If you believe in tooth fairies the NEG is a real winner

August 07, 2018

One of the Turnbull government’s biggest political problems is energy policy, with voter interest mainly about electricity prices.

The Conservative Party has proposed a cheap and workable solution in the form of:

An opinion piece in today's The Australian says the Prime Minister's proposed solution is a dog's breakfast that won't keep its promise on power bills.

It requires an unlikely agreement by the states and territories that are party to the ­National Electricity Market for in-­principle support for the national energy guarantee this week. Then the battle shifts to the Senate, where the government will seek support from the Senate crossbench - including Conservative Party senator Cory Bernardi - for the legislative elements of the NEG.

"But here’s a tip," opinion columnist Judith Sloane said, "don’t believe the hype about the NEG. Designed by experts with particular agendas, it could be worse than doing nothing. Anyone who believes in the modelling-based predictions of ­future price reductions — $550 cuts to households’ annual electricity bills — also believes in the tooth fairy."

"And is the resemblance between the chairwoman of the Energy Security Board, Kerry Schott, and a car salesperson uncanny? You know the sort of thing: this offer is available for a limited time only, you won’t do any better than this, you’ll regret it if you let this one pass."

The real backstory to the kerfuffle around the NEG is the opposition of the voracious renewable energy rent-seekers who see the degree of the sector’s subsidisation trailing off.

The combination of the renewable energy target (and the value of the underlying large-scale ­renewable certificates), other federal government subsidies (think Clean Energy Finance Corporation, the Australian Renewable Energy Agency) and the assistance from state and territory governments (reverse auctions, higher RETs, ease of planning approvals) has produced a virtual cornucopia of riches for the sector.

The mission of the renewable energy players is to see the continuation of this largesse, mainly paid for by electricity consumers.

"So let me return to the absurd modelling results," Sloan continues, " Most people realise that when something looks wrong, it almost always is wrong. The modellers are assuming that the annual wholesale bill will fall by 45 per cent, from $17 billion to just $9 billion, as result of the NEG. Pull the other one."

"Even if the cost of renewable energy is falling, the electricity price is still set by the marginal supplier offering the highest price."

"Given the inherent unreliability of renewable energy, this will often be expensive gas-peaking plants."

There is also an assumption in the pricing model that the market is perfectly competitive, which it most certainly is not.

"Now I understand that the NEG is essentially a political exercise and the modelling is really done for show," Sloan concludes, "If you want a good chuckle, however, just check out the modelling done for the RET review — electricity prices were going to fall!"

"There is an arguable case for doing nothing rather than implementing a complex technocratic solution that essentially plays into the hands of the renewable energy sector. Mind you, the renewable energy sector tells us that our Paris commitments in the energy sector will be met by the early 2020s; all the more reason to concentrate now on affordability and reliability."

"Maybe the government should spend its time usefully working with some live proposals to get more dispatchable electricity into the system, driven by large users who might otherwise quit the country."

"This, not the NEG, is the one hope to reduce electricity ­prices."

Conservative Party leader Cory Bernardi has told radio station FIVEaa's Leon Byner the solution to our energy crisis is simple.

To reads Judith Sloan's full article, click here.

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