Parliament Updates

Speech: "Big Stick" Legislation

23 October, 2019



I rise to speak on the Treasury Laws Amendment (Prohibiting Energy Market Misconduct) Bill 2019. We've had 10 years of energy policy uncertainty and half a dozen failed attempts by both the government and the opposition to sort this out. As a result, household energy prices have ballooned by 56 per cent in the last decade, pushing many households around Australia into financial stress. The majority of this price increase was driven by network costs caused by gold plating; the network companies and these players have not been dealt with by this bill. We've seen increases in the wholesale electricity prices, not renewable generation. We have been under a policy of relying on coal-fired power and gas, and that has led to rising prices. In the last few years, the government has introduced legislation like the Default Market Offer and the Retailer Reliability Obligation to try to bring prices down. This bill, allegedly and supposedly, is going to help reduce prices further. This will be a test because this will be followed and watched closely.

What is in this bill? We've heard a lot about it, so it's important to understand it. The government is seeking to introduce new remedies for high power prices, specifically dealing with alleged anticompetitive conduct in the National Electricity Market. What does it purport to do? In the retail market, in the event of a sustained and substantial reduction in supply chain costs, retailers will be required to make reasonable adjustments to their retail prices for market offers, including to households and small businesses. In the wholesale market, generators will be prohibited from manipulating the spot market, and that can occur in a number of ways set out in the explanatory memorandum. In the contract market, energy companies will be prevented from withholding hedge contracts for the purpose of substantially lessening competition.

This legislation sets out graduated remedies that can apply in the event of misconduct. The ACCC will be able to issue a warning notice, accept an enforceable undertaking or seek a financial penalty of up to $10 million, three times the value of the total benefit attributable to the conduct, or 10 per cent of the annual turnover of the corporation in the 12 months before the conduct occurred—extremely significant, severe financial penalties. In addition, the ACCC will also be able to recommend that the Treasurer either issue a contracting order or pursue a divestiture order in the courts. The contracting order will essentially subvert the processes of a company and force it to run a business in a way that may not be consistent with its shareholders or internal decisions.

What evidence do we have to rely on for the basis of this bill? I'm deeply concerned that this bill is trying to solve problems that, first of all, don't exist. I must say, there have been a number of speakers in this House who have made very important points, including the member for Indi yesterday. The government likes to point to alleged price manipulation behaviour around the closure of Hazelwood in Victoria as evidence for the necessity of these new remedies, but the Australian Energy Regulator investigated those events and found that the Hazelwood closure did not identify instances where the opportunistic exercise of market power significantly affected average price outcomes in Victoria or South Australia and therefore did not agree with the government that there had been such conduct. In a later report, they found:

Despite this vulnerability to the exercise of market power, we did not identify short-term behaviour as contributing to recent price rises.

But the government doesn't want to listen to those findings. Instead, it wants to listen to its own agencies, who used flawed analysis from policy advisors like the Victoria Energy Policy Centre. In relation to the report that they came up with, Frontier Economics wrote this:

The numerous methodological and procedural flaws in the Mountain-Percy report leave the evidence well short of that required to allege serious wrongdoing by market participants. Certainly, the report does not provide any suitable justification for the government’s misguided interventions in the NEM.

And, finally, the ACCC, who will be tasked with providing recommendations to the government on prohibited conduct under this bill, said that the behaviour that this bill seeks to remedy has simply not occurred.

What is the likely effect of this bill? That's what we really need to be concerned about. Despite not having any evidence that justifies the remedies, the bill will have a significant effect on the National Energy Market. The Law Council of Australia concluded that the bill's remedies are heavy handed, disproportionate and overly bureaucratic market reforms to perceived prohibited conduct and to some extent double up on powers which already exist under section 46 of the Competition and Consumer Act for market misconduct and the default market offer already introduced by the government. Furthermore, they suggest that, in attempting to remedy possible misconduct with sections like 153E, F, G, and H, this bill introduces uncertainty which will have negative effects on the market. These sections need considerable tightening up.

The legislation will further distort the market by adding further regulation, which will affect investment in an already fragile investment climate. The Grattan Institute echoes the Law Council's submission, saying:

"... hasty government intervention risks making things worse rather than better. Lowering prices ultimately requires private investment; a short-term ‘company bashing’ approach may well prove counter-productive."

Also, on the alleged misconduct, they say:

"Not only did the ACCC never say these things are happening and they also said in their view having integrated gentailers was actually a good thing and would actually reduce the overall cost."

I have a particular concern with the provisions regarding contracting orders in sections 153W and 153X. Such powers require an assessment that should be made by a court, not the Treasurer. My concerns—and they have not been addressed in the explanatory memorandum or the bill or by the minister—are that these powers can be misused by the Treasurer to keep generators open or allow the minister to reopen closed generators that have been closed due to a company strategy, resolution or due care and safety reasons. If a company decides to close a fossil-fuelled power plant for commercial reasons or in line with their stance on climate, they must not be victims of coercion by this government to stay in the market, as we have witnessed with Liddell. I was assured by the minister that the powers under this bill would not be used for this purpose, but I call for this to be put on the public record by the minister. These orders cannot be used to force coal-fired power plants to stay open or be used for an ill-conceived plan by some to get control of a coal-fired power generator.

