Simon Breheny: Daniel Andrews’ Inflated Power Bills Will Punish The Poor

Written by:
24 August 2017
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Premier Daniel Andrews’ claim that he can bring down power prices by increasing red tape is hogwash. The more regulation government imposes on the energy market, the higher your bills will be. State and federal government interventions in the energy market have had a massive impact on prices. Australian Bureau of Statistics data shows that in the decade to 2016, electricity prices increased 115 per cent.

That hasn’t stopped the state government from announcing an energy policy that will make matters worse. Announced on Wednesday, the Andrews Government is claiming its policy would see a decrease in household power bills of $30 a year.

That argument doesn’t hold water. Victorians are smarter than Andrews gives them credit for. They know if something sounds too good to be true, it probably is. And when a politician stands up and says we can have more renewables and lower power prices at the same time, they know they’re being sold a pup.

The ACT is about to find that out the hard way. Its energy policy is the blueprint on which the Victorian plan has been based. Household power prices there are expected to increase by $114 a year.

The mechanism by which Andrews expects to decrease prices by discouraging investment in the cheapest and most reliable source of energy production currently known to man — burning coal — is not clear. That discouragement comes in the form of a state-based renewable energy target of 25 per cent by 2020 and 40 per cent by 2025. A RET acts as a de facto tax on consumers. It is coupled with government-mandated cross-subsidisation for renewable energy companies. The reason subsidies are used is because green energy is not competitive in an open market.

It’s remarkably suspicious that the government refuses to release its own modelling on the policy. As a useful tool, economic modelling is often deeply flawed because of underlying assumptions and the inherent unpredictability of the real world. But governments love to wave the figures that an economic model spits out to pretend they can see into the future.

Governments that choose not to release their modelling (including the underlying assumptions) usually do so because they aren’t confident it will withstand scrutiny. In this case, the modelling was done by a firm chosen by Energy Minister Lily D’Ambrosio, which makes the decision not to publish the results even more damning.

But the federal government is not without blame either. The Coalition continues to enforce a renewable energy target of its own at the federal level. Imposing federal policies that are destructive to the national energy market gives governments permission to do the same at state level. Federal Environment Minister Josh Frydenberg was half right when he said of the Andrews proposal: “By going it alone with a legislated state-based RET, Daniel Andrews is setting Victoria on the South Australian Labor path for higher prices and a less stable system.”

He’s right that Andrews is putting Victoria on the path to SA-style blackouts. But he’s wrong about the problem being that Victoria is “going it alone”.

The RET is bad policy. It doesn’t matter which level of government imposes it, the result is the same: higher prices and less reliable energy. Bad policy doesn’t become good policy because the federal government implements it.

The RET is bad policy because it force-feeds renewables into the energy market and creates excess supply issues. Consulting firm ACIL Allen estimates total energy prices for consumers will be $30 billion higher over 2014-2030 as a result of the RET.

The problem of federal policy pushing prices up can of course be made worse by state governments. But even if the states were to do nothing, federal policies would still be pushing power prices in the wrong direction. As it stands, neither state nor federal governments are blameless.

And for the most part both major parties are on a unity ticket when it comes to unreliable and expensive renewables. The notable exception is the Guy Opposition in Victoria, which is taking the fight to Labor by promising to scrap the state-based RET.

More should be done to fight back against policies that increase energy prices. Artificially inflated power bills hurt the poor. They dampen economic growth and result in lower employment and wages.

Such an agenda should be rejected, beginning with the vandalism that is the state government’s energy policy.

(Image: The Herald Sun 2017, Valeriu Campan)

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