THE head of the state’s top economic watchdog has warned that Western Australia’s energy policy has become muddled, creating barriers to investment and competitive pricing.
THE head of the state’s top economic watchdog has warned that Western Australia’s energy policy has become muddled, creating barriers to investment and competitive pricing.
Economic Regulation Authority chairman Lyndon Rowe used a public speech at a power industry forum to raise his concerns about the direction of WA’s energy sector reform, suggesting it is at a crossroads with slowing reform seemingly being replaced by growing government interference.
Mr Rowe highlighted problems at both state and federal levels, including the vesting contract with Verve Energy and a variety of renewable energy programs.
He said the potential for less competition and more regulation would ultimately affect prices consumers paid.
“For the private sector to invest it needs policy clarity,” Mr Rowe told WA Business News.
“We don’t have to look too far to find poor examples of government interference in the marketplace.
“If we are to reduce our reliance on fossil fuels and to increase the use of renewable energy then we need to realise that with current technology we will face increased costs.
“Given that current energy costs are already seen as high and causing financial distress to at least some consumers, we have a responsibility to make the transition in the most cost-effective way.”
Mr Rowe singled out renewable energy policies as being among the biggest villains of this threat to energy market competition.
He pointed to the subsidies for renewable energy sources, such as WA’s feed-in tariff scheme for those generating power from solar panels, as an example of poor policy. He said the cost per tonne of CO2 saved was between $195 and $640, well above any suggested price for carbon.
“These very high costs are ultimately paid for by energy consumers and/or taxpayers,” he said, labelling them as a form of middle-class welfare.
Mr Rowe said in NSW, green power schemes relating to the federal government’s target of 20 per cent renewable energy by 2020 represented one third of the state’s recent 18 per cent increase in power prices.
“There is currently a lot of discussion about the impact of a carbon price on electricity costs,” Mr Rowe said.
“What tends to be overlooked is that there is already a mandatory renewable energy policy that is one of the main contributors to cost pressures on retail prices.”
Government interference tended to have unexpected side effects, he warned.
“It would be reasonable to assume that governments would have learned from the experience of the home insulation scheme,” Mr Rowe said.
“A first year microeconomics student would have been able to predict what was going to happen.
“If you artificially create a market there will almost inevitably be unintended consequences.
“Perhaps the only good thing to come out of the very expensive home insulation scheme is that it has given economics lecturers a great case study in government policy failure and unintended consequences.”
However, it was not just the federal government at fault. Mr Rowe said there was a lack of transparency and clear direction at state level.
He highlighted the lack of an open expression of interest process for the $58 million, 10-megawatt Verve Energy-managed solar photovoltaic project in the state’s Mid West as an example.
“How does the taxpayer know that they are getting best value for their research dollar in the absence of such a process,” Mr Rowe said.
Away from renewable energy, Mr Rowe said he was not convinced the state government was committed to a competitive and transparent energy market.
He said the vesting contract, which makes Verve the generator of last resort, lacked transparency and was less welcoming of competition than originally provided for.
He added that there was no clear policy framework for increasing retail competition.
Mr Rowe also highlighted the cross subsidy most electricity users in the South West Interconnected System paid to allow regional customers of Horizon Power to enjoy the same prices. This policy will have added 15.7 per cent to Western Power’s distribution charges between last financial year and 2011-12.
Mr Rowe warned that there were several areas where cost allocation or a lack of competition was being looked into by the Independent Market Operator established to administer and operate the WA’s wholesale electricity market as part of the last decade’s reform process, which broke up the old Western Power.
These areas included the possibility of constraining access to Western Power’s network and introducing competition to Verve.
However, he warned the Office of Energy ought to be resourced adequately to lead this work.
