal with the gas crisis, Australia will see its living standards decline substantially and it will plunge us into very high levels of unemployment and scar our manufacturing sector on a long-term basis.
“We need to tackle this head on.”
Xenophon said the government needed to adopt a “use it or lose it” policy in the gas market, and work cooperatively with the states to open up supply.
The Grattan report says high prices are not the only problem in the gas market – there are also looming shortages. It says it intends to examine dynamics in the gas market in greater detail in a subsequent study.
The report argues the way to fix current problems in Australia’s energy sector is not through one-off government interventions and investments but through comprehensive market reforms.
It says a range of measures are required. The government needs to consider recalling mothballed power generators to ensure there are reserves of energy available in emergencies.
It says customers should be given financial incentives to limit energy usage during peak demand periods, and generators should also be rewarded when they respond flexibility to surges in demand.
The report says while consumers might take comfort in the idea that governments are intervening in episodes of central planning, that approach might prove to be “more expensive and may not improve reliability or achieve the emissions reductions required.”
“A government-led program of investment, planning and coordination is likely to lock in exist ing technologies at the expense of better solutions that may emerge in future,” the report says.
“Investment risks and costs would be transferred to consumers and would be heavily reliant on forecasts that are never quite right and often quite wrong. Overinvestment would lead to higher costs, while underinvestment would lead to supply shortfalls.”
The report also argues the best way to restore confidence in the national electricity market is for the government to produce a credible emissions reduction policy.
Wood said: “A decade of toxic political debates, mixed messages and policy backflips has prevented the emergence of credible climate change policy.”
He warned that investment in electricity generation, including renewables, was “stalling” because the Turnbull government was yet to map out the way forward.
A separate analysis by the respected energy market analysts, Reputex, to be released Monday, finds Australia can meet its Paris emissions reduction targets at “no net cost” to business.
The report says emissions reduction at no net cost would be achieved by unlocking $12bn of savings attributed to “negative cost” abatement opportunities such as renewable energy and energy efficiency.
It says Australia has a number of opportunities to reduce emissions at a “cost saving” to investors, with 40% of all emissions reduction activities identified as providing a positive return to investors, including the take up of distributed solar photovoltaics (PV), fuel efficiency and farm forestry.