National Electricity (South Australia) (Australian Energy Regulator – Wholesale Market Monitoring) Amendment Bill | SPEECH


Second Reading

Adjourned debate on second reading.

(Continued from 28 September 2016.)

Mr VAN HOLST PELLEKAAN ( Stuart ) ( 11:02 :56 ): I rise on behalf of the opposition to debate this bill, and I indicate that I am the opposition’s lead speaker on this matter. I also make it clear for people who are listening or who follow this debate in Hansard that, while at the moment we are debating the National Electricity (South Australia) (Australian Energy Regulator—Wholesale Market Monitoring) Amendment Bill, this bill is part of a broader body of work that the government is undertaking at the moment and is closely connected with the Statutes Amendment (National Electricity and Gas Laws—Information Collection and Publication) Bill, which I expect this house will debate next.

People who are interested in this topic, and who are following what is discussed and said in this place, may well want to look at the transcripts of both those to get the complete picture because, while they are two separate bills, there is a lot of interrelationship between the two of them. This bill, the one we are dealing with at the moment—the National Electricity (South Australia) (Australian Energy Regulator—Wholesale Market Monitoring) Amendment Bill—is essentially about conferring on the Australian Energy Regulator a wholesale market monitoring and reporting function.

As members of this house would know, the AER has many functions and one of them is to ensure that laws and regulations are being followed appropriately by participants in the electricity and broader energy market. While the AER currently has the responsibility to provide oversight, what the government is proposing to do at the moment is to give it an obligation of market monitoring and, very importantly, reporting.

The opposition supports this bill. I note that the consultation that was undertaken by the COAG Energy Council received no negative feedback whatsoever. There were a few small queries and questions as to why it was necessary, whether it will work effectively, was it really going to achieve what the government said it wanted to achieve, but I am not aware of any energy market participant who raised any specific objection whatsoever to the government pursuing this path and trying to improve the completely unacceptable situation we have with regard to electricity in our state at the moment.

The government wants the AER to systematically monitor the performance of the wholesale electricity market in relation to effective competition and perform other monitoring functions that relate to offers and prices within the wholesale electricity market. That seems pretty straightforward and I have no concerns with that whatsoever, but it is probably worth going through how we got here. The minister has made it very clear that this bill has come before the house in an effort to improve the lot of South Australians, both household and commercial users, whether they be small or large, and that the government wants to try to make things better for South Australian electricity consumers.

Back in July, Mr Speaker, you will remember that we had a very significant price spike in the electricity market in South Australia. At that point in time, while there were quite a few factors that all came together, one of the key factors was that there was extremely high wind velocity and high electricity demand at the same time. That meant that some of the wind farms had to shut down and that meant demand far exceeded supply, prices shot through the roof and a group of some of our state’s most important companies—not the only important ones but some of the most important ones, including Arrium, Nyrstar, BHP, Adelaide Brighton Cement and others—came to the government and said, ‘This is completely unacceptable. The situation our state is facing has got to be addressed.’

It is worth making crystal clear for everybody that in South Australia our largest employers are typically also our largest electricity consumers, and so it is no surprise that we have the highest electricity prices in the nation and, simultaneously, the highest unemployment rate in mainland Australia at the moment and, in fact, quite often including Tasmania as well. When those companies came to see the government, they said, ‘Look, you’ve got to do something. This is completely unacceptable and it cannot continue.’

It was also brought to light, through the media and via the opposition and many different commentators, that the government up until that point had ignored warnings of this type of price spike and this type of reduced reliability of electricity supply. These warnings had come quite publicly, quite freely and quite openly from Deloitte Access Economics, from AEMO itself, from Frontier Economics and from other organisations.

The opposition was aware of these warnings. I say quite openly that I do not think anybody in the opposition, myself included as the shadow minister, considers themselves to be an expert in electricity, far from it, but I certainly heeded these warnings, and the opposition and the Leader of the Opposition certainly heeded these warnings, and we tried very hard to bring them to the government’s attention. The government ignored those warnings but, thankfully, when that group of large companies went to the government and said to them directly, ‘Something has got to be done,’ the government did listen then, and I am pleased that those companies did that.

