The rising price of energy

We suspect that with many households scrimping on heating and shivering through a cold winter’s day, there was more hot air swirling around federal parliament during its mid-week meeting with energy giants than in most homes. So what was the upshot of the meeting called by the Prime Minister about ever-rising power prices? Are there any silver bullets?

High power prices have long been contentious. WattClarity research reveals average wholesale power prices for east coast states in the National Energy Market jumped between 150 per cent and 240 per cent over the past two years, and says if the jump in Q2 prices in 2016 were “truly remarkable” then 2017 is “off the scale”. With much of the rise in wholesale prices filtering through to retail, even greater bill shock is on its way.

Households in NSW and South Australia are fielding price rises of 20 per cent and from early 2018 Victorians and Tasmanians will also be harder hit.

A quick reminder here that back in 2013 Tony Abbott went to the election blaming large rises in power prices on the carbon price introduced under Labor, declaring the solution lay in abolishing the tax. The tax is now history but prices rises have continued their meteoric rise.

Part of the blame for today’s higher prices is leveled at consumer apathy (reluctance to search for and switch to a better power price deal), also the complexity and confusion over energy price plans and advertised “discounts”.

Our question is: during the all-important meeting with the top seven energy retailers, were the fundamental issues of the energy market addressed, such as the need for a more vigorous energy policy that factors in tomorrow’s supplies, and what about tackling practices in the wholesale market?

A glimpse of the meeting’s coverage is best presented by the words of the (rather too optimistic sounding) Prime Minister who declared: “Today we took further action to reduce energy prices for you … [that] could save families hundreds of dollars a year. We are pleased to have secured agreement from energy retailers on immediate measures that will put your family first and small businesses first.

“The commitments include: Contacting all the customers now who are on expired discounts and telling them how much they can save on a better deal; requiring companies report to the Government and ACCC what they are doing to get families on to a better deal and how many families remain on expired deals.

“[Also] Developing simple, plain English, fact sheets with understandable comparison rates, and supporting a change to the electricity rules requiring companies to inform customers when their discount benefits end, setting out the dollar impact of doing nothing.”

The PM added the significant reforms “Build on those already achieved by the Turnbull Government to drive a more affordable and reliable energy system” and went on to list those ‘significant reforms’ that don’t actually appear to have made much of an impact as yet.

What did the three big energy retailers have to say?

Origin chief executive Frank Calabria focused on the need to make energy clearer for customers, with offers easily compared between retailers and the extent and timing of benefits better understood.

“Energy prices are a whole of industry issue including networks, generators and retailers. While we don’t have a magic wand to fix everything alone, retailers are on a path to make energy simpler and to start providing relief to customers.”

Turning to the bigger picture – which is what really matters in the long-term – Calabria stated “But let’s be clear, to deliver a genuine reduction in prices for Australians we must also find a way through on energy policy, including a Clean Energy Target. This is necessary to unlock investment in much needed new supply to replace our ageing coal-fired power stations, and transition us to a cleaner, more modern energy system.”

Hear hear.

AGL Chief executive Andy Vesey echoed the need for a Clean Energy Target to unlock additional supply, saying ”The reality is the best way to bring down prices is to increase electricity supply, which is why we are investing in new generation and support.

AGL also “supports making energy more affordable and simpler” and is taking action to help customers access the best deal for them.

“Energy bills are high right now, so it is particularly important that customers can easily compare offers. That is why we support standardising how energy plans are presented so customers can find the right deal for them.

EnergyAustralia Managing Director Catherine Tanna’s statement read “Right now, no one can claim the energy market is acting in the best interests of families and businesses.” Her company has called for a ‘universal comparator rate’ enabling customers to confidently compare products.

“Making the government’s EnergymadeEasy into a better, more popular tool is also a step in the right direction,” she said. “But for any approach to be effective the responsibility for making sure customers get a fair deal on energy can’t be left to just seven companies – the whole industry, state and federal governments, regulators and commercial comparator websites must also commit to doing better.

“As we do that, we must not lose sight of agreeing a stable, national energy policy.

“If we’re to bring down the cost of wholesale electricity we simply must build more wholesale energy. That’s why a stable national approach to energy is so important – it will give industry the confidence to invest in new supply.”

Accompanying the rise in prices is a lowering of security of supply; it’s an equation that needs to be reversed.

The Energy Security Board recently established by the COAG Energy Council aims to coordinate the implementation of recommendations from the Finkel Review. Chaired by Dr Kerry Schott (pictured below) the Board includes heads of AEMO, AER and the AEMC.

The Board will also deliver an annual Health of the National Electricity Market report to the COAG Energy Council to track system performance and risks faced along with opportunities for improvement and affordability issues.

 Energy Networks Australia chief executive John Bradley said the new Energy Security Board would be well led and that ”Dr Schott is an ideal appointment for the Energy Security Board Chair. She is widely respected within the energy industry and has led systemic reforms in energy, water and other essential services.

“A transforming energy system needs strong, well-resourced and proactive energy market institutions, with a shared plan of action and accountability for clear milestones.”

Bradley said the new Energy Security Board would support better customer outcomes through coordination between the regulator, the rule maker and the market operator for a system-wide approach to energy security.

“It should provide a single point of accountability without duplicating the key responsibilities of market bodies which are also represented on the Board.”

Schott’s early career included investment banking, she was also chair of the EPA and advisor to the then TPC (now ACCC). When chief executive of Sydney Water Schott opposed a proposal for an Australian Water Holdings public-private partnership that involved Eddie Obeid, and she has continued to take a stand against corruption.