Day 47: Real economic costs
An introductory weekday newsletter from Schwartz Media. Counting the days since Australia had an energy policy.
Good morning and welcome to day 47.
Today in summary: Competition regulator chief Rod Sims lashed energy companies in a wide-ranging speech on what he called “Australia’s broken energy industry”; the Queensland government came under fire for banking higher than expected profits from state-owned energy retailer Ergon; and Federal Labor threw its support behind battery metal manufacturing.
— Charis
Today’s policy spin level: 💨💨
ACCC Chair Rod Sims didn’t hold back in a speech to a group of engineers and scientists overnight, arguing there was a threat whole industries could leave Australia if they continued to pay over the odds for electricity. Sims also set his sights on solar enthusiasts, defending his push for rooftop solar subsidies for households to be scrapped. He said since solar panels made economic sense for customers, subsidies weren’t necessary. And he wants federal and state governments to move ahead with his recommendation for writedowns on the regulatory value of networks
"There are real economic costs of having a distortion of unnecessarily high network costs, so there's an economic rationale for doing this."
Sims also said energy companies should have fixed the problem of loyal customers paying too much for their electricity years ago.
"So any complaints about government regulation, in my view, is their fault. They didn't fix it so it's no surprise governments now will."
Australian Financial Review | Sydney Morning Herald | The Guardian
The Queensland opposition LNP has dubbed state-owned energy company profits a “secret tax” on electricity prices in the state. Annual reports released by the government showed Ergon Energy Queensland made a A$375 million profit before income tax in the 2017/18 financial year, which was more than double the previous year. And Energy Queensland – a merger of the state’s electricity providers, including Ergon – returned a total profit of A$809 million for the year, well above the company’s profit target of A$612 million.
LNP energy spokesman Michael Hart said the government should use these profits to introduce retail price competition into regional Queensland. But Queensland Energy Minister Anthony Lynham pointed to the A$493 million in subsidies the government had paid to regional households and businesses, and the fact the dividends were being used to fund schools, hospitals and frontline services.“Under the LNP, these dividends would be in the hands of offshore multinationals, and we would be pleading with boards and CEOs overseas for these dividends to be invested in driving down prices for Queenslanders.”
Australia should have a bigger slice of the forecast A$2 trillion lithium value chain, according to Federal Labor leader Bill Shorten. The Party is making downstream processing of battery metals mined in Australia a policy priority, supported by research grants and access to the A$5 billion Northern Australia Infrastructure Facility.
“At the moment there are a few companies investing around Australia to refine battery metals and establish battery manufacturing facilities. This includes investments like BHP’s nickel refinery and Tianqi’s Lithium processing plant in Kwinana. As well as the Sonnen battery plant in Adelaide and Energy Renaissance’s battery plant planned for Darwin. We want to support them to take the next step move further down the supply chain.”
Geopolitics
Emerging from a Russian Energy Week forum, Russian President Vladimir Putin called for more European support for the country’s proposed Nord Stream 2 gas pipeline. US President Donald Trump has threatened to block the pipeline, leading Russia to garner support from European business and political leaders.
“I understand Donald, he’s fighting for his country’s interests, for his industry, and he’s right to do that.”
“But in this case American LNG on the European market is more expensive, not by a bit but by 30%. That’s way too much.”
Coming Up
Energy Minister Angus Taylor will speak at next week’s AFR National Energy Summit. Other speakers on Wednesday include Shadow Minister for Climate Change and Energy Mark Butler, and AGL interim CEO Brett Redman.
The Commentariat
“GE is so fragile after nearly four decades of asset shuffling under former CEO Jeff Immelt and his predecessor Jack Welch that taking the helm of a proud and insular company is becoming a risky business,” writes The Financial Times’ John Gapper. Immelt’s idea to acquire Alstom’s power business in 2015 has proven disastrous, and the damage still lingers - “the company has become better at marketing itself than at buying businesses or managing them.”
Three more things
EU lawmakers have voted to cut carbon dioxide emissions from cars and vans by 40% by 2030, to the frustration of the automotive industry. President of German automotive association VDA, Bernhard Mattes, warned of job losses, calling the targets “completely unrealistic,” and accusing the EU of “ignoring technical and economic feasibility.” Transport is the only sector in the EU in which emissions are still rising.
“The capacity of the world's coal-fired power stations would increase by a third if all 1,380 plants planned or under development are built, making it tougher to meet Paris climate goals,” writes Fairfax’s Peter Hannam. According to a survey carried out by German non-profit group Urgewald, which includes a list of the top 120 coal developers, “the projects would add more than 672 gigawatts of capacity,” including coal power plants built in countries that do not presently generate electricity from coal.
A group of 18 urban NSW councils has sealed an agreement to buy electricity from the Moree Solar Farm to power council buildings in Sydney. The Southern Sydney Regional Organisation of Councils, who coordinated the arrangement, are estimating the solar farm will supply 35% of the councils’ retail power by July 2019.
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