Interestingly, Alinta also warned the government of the increases in prices that would come to our market during discussions between the government and Alinta about, at that point in time, the potential closure of the Port Augusta power station and the Leigh Creek coalmine. Alinta said to the government, I am led to believe, that if the Port Augusta power station closed prices across the state would increase very quickly and be very high and that there would also be a marked decrease in the reliability of supply of electricity.

I am advised that the government’s response at the time was that they did not believe that was the case and that it believed that it was Alinta trying to negotiate, trying to improve their position with regard to negotiations seeking help, etc. The reality is that this is exactly what has happened. Since Alinta announced the closure of its Port Augusta power station, forward contract prices in South Australia, on average, have gone up 72 per cent. Since Alinta actually closed the power station in May this year, on average spot prices have gone up 105 per cent across the state.

Alinta’s warnings, and the warnings of Frontier Economics, Deloitte Access Economics, AEMO, etc., have all proven to be true. We have had a more than doubling in the spot market prices, on average, from the period before the closure compared with the period after the closure in South Australia. That has hurt South Australian businesses and South Australian employers enormously.

There is still a huge impact of that which is yet to flow through to household electricity prices because until now most household consumers have been protected by the agreements they are on with their retailers and they have not been subject to these significantly high prices. The next time that the prices are reviewed, this more than doubling in the spot market will flow through to those households. So, it is a double-edged sword. I welcome the government doing what it can, but it has come way too late: it could easily have been addressed many months ago.

Alinta was in discussions with the state government about the potential closure of the Port Augusta power station in the first half of the 2015 calendar year, so the government has had a very long time to address these issues, yet today we are here dealing with the legislation the government has brought forward to try to deal with it.

When this group of companies came and spoke to the government, and when the government said, ‘Okay, yes, now we’re starting to understand. We ignored the warnings of these independent economic commentators, we ignored the warnings of the opposition, and we ignored the warnings of Alinta, but, yes, we now get it.’ The first thing the government did was try to blame lots of other people, lots of other organisations. It blamed privatisation, Mr Speaker, and you would have heard that many times.

Let me say very clearly that South Australia and Victoria are both privatised electricity markets. They were both privatised at almost exactly the same time, yet South Australia has the highest electricity prices in the nation and Victoria has the lowest electricity prices in the nation—so it has nothing to do with privatisation.

The government tried to blame gas supplies. The government said very clearly that it thought the market was not fair and open and operating the way it should with regard to the supply of gas into electricity generation businesses. The government tried to blame the electricity market itself and talked about generators entering and leaving the market in a way that would be opportune for those generators so that the prices they would receive would be as high as possible.

So, the government basically tried to blame everybody else at the time, and then the government said—and what we are debating at the moment is part of this—it would do three key things. It would look at trying to improve market rules and regulations, trying to improve the electricity market essentially, and that is what this bill is seeking to do and that is what the next bill that we will debate shortly will also be part of. That comes with COAG agreement, and I respect that.

The second thing the government said it would do is provide $24 million to the gas industry to encourage the gas industry to produce extra gas, ideally to produce cheaper gas so that we can have cheaper gas going to electricity generation, and hopefully that would flow through to cheaper electricity prices. That sounds good, and not surprisingly the gas industry welcomed that with open arms. The gas industry thought $24 million completely unexpectedly into their industry—

The Hon. A. KOUTSANTONIS: Point of order, Mr Speaker: relevance. This is a COAG energy reform. The bill is about wholesale market monitoring. The shadow minister is talking about the gas market.

Mr VAN HOLST PELLEKAAN: This bill we are debating is one of three attempts the government is making, so I think it is important to talk about the other two.

The SPEAKER: Yes, the member for Stuart is always most helpful to me in shaping my rulings, and despite his submissions I am going to allow him to continue.

