Frydenberg claims success in pushing down energy costs

From Energy Minister Josh Frydenberg:

It is not realistic to expect the return to $3-$4/gigajoule that Australians enjoyed less than a decade ago. The creation of an export market on the east coast means that our domestic prices are linked to those overseas, just as they are for other internationally traded commodities such as iron ore, beef and wheat. Nonetheless, there are ways to get prices down and this is where we are focusing our attention.

First, the networks. Up to half the household electricity bill is made up of poles and wires. Under Labor, these costs were out of control and contributed to the doubling of electricity prices during the Rudd-Gillard years.

In 2010, these companies were enjoying a rate of return on their assets of about 10 per cent. Today, it is just over 6 per cent. This means consumers are paying about $3 billion — or up to $300 a household — a year less than would have otherwise been the case.

…Second, generation. Up to 30 per cent of the household electricity bill is attributed to the costs involved in generating electricity. Recently, these costs have increased, predominantly due to a tightening in supply and higher gas prices.

Tragically, state governments have refused to develop their conventional or unconventional gas fields, despite the detrimental impact such decisions are having on jobs, investment and household budgets.

…In the face of state recalcitrance, the commonwealth was left with little choice but to put in place a new mechanism to restrict exports…Based on data from the Australian Energy Market Operator, the spot price for gas has fallen from $12 a gigajoule in January to just more than $6 a gigajoule.

…Third, retailers. This represents about 12 per cent of the household bill. The AEMC has found that about half of households have not moved retailers or contracts in five years. This is despite savings of more than $1000 a year being available to those who secure a better deal. Following a meeting last week between the Prime Minister and leading energy retailers, important progress has been made. The retailers have committed to providing better information to customers, including about the expiry of discounts, and guaranteeing that the more than 100,000 Australians on hardship programs do not lose all their discounts if they fail to pay on time.

…Fourth, green schemes. Making up to 8 per cent of the bill, just over half of which is at the federal level, these schemes include renewable energy targets and feed-in tariffs for small-scale solar and energy efficiency schemes.

The renewable energy target is far from perfect — it did not require wind and solar to provide storage, nor did it put in place geographical constraints on where the investments took place, flaws that are being addressed. That being said, a bipartisan agreement on the RET was reached in June 2015 and more than 4000 megawatts of renewables are being built or soon will be. The RET target is in sight and the market has set the forward price of certificates at under $50 by 2020 from the $85 they are today. Both will reduce electricity prices.

These reforms, together with nation-building projects such as Snowy 2.0, are going to make a real difference to affordability and reliability of our energy system.

There are some good measures here. The network regulation is progress. The gas measures have helped spot prices though the east coast average is still much higher than $6Gj if still falling:

This is roughly around export net back. But spot is only a very small percentage of volumes in the east coast economy. Contracts are 95% of total consumption and are still reported to have much higher prices between $15-20Gj. AGL is still proceeding with its LNG export plan which needs $9-10Gj to break even. Based upon today’s oil price, export net back prices should around $7.50Gj so there is a long way to go yet.

Finally, claiming success for the RET is one very confused message given the government spends every second day blaming it for higher costs, while the Snowy is nothing more than a brain fart at this stage and is likely to overrun by the economics of cheap batteries before it even gets underway.

Not surprisingly given these realities, there has been little easing in power prices which is why it doesn’t get a mention.

Overall, the Turnbull Government’s efforts on energy have been confused, slow, distracted, poorly conceived and ineffective. It has nothing crow about.

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