Tasmanian energy companies warned Liberals against leaving national power market before poll


Updated

July 12, 2018 19:19:20

The energy industry warned the Hodgman Government against removing Tasmania from the National Electricity Market (NEM) weeks before the Liberals announced the plan.

Key industry bodies including Aurora and Hydro Tasmania warned about risks associated with changing the state’s wholesale energy market framework.

Just weeks later the Liberals announced de-linking from the NEM as the centrepiece of their pre-election energy policy.

Hydro Tasmania raised concerns that the changes could jeopardise investment in the sector — including energy developments as part of the government’s “battery of the nation” initiative.

Submissions were made to Treasury late last year by Hydro, Aurora, renewable energy generation developer Climate Capital, and the Australian Energy Council as part of a review of the Tasmanian wholesale electricity market regulatory pricing framework.

While the terms of reference for the review did not explicitly mention de-linking from the NEM, it is inextricably linked with the wholesale energy market framework.

In February Premier Will Hodgman announced the Liberals’ election commitment to de-link Tasmania by mid-2021, promising it would mean reduced prices for consumers of up to 10 per cent.

Tasmania’s pricing structure has been linked to Victoria since 2014, which means Tasmania’s energy pricing is affected by volatility in the mainland market.

Aurora chief executive Rebecca Kardos warned against any changes to the current system in order to achieve government policy outcomes.

“[It could] fundamentally compromise the ability of retailers to manage wholesale electricity market risk, which will likely result in less favourable outcomes for customers,” she said.

Aurora’s submission said the current system was operating effectively, and “it is important to retain the current regulatory framework, certainly until the potential impacts of broader national reforms are known and considered”.

The company warned of unintended consequences from pushing change through, as did the Australian Energy Council.

Hydro Tasmania chief executive Steve Davy acknowledged that change may be necessary.

“We would like to ensure, however, that the benefits of the current approach are fully considered, alongside the significant risks associated with making changes,” he said.

“Any potential change to the regulatory framework creates uncertainty and regulatory risk; this may erode the underlying confidence that market participants have in Tasmania which could jeopardise current and future investments.”

Climate Capital said it was “essential” that Tasmania retained a market-based wholesale pricing framework to provide price signals and confidence for new investment.

“Any initiatives that explicitly reduce wholesale prices, through ongoing policy intervention, would be unsustainable and deter new investment, while also ignoring other factors that will alleviate the upward pressure on delivered customer prices,” Climate Capital director Phil Bayley wrote.

Power price cuts should be done in ‘market-driven way’

Murchison independent MLC Ruth Forrest said the submissions made it “pretty clear” that the energy industry did not believe the state should de-link from the wholesale energy pricing arrangement.

“[The submissions from energy bodies] suggested if the Government wished to deal with those sorts of volatility issues and high pricing that can result, there’s other mechanisms to do that in the shorter term, and there could be unintended consequences of delinking,” she said.

Ms Forrest said there remained uncertainty about the national energy guarantee nationally, and the impact it may have on Tasmania when it is finalised.

“There’s still a lot of moving parts in this, I’m really concerned about where the Minister has been getting his advice from,” Ms Forrest said.

“If you’re asking industry and businesses if they want lower power prices they’ll say yes, and I agree with that.

“What I’m concerned about is the mechanism that we’re going to have in place to see that happen in a transparent and market-driven way,” she said.

Labor energy spokesman David O’Byrne said his party wanted to know what advice the Government received before it announced the policy.

Mr O’Byrne said the Government had put politics above the long-term interests of Tasmanians.

“This is a government that’s good on spin and the one liners, but they potentially made a decision that could endanger the future of Tasmania’s energy businesses,” he said.

Acting Energy Minister Peter Gutwein confirmed the Government remained committed to plans to de-link Tasmania from the price-setting arrangement.

“For obvious reasons Aurora and Hydro have a corporate position to put forward,” Mr Gutwein said.

“We have to take into account what’s in the best interests of the state and our responsibilities to the people of Tasmania to ensure that as consumers they are paying a price that not only they can afford, but that is reflective of the cost of production in Tasmania.

“At the end of the day our decision has been based around what’s in the best interests of Tasmanians.”

Mr Gutwein was speaking after announcing the $280 million Granville Harbour wind farm development had been cleared to begin substantial construction on Tasmania’s West Coast.

The development is expected to create 200 jobs in construction and 10 ongoing positions.

Other price reduction options

A report by Australia’s consumer watchdog on the country’s energy market released this week recommended the Tasmanian Government voluntarily write down energy network over-investment or provide equivalent rebates as a way to reduce power prices for consumers.

The report by the Australian Consumer and Competition Commission (ACCC) said writing down over-investment would save consumers at least $100 per year.

It was the second report on the energy industry this year to recommend the Tasmanian Government consider a write-down of energy network assets to reduce power bills for consumers, after the Grattan Institute did so in March.

Premier Will Hodgman said his government would look closely at the recommendations in the ACCC report.

“Our energy assets are important on several fronts, they are a great Tasmanian asset, they are an important revenue generator for out state, they will continue to be so,” Mr Hodgman said.

“They should remain in public hands but will be further enhanced by investments Hydro is making into its dam infrastructure, the opportunity for pumped hydro through the collaborative effort with the Commonwealth.”

Topics:

electricity-energy-and-utilities,

elections,

government-and-politics,

tas

First posted

July 12, 2018 19:02:15



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