Energy leaders calling for policy discretion

  • Mark Eggleton

The Australian Financial Review in partnership with FM Global recently hosted a round table to discuss the future of the nation’s energy and the evolving challenges confronting governments and business.

The following is an edited transcript of a portion of the roundtable discussion. In attendance were Alinta Energy chief executive Jeff Dimery, APA Group chief executive Mick McCormack, Grattan Institute Energy Program Director Tony Wood, Australian Energy Council chief executive Matthew Warren and FM Global’s operations vice-president, Australia, Lyndon Broad.

They were interviewed by AFR’s editor-in-chief Michael Stutchbury and senior resources writer Angela MacDonald-Smith.

AFR: Obviously, we’re in the middle of one of the hottest hot debates on energy that we’ve ever seen, and the people here – you guys are right in the middle of it.  What is the core thing driving the instability of the system?

Mick McCormack: The real issue … there’s been no narrative. When you get away from the cities, it is about electricity prices and reliability, and the punters out there have been forgotten about, which turns itself into a lack of trust. People want to know, “What’s this going to cost?  What’s the benefits?” and no one knows, whereas in the city here, it’s all about, “We’re going green because we can afford it,” whereas out there, they’re saying, “Well, hang on.  You took us down this path.  We can’t afford it, and now the whole thing’s at risk of being highly politicised.  When that happens, bad policy decisions.”  I’ve seen that in gas.  We’re seeing it in electricity.  Look at the stuff that’s happened in South Australia.  You know, they’re supposed to be the cleanest state –yet diesel-fired generators and $100 million-plus batteries.  Where’s the cost-benefit there?

Jeff Dimery: What we need is sensible policy that sees us migrate from where we are today to where we want to be in the future, but unfortunately, the investment cycles in energy don’t match the political voting cycles that we have.  So for us, a sensible transition happens over 20 to 30 years, not over two to three years, and I think there’s a big rub there that if we want to go and do things in the most economically rational and sensible way, then we do need long lead times.

We need the ability to adjust, and rather than look at extending the life of assets that are beyond their useful life, what we do is we bring in new assets that are complementary to the existing market structure at that point in time, but always with a view, over time, to drive down the carbon emissions, and if we’re left to do that, then energy becomes more affordable, it becomes more reliable, and ultimately the whole outcome is more sustainable, you know, and industry is absolutely crying out for that, but we will never get that unless we get an agreed bipartisan view.

And by that, it’s not the Coalition coming to a landing on where they think, you know, Finkel should land, because if they don’t get the agreement of the opposition, all we get is a couple of years of certainly until the next election, and then the goalposts either dissolve or get moved again, in which case, you know, you’re back to where you were.

We need both sides of government to come out and say, “Okay, guys.  Here’s the framework, and here’s the envelope of uncertainty you’re going to have to get used to.”  And we accept that, that there will be some uncertainty at the fringe, that a Coalition government would look to have a higher carbon intensity within the economy and that a Labor government would look to have a lower one, but providing we can get in the same envelope and there’s a long enough transition for those changes to occur, then industry and businesses can respond to that and give you sensible, rational outcomes.

AFR: What are the consequences if we don’t reach an agreement because actually the chances of reaching one from where we are now, look pretty slim?

Jeff Dimery: I don’t think they look slim at all.  If governments can provide the rules of engagement, then we can get on with things. So, if carbon intensity under a clean energy target is set at a high level – 0.6 or 0.7 (tonnes/MWh of emissions), then you will continue to see coal to the end of its useful life.  If you go and change the rules and you bring something in at a 0.2 or 0.3, then you’re pretty much shutting down your coal-fired assets, you need a game plan around that.  But absent knowing what those numbers are, it’s impossible to virtually invest in anything, and so it is a million miles off, but you’d be very surprised how quickly industry would respond to the certainty provided by bipartisan support

This article is republished on Touchpoints with permission from The Australian Financial Review.