Industrial energy users hopeful of lower power bills
Summary: Industrial energy users are hopeful of getting relief from crippling power bills after the competition watchdog recommended government step in as the "buyer of last resort" for new power plants.....
The innovative proposal would see the government effectively underwrite the construction of new plants that could supply power on demand and are owned by smaller players, ensuring more plants are built, and more competition in generation.
It has been tentatively endorsed by Prime Minister Malcolm Turnbull.
ACCC chairman Rod Sims described the proposal as "totally win-win", saying it would help juniors struggling to get new plants built, to the benefit of commercial buyers of power.
The plants would have to supply "despatchable" power that can generate on demand, suggesting they would need to be based on gas or coal, or involve a combination of renewables and storage, for example.
The proposal would see the federal government entering into cheap fixed-price contracts at about $45-$50 a megawatt-hour, to be supplied for the later years of the project, perhaps years 6-15.
'A huge difference'
Mr Sims said the arrangement would help out small players with projects that need several commercial and industrial customers, where those customers are unwilling to commit to long-term deals or perhaps don't have the credit credentials to satisfy commercial lenders.
"We believe there's a lot of new players wanting to get into this market," he said, saying that one or two new projects and players in each state would make "a huge difference".
The government should help underwrite new power plants under the ACCC proposal. Justin McManus
Minerals Council of Australia head Tania Constable said the proposal was "a welcome reality check" that would help secure private investment in needed low-cost generation able to supply industry.
"The ACCC has recognised the impact on wholesale energy prices arising from the closure of older and larger generation assets and has recommended a role for government in underwriting longer- term contracts for large commercial and industrial users," Ms Constable said.
Mr Sims said he didn't know of any instance where such a proposal had been used overseas but said it was a much more hands-off approach than can be seen in other countries, with no government intervention into when or how new generators are built.
"This is a simple mechanism that is totally win-win: the government provides it, but is very unlikely to be called so you're getting generation without any cost to government but if it is called that's fantastic because that means prices are below 45 bucks a megawatt-hour in the wholesale market, that's fantastic."
"I can't see anybody objecting to this one...This isn't rocket science. This is easy to design, easy to put in place."
Energy suppliers and retailers on Wednesday remained guarded on the proposal as they digest the mechanism and the implications.
The Australian Energy Council cautioned that any government intervention mustn't undermine the commercial functioning of the market.