March 31, 2017

It’s not obvious in the public debate, but most energy industry participants agree on a few things:  

  • First, we need a stable, durable national approach to energy, one which delivers reliable, affordable and cleaner supplies of electricity and gas – for everyone in Australia, regardless of where they live or how much they earn. 
  • Second, we have good, talented, experienced people at the Australian Energy Markets Commission, the Australian Energy Market Operator and the Australian Energy Regulator who know what they’re doing running the National Electricity Market. 
  • And third, politics are making it very hard for good politicians to do the right thing.   The rest – especially how we deliver those reliable, affordable and cleaner supplies of energy – seems in dispute.   But what if we accepted that our politicians probably aren’t going to agree? That a bipartisan approach is unlikely? 

We’d have to look at other ways of fixing energy. 

Perhaps part of the answer lies in trusting the independent agencies we already have; agencies that are apolitical by design and were created to promote investment in an efficient and reliable market – one that works in the long-term interests of customers, wherever and whoever they are.

AEMC, AEMO and AER were established to oversee flexible and resilient markets that benefit consumers; each one uses the word “independent” somewhere to describe itself. 

The problem is those bodies haven’t always had the authority or opportunity – the true independence – to do their jobs. 

Rather than create new regulators to address our shared energy challenge – we have more than enough already – the answer lies in how you use the agencies we already have, and what you trust them to do.

Clearly that would require a lot of careful thought, planning and design to get right. But we’ve done it before. We have a wonderfully successful model in this country that’s envied around the world – the Reserve Bank of Australia.

Applying such a model to energy is not a new idea – and it’s certainly not mine. Warwick McKibben has long been an advocate and Frank Calabria from Origin offered it for discussion only a few weeks ago.

I expect the concept of asking independent institutions to guide energy, and perhaps the implementation of carbon policy, will attract scepticism, even ridicule. But the blame game isn’t getting us anywhere.  

Just as the RBA is responsible for monetary policy, our independent energy institutions might take charge of delivering carbon policy. For example, the AEMC might do this with advice from AEMO and AER.

And rather than interest rates, its lever would be a mechanism for managing carbon – one that is applied more broadly than to just the energy sector, which accounts for a third of Australia’s emissions.

Such a clear long-term carbon signal, overseen by our independent institutions, would be the premier mechanism to drive a national reduction in carbon emissions, just as it’s the longterm interest rate that drives national investment.

And short-term management of the carbon signal would minimise or avoid disruptions to the market, in the same way short-term interest rates are used to smooth the economic cycle and maintain inflation within a band.

Considering how to take some of the politics out of energy policy is one option. Or we can watch as federal and state governments continue to work at cross-purposes, eroding two decades of progress since deregulation.

We’re already grappling with uncertainty and inconsistency created by state-based renewable energy targets. Recently South Australia put forward a proposal that amounts to “going-italone” and the federal government has floated the idea of expanding the Snowy Hydro scheme.

How long before the system fractures?

The truth is the National Electricity Market has served us well:

  • Since it was established in 1998 the NEM has delivered investment in an additional 15,000 MW, a third of that renewable generation capacity. 
  • Over the same time, the emissions intensity of the NEM has fallen by 20 per cent.
  • In the decade-and-a-half to 2005 retail electricity prices were relatively stable; real household prices increased 4 per cent while for business prices decreased 23 per cent.   

The NEM is doing what it’s designed to do. Clearly the system is challenged. But it needs enhancement, not replacement.   Absent bipartisanship, we need independence; but we do not need another institution to oversee the energy industry.   AEMC, AEMO and AER were established precisely to guide and operate the market in the interests of all consumers. It’s appropriate for government to set targets; our independent energy agencies can work out how we achieve them.

Those bodies are staffed with good and experienced people. We should let the experts do their jobs.

Catherine Tanna
EnergyAustralia Managing Director