The Importance of NSW
Tuesday, 02 August 2011 15:28
Even 100 days is a long time in politics.
The change of government in New South Wales has already faded from the front pages headlines but it is worth revisiting the event to make the point that the size of the victory is of considerable significance to east coast electricity supply.
There is now a potent new player in policymaking on the coast, presiding over the largest market in the country, and, on the election numbers, likely to be in office until at least 2019, perhaps to 2023.
This has implications for a range of issues, including national decarbonisation policy, the continuing deregulation of energy retailing, the pricing of power and care for those in "fuel poverty" as bills move towards doubling by 2015 and the introduction of smart meters and dynamic pricing, to mention only some.
The O'Farrell government moved swiftly after assuming office to implement a judicial inquiry in to the "gen-trader" privatisation process.
The draft report is due at the end of August and the final report in late October.
What the report says and how the government reacts to it will have important implications for the east coast market.
Eventually, the new government will have to make key decisions about ownership of generation and possibly about the aggregation of capacity in the hands of one major generator.
Eraring Energy has said during late July that efficiency should dictate that it is fully privatised or leased.
The new government is also committed to a large shake-up of network operations, planning to reduce the three distribution network service providers to two businesses. This is not uncomplicated just compatibility of computer systems is a significant issue.
A critical decision awaiting the government's priority attention is the construction of new baseload power supply for the State.
Will it agree to construction of 2,000 megawatts of coal-fired generation?
Or will it opt for gas and pursue CCGT as the way forward?
Who will build these power stations?
And where?
The latest Energy Supply Association yearbook underlines the importance of new development. It forecasts that NSW system energy will need to rise from 77,700 gigawatt hours in 2010-11 to almost 91,000 GWh in 2019-2020.
There is little room for procrastination about resolving this issue.
The NSW Auditor-General told State Parliament not so long ago that new capacity needs to be commissioned by 2016, and it can take five years to carry a CCGT plant through the regulatory approvals and the construction phase.
The biggest power issue for the new government, as it is for every other government in Australia, including the one in Canberra, is end-user prices.
Regardless of whether or not there is a carbon price, the only direction for power bills in NSW is up and how far they will rise by 2020 rests to a large extent on network charges.
The current $18 billion capital outlay program for networks in the State is unchangeable; it is adjudicated by the Australian Energy Regulator.
Current thinking is that the growth of demand, and especially of peak power demand, will dictate the need for a similar level of expenditure in the period 2015-2020 with significant consequences for end-user prices.
There is an old adage about boxing in the ring you can run but you can't hide that applies to policymaking for power supply in Australia today.
Every issue relating to policies affecting electricity literally comes at a price, whether it is a carbon tax, solar feed-in tariffs, mandatory energy efficiency programs, a higher level of mandatory use of renewable energy or time-of-use tariffs.
Every upward shift in power prices has political implications.
Four years ago I was invited to brief the new Leader of the NSW Opposition on electricity issues.
I suggested, in jest, that not winning the 2011 election was probably a good idea.
We both laughed, but now Barry O'Farrell is in the hot seat and the list of serious power issues he must manage is much longer than it was then.