Bad policy and "big sticks" won't reduce energy bills

This opinion article by Business Council chief executive Jennifer Westacott was published in the Herald Sun on Tuesday 4 December 2018.

A simple, no-frills way to reduce the pain of electricity prices for the families of Victoria and small businesses already exists – and it’s just about listening to the experts.

If our political leaders followed the advice of the consumer watchdog, families in Victoria could be pocketing savings of nearly $300 a year on their annual bills.

It’s no secret that energy prices are eating into our household budgets. For the last decade, rises in electricity prices have been much larger than wage growth.

And, the impact of high prices is not only felt by our wallets. Importantly, it also limits the ability of businesses of all sizes to grow and hire new workers.

After all, it defies logic that Australia has gone from being a country built of the back of access to low-cost and abundant energy to where we are today.

Yet there is a blueprint to reduce the pain on households and businesses.

In June this year, the Australian Competition and Consumer Commission completed a 15-month inquiry into the retail electricity market.

Its final report sets out 56 recommendations that, if adopted, will have a real impact on electricity prices.

While the energy retailers are often blamed for high costs, a breakdown of the price rises by the watchdog illustrates a more complex story.

Power prices have increased 56 per cent in the past decade across the National Energy Market.

In Victoria there has been a 48 per cent increase.

In Victoria, nearly one-third, according to the ACCC, has been driven by investment in the poles and wires and smart meter roll-out.

A quarter is due to higher wholesale prices. Government environmental or green schemes such as rooftop solar panels are responsible for about 18 per cent of the price increase.

This leaves just 13 per cent of the increase from retail costs and 12 per cent from growth in the retail margin.

Significantly, the ACCC found that if their recommendations are adopted as a package, the average residential customer in Victoria could achieve annual savings of $291. 

The biggest savings in Victoria can be found in wholesale electricity of $192, followed by network costs of $39.

The ACCC also recommended the federal government wind down and abolish government green schemes. This would reflect the fact that solar roof top panel costs have dramatically fallen since they were reduced and the need for a subsidy no longer exists.

Unfortunately, governments at all levels are yet to move on these recommendations.

Had these recommendations been acted on immediately, we may soon be seeing the first wave of savings flow through to families and businesses.

The Business Council of Australia supports the ACCC’s recommendation to introduce a default market offer or reference price. This will make it will be easier to compare offers from electricity retailers and help ensure families are on the best deal.

Industry knows affordable power is in everyone’s interest and stands ready to work with the government.

But instead, the government has decided that the threat of a ‘big stick’ is preferable to taking action in other areas of the bill that will actually help drive down prices.

Ignoring the advice of the ACCC and instead choosing to head down a path that threatens breaking-up electricity companies will not cut electricity bills.

The watchdog itself has called this “extreme’’ and has warned against this option.

Indeed, legislating to provide the Treasurer with the power to order forced break-ups will not solve the problems that have plagued our energy system for a decade and pushed up prices.

In fact, this legislation has the potential to make things worse, perversely creating even more uncertainty and discouraging new investment in the energy sector. Investment in new power supply is the most important factor in driving down wholesale electricity prices – the biggest component of the price increase in Victoria.

It is surprising to see this legislation proposed by a Liberal Government. This is the kind of intrusive, heavy-handed intervention into the market you would expect from the Greens.

Bad policy created this mess, and ill-conceived and rushed policy won’t achieve what is desperately needed - lower electricity bills for families and businesses.