17 October 2017
Transcript - #2017202, 2017

Interview with Ross Greenwood, 2GB

SUBJECTS: National Energy Guarantee to deliver affordable, reliable electricity

ROSS GREENWOOD:

Treasurer, thanks for your time.

TREASURER:

Great to be with you Ross.

GREENWOOD:

So, ditching the clean energy target, though it was recommended by the Chief Scientist Alan Finkel as a part of his plan, why would the Cabinet go against the recommendation of the Chief Scientist?

TREASURER:

Well, the Chief Scientist today has actually come out and said what has been adopted today by the Government actually makes a lot of sense. Remember, what Alan Finkel said was you need to set up what is called an Energy Security Board and we did that, we did that with all the state and territory governments and that group has come up with this National Energy Guarantee. One of the things Alan Finkel put his finger on was that we haven’t done any work and the system hasn’t been able to guarantee reliability. So, if the wind is blowing, ok the windmill can deliver the power but if it stops blowing, where does that power come from and who pays for it? I’ll tell you how it happens now, when everything went pear shaped in South Australia and when it often does that, the Australian Energy Market Operator, they have to go tell a gas fired power station to turn on and all of that power has to be bought at the spot price – which is at a really high price. Now, what this system does is it gets the retailers to contract more of the energy they use and then sell on to the customer which means the prices overall are lower because it is planned for. It is worked through. What the Australian customers are saying to us is that they want more reliable power and they want us to meet our environmental obligations and they want the prices to be lower. That is the system that this new Energy Security Board has come up with. So, they have taken what Alan Finkel gave to them, the Chief Scientist, as they were asked to do and they have come up with an even better system. Alan Finkel has backed that in this afternoon when he was giving a press conference down here in Canberra today. So, there is no excuse for Labor not to support this because this does provide the certainty that investors need to invest in more power.

GREENWOOD:

Ok, but you understand politics, we’ve had not one, we’ve not had two, we’ve probably had half a dozen energy policies over the past eight years or so. The problem as I see it is really if you get a change in politics or if there is political advantage again we have a fundamental problem. Because it was always seen that first a renewable energy target, from the energy companies point of view, help them to direct their investment into wind and solar in particular and away from coal. Then it was that a clean energy target would potentially allow people to have a signal, a price signal to be able to go there. The question is, this all goes back to a carbon price, price signals, all this type of things…

TREASURER:

No, this isn’t a carbon price, it is not a carbon price, it is not an Emissions Trading Scheme, it is not an Emissions Intensity Scheme, it is not a carbon tax – it is none of those things. What you said in your introduction Ross was absolutely right. All of these different forms of energy now are going to be priced on their real value and their real value will be assessed in terms of its reliability in particular. So, the energy turns up at the time that you as a generator says it will turn up. That means the retailer can count on it and that means they can sell it to the customer who can count on it. Now, at the moment you are absolutely right, the renewable energy target, basically, is an industry development policy. It is not about lower power prices. It is about massive subsidies, paid by customers to give an incentive for people to develop these renewable energy sources. The problem with that scheme is you have all this wind and solar but it didn’t provide the reliability and you had lots of investment going into what is called intermittent renewable energy and no money going into dispatchable baseload power.

GREENWOOD:

Ok, could you ever see, say for example, another coal fired power station being built in Australia?

TREASURER:

Yeah, there is no reason why it can’t and it would be done so on its merits because what it delivers is actually what the retailer needs to provide.

GREENWOOD:

Do you believe a bank would actually provide the credit for a coal fired power station to ever be built in Australia again?

TREASURER:

I think under this scheme it is as possible as it could ever be and it would be done on purely commercial terms. It wouldn’t need to be subsidised any more than renewables should have to be subsidised. What we are saying is the subsidy era is over. This is what has been happening, we have been forcing customers to pay subsidies to power companies to develop this renewable energy sector. We have been penalising coal fired power stations in that process and they have been shutting down. So, you wipe out the subsidies and as a result you pull a whole cost layer out of the system which means you get lower prices, investors are more confident, they can go in and they can invest in keeping coal fired power stations open, opening up new gas fired power stations, investing in pumped hydro, investing in other forms of renewable energy and it is the market that ultimately decides what is the least cost path to deliver that energy to the customer.

GREENWOOD:

Ok, a couple of things have happened in Australia quite clearly, if you go out and talk to any big manufacturer right now, foundries, even bakeries – whatever they might be they will tell me and I will open up the board and they will just flood in with calls and tell me that their energy bills have either doubled or tripled for the past two years. The question is whether this scheme would allow the price of energy under the scheme to basically halve or drop by almost two-thirds given that is what has happened to their prices over the past 18 months or so.

