Mr Philip Weickhardt, Chairman of the Business Council of Australia’s Energy Reform Taskforce, today released a report that highlights some of the underlying weaknesses in Australia’s energy reforms. The report, Australia’s Energy Reform: An Incomplete Journey, was prepared for the BCA by Port Jackson Partners Limited. "While the reforms have clearly taken us forward, and some benefits are evident, we must now improve significantly upon the changes that have been made", Mr Weickhardt said.
Mr Weickhardt said "Energy is vital to Australia’s economy and prosperity. It determines the profitability and location decisions of many industries from paper and brick manufacturing (where it comprises around 20% of production costs), through to chemicals and steel (10–20%), and mineral processing (8–20%). Energy choices can also have a major effect on our environment and meeting our greenhouse targets. When energy is unavailable through blackouts or gas shortages the disruption can be profound, as we have recently seen in Victoria and South Australia."
Mr Weickhardt said "The report highlights both how the gains from the energy reforms seen so far are at risk, and how further gains may be difficult to achieve, without major changes". These changes seem beyond the scope of the responsibility of the organisations charged with administering and regulating the industry. Mr. Weickhardt said "concerted further government action is required at both federal and state levels."
The report recommends that the ownership of the major generators in NSW and Queensland be diversified to create an efficient market to deliver sustainable, competitive prices. The report highlights how one entity (the NSW and Queensland Governments respectively in those states) currently owns essentially all the electricity generation capacity in their states. Mr Weickhardt said "We would not want one entity owning all the existing banks, or car manufacturers, and it is equally inappropriate to have one entity owning essentially all the electricity generators in both NSW and Queensland respectively."
The report raises concerns about the mechanisms for interconnection between state-based transmission systems. It highlights that the reforms have not been able to appropriately take advantage of the fact that we have excess power in some states and insufficient capacity in others. Interconnection not only increases competitive choice but increases reliability.
Mr Weickhardt said he was particularly concerned that the electricity price reductions in NSW and Victoria have been in part offset by taxes and by inflated transmission and distribution charges. Mr Weickhardt said "Energy specific revenue raising taxes increase energy prices by around 10% in NSW and 5% in Victoria, they damage our industry, and they are inconsistent with the introduction of a broad-based goods and services tax".
The report notes that Australia’s East Coast gas market has limited supply options and other impediments to competitive trading. Mr Weickhardt said "The report shows that there is much governments can do to address this, although with many long-term contracts in place significant change will take time."
The report goes on to highlight the excessive number of energy regulators in Australia, which makes various processes cumbersome and costly and in the case of gas inhibits interstate competition. There are also issues in transmission pricing which distort optimal decision making about location of generators to improve efficiency and reduce greenhouse gas emissions. There is also a need for better incentives to network service providers so that for example, they can be more accountable for losses and reliability of supply.
Mr Weickhardt said the BCA wished to highlight the issues raised by the report, and to consult widely, including with national and state policy makers, to bring about the necessary change. "We are excited by the opportunity presented by this report to significantly improve the existing reforms. The objective is to provide all Australians with efficient and reliable energy and to make Australia a more competitive place for investment."