Australia

Reforms to 'broken' energy market will shave 25 per cent off power bills: ACCC

Australian Competition and Consumer Commission chairman Rod Sims. Source: AAP

The ACCC has recommended a cap to prevent companies owning more than 20 per cent of power generation in the market.

Australia’s consumer regulator has recommended transformative changes to the country’s energy market, describing prices as “unacceptable and unsustainable” in a scathing 400-page report.

The ACCC report recommends dozens of new policies designed to encourage investment and prevent market manipulation, especially by companies that both operate power plants and sell power to consumers.

ACCC chairman Rod Sims claims both households and businesses will save an average of 25 per cent off their annual bills by the year 2020 if the report's 56 recommendations are implemented. 

Australian Competition and Consumer Commission chairman Rod Sims.
Australian Competition and Consumer Commission chairman Rod Sims.
AAP

"We think those numbers are conservative," Mr Sims told reporters on a conference call on Wednesday. 

"The national energy market is largely broken and needs to be reset across the board." 

The report backs the Turnbull government's national energy guarantee, but Mr Sims said it would not be "sufficient" without further action. 

The prime minister said the government would move "swiftly" in response, but would not rush and risk "counterproductive" intervention. 

Capping ownership to keep the market competitive 

Among the most substantial recommendations is a new cap to prevent companies controlling more than 20 per cent of power generation in any market, including by buying smaller companies to increase their share.

One of the country’s leading providers, AGL, already controls 42 per cent of the South Australian market and 31 per cent of NSW. 

ACCC chair Rod Sims said there was no "retrospective" plan to force larger providers to divest if they already controlled more than 20 percent. 

He said the problem would "work itself through", with the cap preventing any further monopolisation. 

Govt guarantees would help new players get loans 

The government should also offer to underwrite new generation projects by promising to guarantee contracts in their later years at a fixed rate – making it easier for new players in the industry to get loans, the ACCC says.  

Mr Sims said banks were often unwilling to finance new generation projects because they could not guarantee long-term income from big industry buyers. 

"We know there are a lot of newcomers who want to get into this market," he said. 

The consumer watchdog concedes some of the recommendations are “ambitious” and will be “challenging” unless all state governments and the industry cooperate, but Mr Sims said the debt guarantee should be among the least controversial because the government would rarely need to actually pay the money. 

New coal-fired power?

Prime minister Malcolm Turnbull has been urging colleagues to wait for the release of the ACCC report, as some of his backbench colleagues indicated they could support a royal commission into power prices.

A group of backbenchers, especially in the Nationals, are lobbying the Coalition to change its energy policy to encourage new investment in coal.

Already Nationals Senator Matt Canavan, who has been vocal in his advocacy for new coal-fired power, has told his Twitter followers his party has been “vindicated”.

“The ACCC has recommended the government underwrite baseload power investments. Once again common sense of the Nationals is vindicated!”

The report says any new underwritten investments must meet certain “conditions”. The investor must be a new player with less than 10 percent market share and have the ability to provide power to a “number of large consumers”.

Mr Sims said the policy was "technology agnostic". 

But asked about what kind of projects the ACCC had found that were struggling to get finance, Mr Sims said they had all been gas or renewables "firmed up" by pumped hydro or batteries. 

Labor’s Opposition Energy spokesman Mark Butler said the early reaction from the Nationals showed the issue would continue to be politicised.

“I am concerned that the sensible recommendations we hope to read in this report may again be lost in the fog of the civil war that is being waged in the Coalition party room over energy policy,” Mr Butler said.

“Already we have seen Matt Canavan, a cabinet minister no less, seek to use this report as an endorsement of the National Party's policy for the Government to throw $5 billion of taxpayer funds at building new coal-fired power stations.”

Prime Minister Malcolm Turnbull had been urging colleagues to wait for the release of the report.
Prime Minister Malcolm Turnbull had been urging colleagues to wait for the release of the report.
AAP

Prime minister Malcolm Turnbull said the proposal was "interesting". 

"We'll look further at the proposal over the coming months ... but this recommendation has the distinct advantage of being thoroughly technology agnostic," Mr Turnbull told a press club in Queensland.

Tony Wood, an energy expert at the Grattan Institute, said it was a common mistake to interpret dispatchable power as "just coal or gas". 

"It doesn't have to be. It could be solar with backup," Mr Wood told SBS News. 

A 'default' price for power 

Among the other ACCC recommendations are new enforcement powers for the energy regulator to tackle market manipulation, tougher penalties for companies that rip off consumers and a new ‘default offer’ price set by the regulator.

Mr Sims said retailers had been "deliberately confusing consumers" by slowly rising their rates and then marketing bigger "discounts" for new consumers. 

A default price set by the regulator would help by preventing manipulative marketing, and could force companies to calculate their "discounts" off a fixed rate. 

“High prices and bills have placed enormous strain on household budgets and business viability,” the report reads. 

There should also be a new $43 million scheme, implemented by the states, to teach vulnerable consumers better “energy literacy”, according to the ACCC. 

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