TREASURER:

Well, this is not the only thing we are doing. A lot of those customer concerns you are talking about were addressed by the thing that we did a few weeks ago, which was the gas issue. Now, gas is a feed stock into commercial and industrial businesses. That has been a huge problem. That is why we needed to get the contracted guarantee from those gas providers that domestic needs would be met for at least the next two years and we are able to secure that guarantee for 54 petajoules which was the assessed need for next year and the year afterwards and that gas would have otherwise been sold offshore on the spot market and we have ensured that gas will stay here in Australia. Now, what we have seen since we have been putting the heavy on the gas producers and on the gas market is we have seen the wholesale price of gas come down. Now, that needs to flow onto the customers. I have had the ACCC do a thorough investigation of why these gas prices are going up and now we are looking even more closely at individual gas bills and there are issues around pipelines, there are issues around transmissions. So, Ross this is a very big issue and what we have announced today is one big component of it but there is still the pressure we have put on the electricity retailers so people are getting better deals now. We are reforming the regulation which allowed big energy transmission companies to gold plate their infrastructure and pass on the cost to you well above the standards that they needed to. So, it has been a very complex issue but we are just getting into it, issue by issue and solving for it to deliver lower power prices.

GREENWOOD:

Ok, but you would agree that it does carry political risk because quite clearly Labor, has always held a fundamentally different policy to that that you have got. They would be committed to a renewable energy target, so from that point of view the political risk is you are going to change the government you get a brand new policy and as a result the whole thing walks out the door again.

TREASURER:

What we are proposing today is that this should be adopted into the national electricity laws. So, that is done through the COAG process. So, that is all the state governments, territory governments – not including Western Australia of course because they are not part of the national energy market – but through the COAG process these rules would be locked into that system. So, they would be hard baked into the system. The Labor party wants to have a 45 per cent Emissions Reductions Target, we have got a 26 per cent Emissions Reduction Target. You can run both of those targets off the system we have proposed today. The only difference would be that under the Labor party’s proposal there would be $66 billion of additional subsidies that would be put into the system. The cost of electricity would be significantly higher so that’s why we want to do it through the states and territories and that’s what will give the certainty that the business and industries need to invest and to have greater certainty about the smooth nature of the electricity price in the future. Now, there’s no reason why Labor can’t accept this now. Alan Finkel has backed it, business and industry have backed it, it delivers on our environmental commitments, it delivers lower prices. I mean, you’d have to be a complete muppet not to support this in the Labor party, and you’d only be doing that out of political pride.

GREENWOOD:

It would be interesting to see whether there are muppets there, no doubt. One thing that you do is you have to keep your finger on the pulse of the economy to see just how it’s performing because quite clearly that is important in regards to getting us back to surplus as the Government has said, but also trying to maintain that we don’t get into too much debt as a result of the deficits ongoing. Do you feel right now that energy prices are creating a drag on the Australian economy?

TREASURER:

There’s no doubt, and this is why I was particularly focused on this gas issue. Undoubtedly, electricity prices are a big issue for households as well as businesses – that is absolutely true. The gas issue as a feedstock to the companies – whether it’s ethanol producers or chemicals companies or copper refineries or whatever they are – that can be the difference between businesses opening and shutting…

GREENWOOD:

Well, the one classic example would be Incitec Pivot, wouldn’t it right now? The fertiliser company – I think there’s 1,500 jobs on the line at the moment.

TREASURER:

Exactly. There’s another issue up in Townsville with the copper refinery up there and getting access to gas feedstock from 1 January next year and I was up there with Glencore and the other groups up there not that long ago and looking at that problem. So, getting access to that gas is important. So what’s important from today, Ross, is that the National Energy Guarantee is just one of a whole range of things we are doing to solve this problem. It’s devilish complex but we’ve been working night and day on this to get this right and there will be more things that will need to follow this but this key mechanism today is saying, subsidies - done. No longer are we going to force you to pay subsidies to wind farms that don’t need them because the price is coming down anyway. Labor, they just want to see more subsidies going into renewable energy that is well above and beyond what is the sensible target which we’ve already committed to.

GREENWOOD:

I’ve noticed that John Pierce from the Energy Security Board told Sam Maiden from Sky News today that one of the number of models that they did showed that in the first year of saving of just $25 per household. $25 per household is ultimately not terribly much. Is that what it ultimately ends up being?

TREASURER:

The letter we have from John and his colleagues on the Energy Security Board is a reduction in residential bills, I’m reading it to you now, in the order of $100, $115 per annum over that decade and I’ll go on, wholesale prices are expected to decline by 20 to 25 per cent per annum over the same period and compared to the clean energy target – so compared to what was put forward in the Finkel Review, the initial report – wholesale prices on average eight to ten per cent lower over the 2020-30 period. So, it’s not surprising that this National Energy Guarantee would deliver lower prices because it rips an enormous cost component out of the system. The subsidies aren’t there anymore, they’re gone. So, prices will obviously be lower when you take out a subsidy that is no longer necessary and the beauty of this is that consumers can have more reliable power and also we know consumers also want us to meet our environmental obligations.

GREENWOOD:

Treasurer Scott Morrison, always great to have you on the program.

TREASURER:

Thanks a lot, Ross, thanks for the opportunity.