The stoush emerged today amid business and electricity industry warnings that Australian energy policy is fragmenting, with political considerations now leading the development of the market.
A key energy industry body says governments – including in South Australia – are at risk of crowding private investment from the market, setting the scene for the public sector to shoulder the billions of dollars worth of investment needed in the national electricity market over coming decades.
AGL reportedly told an investor tour of its Torrens Island power station on Friday that it had put new plans for South Australia through the shredder after the Weatherill Government announced its own plans for a $360 million state-owned gas power plant.
Although the state-owned facility is not meant to operate in the market, being designed only to provide emergency supply, the Australian Financial Review reported today that AGL chief executive Andy Vesey told investors that this was “wishful thinking”.
AGL had been crunching the numbers on a number of new investments in South Australian, including a new quick-start gas power plant with back-up battery storage at Torrens Island.
However, Premier Jay Weatherill’s energy plan – announced in March – immediately ended those ideas.
“You could hear the sound of shredding paper,” Vesey reportedly said.
“Because our blueprint was … well. I don’t know what happens to a blueprint that’s never going to see the light of day … so we’re rethinking now.”
AGL’s official investor presentation is more upbeat about the impact of the SA energy blueprint on AGL’s existing local operations, saying the new government gas plant won’t affect existing assets if it’s run only in emergencies, and that the government’s energy security scheme supported ongoing higher generation at Torrens Island.
It said there remained the “potential” for further investment in SA, but the ongoing operation of the Torrens A facility remained “subject to annual review”.
Vesey sought to “clarify” his comments today, saying the company still planned extensive investment in the state.
“As we said to our investors last week, it’s true that our proposed investment blueprint now needs to change, given recent South Australian policy announcements,” he said in a statement.
“However, I can also confirm that AGL is developing a new investment proposal to meet the needs of consumers in South Australia. While it will contain different components, it will be as extensive as our previous blueprint.”
AGL is one of the bidders to build the 100MW battery contained in the State Government’s energy plan.
Vesey’s statement came after a fierce response earlier today from Energy Minister Tom Koutsantonis, who told ABC Radio Adelaide that AGL “have been making super profits off South Australians for the last 10 years”.
“Since they’ve had Torrens Island they’ve been charging what I call ‘Monopoly rent’ on South Australians. The amount of market power that they exert over South Australia is horrific.”
He said AGL was upset with the State Government because it had been excluded from a government tender to procure 75 per cent of its long-term electricity needs, in a bid to increase competition in the state’s electricity supply market.
“AGL are charging some of the highest prices in the country from their oldest plant in the country here at Torrens Island and I’m not surprised one bit that they don’t like that we’re building up back-up generation to make sure that they can’t price risk into their contact, which is what they’ve been doing and charging South Australians for.”
Weatherill, in Port Pirie today for a country cabinet meeting, told reporters that “if there are big power companies squealing, the plan’s working”.
However, other business and energy industry players have also expressed concern about the impact of governments re-entering the privatised energy market, with the Federal Government moving to spend billions of dollars on an expansion of the Snowy Hydro scheme following the SA Government’s announcement of a $550 million intervention in the market.
On Friday, South Australian independent senator Nick Xenophon extracted new energy policy and spending initiatives from the Federal Government, as part of horse trading to gain his support for company tax cuts.
His agreement included a Federal Government loan of up to $110 million for a solar thermal power plant at Port Augusta, one-off payments to pensioners to help with electricity bills, a feasibility study into a north-south gas pipeline from central Australia to Moomba, and by, July 1, 2018, development of a new “power affordability and reliability policy” informed by a joint study by the Climate Change Authority and Australian Energy Market Commission.
Chief executive of the Australian Energy Council, Matthew Warren, warned that government interference in the market was adding more uncertainty to an already clouded policy environment.
Warren, whose organisation represents large energy industry companies, said the electricity market needed investment in new power generation of between $200 billion and $250 billion by 2050.
“If governments keep going the way they are going, they’re going to need to fund that themselves,” he told InDaily.
“The AGL decision is a warning that the private sector is able to rebuild the grid, but they can’t do it if governments keep interfering in the market.”
He said the national electricity market was created to free governments from the need to invest billions of dollars in new infrastructure, freeing up funds to spend on investments like schools and hospitals.
The market had operated well, with problems only emerging the past decade because governments had failed to provide policy certainty.
“We are destroying the benefits of that reform in front of our eyes,” he said.
Koutsantonis rejected Warren’s assessment of the market, telling InDaily today: “The national energy market is fundamentally broken and, in the absence of leadership from the federal Liberal Government, the people of South Australia expect the State Government to take the necessary steps required to secure our energy supplies.”
Warren’s warning echoed that of Business Council chief Jennifer Westacott, who said on the weekend that political considerations, rather than private investment decisions, were now leading the development of the national electricity market.
She said Australia had to be careful that governments did not take over the energy market.
“South Australia, having made these [renewable energy target] decisions, is now asking for taxpayers to pay for the projects that will turn this around,” she said.
However, the South Australian Government is using this as a selling point, saying its half-billion-dollar plan represents the first public investment in electricity generation since ETSA was privatised 20 years ago.
State Liberal Leader Steven Marshall said the AGL announcement showed the “wheels have completely and utterly fallen off” the Government’s energy plan.
He told ABC Radio Adelaide it showed that Government spending was competing with private investment.
“There is already excessive gas peaking plant capacity in South Australia – more than 750 megawatts in the private sector,” he said.
“The Government should be contracting those operators to provide the services. If they did it, it would be in place by the end of this year. We wouldn’t have to have their diesel generators costing tens and tens of millions of dollars dotted right around the countryside here in South Australia. We could have that stability to our grid and we could have it by Christmas this year but this Government is opposed to the private sector as the Premier pointed out in the leaders’ debate when he said, ‘I’m not a free market guy’.”
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