Hunt grabs electricity doom loop live wires

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Some whacky stuff from Environment Minister Greg Hunt via The Australian:

Mr Hunt has created the Office of Climate Change and Renew­ables Innovation within the Environment Department, which will bring together all climate change and renewable energy programs from across government.

…Mr Hunt said there were no changes to existing policies. The new office would reinforce the government’s existing three pillars of the emissions reduction fund, the RET and emissions reduction targets of 26 to 28 per cent by 2030 that will be put to the Paris conference. He said the government’s target for the conference, the RET and the ERF were “rock solid’’ and the reorganisation would help deliver the Paris target and the RET, both of which were “challenging’’.

About 1.4 million houses use solar in Australia — the highest penetration in the world. Battery technology is seen as the key to giving households the opportunity to limit their use of grid power.

Mr Hunt said developing battery storage for household rooftop solar panels would reduce costs for consumers who had them but also limit the need for expensive new investments in polls and wires that have driven up electricity prices for a decade.

At peak periods, households would be able to rely on stored power, which would have the dual effect of lowering peak demand across the electricity grid and lowering electricity costs because they would be using their own power.

Mr Hunt, put yourself in the position of the monopoly electricity distribution businesses (the poles and wires). How are you going to respond as the volume of your product falls away and profits disappear following an epic mal-investment binge that just bloated your balance sheet? You’re a monopoly so don’t have any competition to keep your prices down so you will respond by making up for lost volume with increased margins. That is, raise prices.

There is the price regulator to contend with, but its job is to mandate a rate of return, not no return at all.

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This is known around the place as the electricity doom loop. As prices rise more folks leave the grid, meaning those who are left must pay more again to use the grid, in turn driving more folks off the grid.

What is even more concerning about this is it is the same approach taken by Malcolm Turnbull to supposedly fix Australia Post’s woes. In that example, the then Communication Minister endorsed raising stamp prices to help Australian Post cope with the disruptive pulse of email in communication distribution. Of course it will be the same result there with less people buying stamps and more using email.

As prime minister, Turnbull has now made an about face on disruption, in general embracing it as an economic good, quite rightly, but his government is going to need to think through the implications of technological change and policy more clearly than Hunt has managed.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.