Mr VAN HOLST PELLEKAAN: Thank you, Mr Speaker. While the bill we are debating at the moment is part of the government’s response in the first of the three efforts that it is making, as I was saying, the second is $24 million towards the gas industry. The government has not made public how it intends to spend that $24 million. People from the gas industry tell me that they still do not know. The government may have shared that with some participants in the gas industry but certainly there are plenty of them saying that they still do not know what that money is for, how it is going to produce cheaper gas or cheaper electricity, but let’s hope it does.

The third response that the government had to its realisation that there was actually a very serious issue that needs to be dealt with in South Australia in regard to electricity prices and reliability is that it said it would offer 75 per cent of its own government consumption to a new generator supplier into the market, so 75 per cent of its own business would be offered over a 10-year contract. That seems like a pretty good thing to do on the face of it, but when you actually look at the numbers the government’s electricity consumption is approximately 484 gigawatt hours per year; so 75 per cent of that is 363 gigawatt hours per year approximately. That is far too small an amount to attract a new generator to be built in South Australia, unfortunately, and the 10-year offer rather than the 20-year offer the industry would seek is also not nearly long enough.

I understand that the government today is briefing industry participants, people and companies who would tender for this business, and I look forward to learning more about what the government wants to do. Certainly generators have made it very clear to me in advance of the briefing—which I think might even be going on as we speak, as I believe it started at 10.30 this morning—that the government offering 75 per cent of its own use is not going to be nearly enough to attract a new generator into the market.

I am still extremely concerned that none of these three strategies that the government has offered will actually provide South Australian households and South Australian commercial consumers with much hope whatsoever. I would like to point out, though, that on that third offer, the size of what the government is offering would fit very neatly with the 110 megawatt capacity solar thermal power station development that has been proposed to the government. That would actually fit very neatly.

I also highlight that the Treasurer announced over the weekend that the government has received $42 million of surplus over and above the $258 million that was predicted under the last budget, so the government has $42 million available to it to use, which it did not expect to have at the time the budget was released. That money could be extremely well placed to contribute to solar thermal power generation in Port Augusta.

That then would make the third of those three planks that the government is offering potentially useful because that is the size, roughly, of a power plant. They would still need a 20‑year contract instead of a 10-year contract, but that might actually work very well. It is for the Treasurer and the Premier to determine how best they are going to spend that money. I know that they would have many options, but that is certainly one of them. I encourage them to consider that option very seriously because that would be not only useful with regard to encouraging a new generator into the market, as the government wants to do, but also very positive with regard to supporting the transition from fossil fuels to renewable energy.

The key is that we need renewable energy with storage. Until we can store renewable energy at large scale, there is only so much of it that we can have in our energy mix without making the problems we have in South Australia even worse. That is something for the Treasurer to consider, and he may well have already. The Premier might well be thinking about that already. That is essentially what the government’s plan is: to try to change the market, try to make the market more transparent, try to support the gas industry to provide cheaper gas—and ideally that will flow through to cheaper electricity—and to offer a share of its own use towards a new generator.

Coming back to this bill and the first of those three prongs of the government’s strategy, unfortunately I am not convinced that this is going to work, but I am more than supportive of the government having a go at this. I think there is a good chance that it might add red tape. I think there is a good chance it might add extra cost to the AER, which, of course, must flow through to all consumers. Certainly, there is no harm in this bill that I am aware of, apart from that. I think it is important that the government is given every opportunity to get on and address the electricity crisis that we have in our state.

The opposition will not stand in its way with regard to this bill. Unfortunately, we have the highest electricity prices in the nation: something must be done. We also have the most unreliable electricity in the nation. I have a very strong view that that is because the government has the mix wrong in the generation. That generation mix is all coming forward from private industry. I respect the fact that the government is not the generator, but the government does have the opportunity to manage that mix as other states have done much, much better.

I say again that Victoria, a privatised state, has the mix much better and the cheapest electricity prices in the nation. We have the highest electricity prices in the nation. The opposition will support the government in every way possible to address this issue, and if the government believes that this bill will provide cheaper electricity to South Australia, then we will give it every bit of support that we possibly can to allow that to happen.