What is the appropriate way forward? Market observers are saying that this legislation is the exact opposite of what the National Energy Market needs at the moment and that this bill is another part of a piecemeal attempt at energy policy. What we actually need to deal with energy prices is a settled energy policy, and the best we have had to date would be the National Energy Guarantee, which had bipartisan support from state governments and industry. Kerry Schott, the chair of the Energy Security Board, said, on the policy front:

One of the things that does make it difficult is the lack of integration of emissions reduction with the energy market.

And the world would be much easier if we knew, for example, a national target out at 2050, or some guide of where we're going.

Integration of emissions reduction and a target are both what the National Energy Guarantee sought to remedy. This is further emphasised by the ACCC, who said in their latest report on the NEM price:

"The National Energy Guarantee seeks to more clearly link the introduction of lower emissions generation sources to the ability to call on generators to produce energy when it is most needed. To the extent that this policy can encourage investment in capacity from a diverse range of sources, diluting market concentration and promoting competition to supply retailers, the policy should assist in delivering electricity affordability."

If policy is not used in that way to integrate these factors, it will create further instability and discourage investment in the energy sector—if not the NEG then at least something to replace it. This could be a clean energy target that includes signals for firming, which was the 50th recommendation of the Finkel review. It was, at the time of the report, the most effective mechanism to drive investment in renewables, other than an emissions trading scheme.

Academics like Blakers and Stocks at the Australian National University have identified enormous opportunities for renewables if we provide a mechanism for new transmission and transmission upgrades to enable renewable energy zones like New South Wales to Queensland via New England or access to zones in South Australia via the river link. The Integrated system plan, which is Australia's most comprehensive energy system planning document to date, created by the Australian Energy Market Operator, lays out transmission possibilities and should be integrated into the government's energy policy decision making. Both AEMO and Blakers and Stocks simply state that, if we provided signal for transmission, this would bring on the next wave of investment and competition in the market. As for firming, Blakers and Stocks have identified over 22,000 pumped hydro sites in Australia, a fraction of which could meet Australia's storage needs for a 100 per cent renewable energy grid. In a recent committee hearing they maintained that 100 per cent renewable energy is not an engineering problem. It is technically straightforward; the only barrier is the politics.

What are the opportunities for Australia in energy? Australia has an unprecedented chance to turn the country into a renewable energy superpower. The GenCost 2018 report by CSIRO and AEMO, which investigated the cost of various forms of generation in Australia, showed us that renewable energy by itself is the cheapest cost of new generation, at roughly $45 to $55 per megawatt hour and, firmed with six hours of pumped hydro, would be roughly $90 to $100 per megawatt hour. This is because our abundant sun and wind resources and engineering ingenuity give us a natural advantage over other nations. We must harness this opportunity. People in Warringah want to see this. Many are willing to contribute to a new era in energy. We have renewable energy developers at the Manly Solar Beach hub, like Solar Choice, Edify Energy and WIRSOL, already helping to fix our energy mess. These companies have already developed over one gigawatt of renewable capacity in Australia. That is powering the equivalent of over 500,000 homes. Now they are on the new frontier of battery storage, contributing to pioneering projects like the Gannawarra battery and investigating the applications of virtual power plants.

Outside of Warringah, we are already seeing plans for renewable energy exports to Indonesia, and massive renewable hydrogen projects as well. The Australian National University's Zero-Carbon Energy for the Asia-Pacific project is suggesting that we build a high-voltage undersea cable to Indonesia from the Northern Territory that could export 440 terawatt hours of electricity yearly. They are working with developers like CWP Renewables to achieve this. They further add that we could use renewables to make green steel and green hydrogen, and the combination of these would grow to the equivalent of our current fossil fuel energy exports and iron ore volume.

The Australian Renewable Energy Agency is supporting these kinds of endeavours. They are part financing early-stage hydrogen projects in Queensland. ARENA has put in a total of $2.9 million to one project in Moura, which is proposing to produce 20,000 tonnes per year of ammonia from 3,600 tonnes of renewable hydrogen. ARENA is doing this with projects across the board, from electric vehicle charging to battery storage, demand response and transmission technology. To keep up their good work, they urgently need assurances from the minister of continued funding past 2022. This agency is essential for our energy future.

These projects are just some examples of what we can achieve if we set our minds to the future. To get us there, we need considered policy—not just big sticks, which will drive away investment and create instability. Customers will be the ones who will pay for that instability with higher prices, and they will pay for poor planning policy. I call on the government to present a considered energy policy that will take Australia into the future. Much more is needed.