Dear Committee Secretary,
The Institute of Public Affairs (IPA) commends the Senate for establishing the Select Committee on Energy Planning and Regulation in Australia, and thanks the committee for the opportunity to make a submission.
The IPA notes that the select committee’s webpage lists 43 Participating Members in addition to the seven Committee Members. The engagement of 50 of Australia’s 76 Senators with this topic is a clear indication of the broad awareness in the parliament that energy security and reliability are of paramount importance, along with issues of affordability and competitiveness, even as society seeks to minimise adverse impacts on the natural environment including (but not limited to) emissions into the atmosphere. Not only are Australia’s current policy settings failing in all these areas, these failures will be exacerbated if reforms are not made.
Major reform of electricity markets is now unavoidable. This is largely the result of ill-advised public policy that introduced anti-free-market laws, regulations and policies that, unsurprisingly, conflict with the underlying free-market principles and the original intentions of the competitive electricity market, first enacted in the 1990s.
Reform will need to re-assess and clarify where the responsibilities of the state end and those of the market begin, and conversely where the market ends, and the role of the state begins.
Our recommendations are as follows:
- Remove subsidies and other distortions that favour renewables and undermine the principles of a competitive energy market.
- Retain and re-use valuable energy assets, including coal-fired plants that are being prematurely closed under state and federal net zero targets.
- Repeal bans on nuclear energy generation and quasi-bans on gas exploration, new coal plants, and new hydropower generation plants.
- Re-examine the consequence–many of them unintended and not obvious–of abandoning base-load power sources in favour of relying on variable weather-dependent energy sources.
- Reform electricity markets, once the above tasks are complete.
This submission sets out the reasoning behind these suggestions and recommendations, which are grounded on practical considerations as well as technical, economic and public policy principles, aligned with Australia’s wider legitimate national interests.
The last item—Reform electricity markets—will require a well-thought-through set of interconnected changes to the National Electricity Law, the National Gas Law, and the National Energy Retail Law; the role and function of the Australian Energy Regulator (AER), the Australian Energy Market Operator (AEMO) (including its development of the Integrated System Plan under the National Electricity Objectives), the Australian Energy Market Commission (AEMC), Energy Consumers Australia (ECA), the state energy regulators, the statutory framework which supports consideration of stakeholder views and the public interest, and the detailed market rules. If legislative and regulatory reform is attempted without first addressing the principles and tasks in items 1 to 4 above, then the thicket of problems that has been created will continue to get worse. Once items 1 to 4 above are addressed and implemented, reform will still be required, but the burden will be eased.
No single minister, and indeed no one government has the authority and capability to implement the range of changes required. The task ahead is likely to be more complex and challenging than the reforms of the 1990s. That is because the mess of legal and regulatory energy policy contradictions into which Australia has blundered since about 2000 is greater than the challenges that faced reformers in the early 1990s.
Responsibility is spread across the commonwealth and the states. The unavoidable reform needed requires collaborative leadership of the highest order, along with the ability to navigate complex, contested and difficult problems. Yielding to the temptation to shift responsibility and blame between Canberra and the state capitals, and between governments and business, is sure to result in the problems becoming worse and the difficulty of reform increasing, while the time available becomes shorter.
