Strayan energy costs highest of all


Via The Australian:

Australia should focus on lowering energy costs rather than guaranteeing reliability, Australian Competition & Consumer Commission chairman Rod Sims said yesterday, as he declared high ­energy prices to be the biggest crisis facing the nation.

Mr Sims said Australia should not “overdo” its focus on ensuring the reliability of energy supply, because of the high cost implications.

“Let’s make sure that we keep the energy focus on affordability,” he told The Australian and Visy’s sixth annual Global Food Forum in ­Sydney yesterday. “We want to make sure that we don’t overdo the conversation about the reliability of electricity because the more you try to take any outage out of the equation — and that’s what we’ve seen in the past with the high network costs. Most of those increasing network costs are due to concerns over the system not being reliable enough.”

Mr Sims said the issue of ­energy policy would be discussed at the next meeting of the Council of Australian Governments meeting, which would look at a paper from the Energy Security Board on the Coalition’s national energy guarantee.

Although now completely buried under an avalanche of political manure, the answer remains very simple:

  • install gas reservation that keeps 10% of east coast exports here;
  • if prices don’t fall then fix them at $5Gj;
  • gas sets the marginal cost of electricity in the National Electricity Market so power cost will also crash.

Why this is OK is equally straight forward:

  • the east coast gas boom was a classic malinvestment bubble and the big gas companies that are shipping the east coast’s cheapest reserves to Asia at huge losses lied about having enough gas to fill their LNG plants;
  • as such they have been buying up all of the third party gas on the east coast and driving up prices;
  • by allowing them to do this we are bailing them out for misallocating capital;
  • if we fix the price of gas they will have to bear the brunt of their bad decisions rather than passing them on to everyone else via local discriminatory pricing.

This solution to the gas market failure will crash Australian energy costs and put our decarbonisation program back on track as well. Cheaper gas can fulfill the role it was always planned to have displacing base load coal as renewable storage catches up.

Any other solution is, frankly, bullshit.

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.