Grogonomics
Energy

Confused that Malcolm Turnbull lost his job over an energy policy that Morrison just pretty much reheated? Take a number

On Tuesday Scott Morrison announced he was going to get tough on electricity prices. And while the policy may have an impact on prices, as ever under this current government, it remains completely ignorant of the urgent need to do something to reduce emissions.
It was a big policy moment for the prime minister as he boldly stated that he had taken on board the recommendations from the ACCC’s inquiry into retail electricity affordability and was going to finally do something to bring down power prices.
The big ticket item was a default price. Essentially this would see power companies replace their “standing offer” against which most of their discount rates are compared with a “default price” that would be set by the regulator.
The problem as the ACCC noted is that “the market has evolved in such a way that standing offers, which were originally intended as a default protection for consumers who were not engaged in the market, have been used by retailers as a high-priced benchmark from which their advertised market offers are derived”.
And so prime minister Morrison told the assembled media that “we’re adopting the ACCC’s proposal to establish a default market offer; a price expectation that will give consumers a clear picture of how much they should be paying for their electricity.”
He continued saying, “by setting a default market offer from which all discounts must be calculated, consumers will be able easily to compare offers from different companies and recognise when they’re being ripped off or when they’re getting a fair deal. They’ll also be able to take up a default offer safe in the knowledge that they are not being gouged”.
Oh wait. Sorry, that was not prime minister Scott Morrison, it was prime minister Malcolm Turnbull on 20 August when he announced he was dumping the national energy guarantee and was introducing new measures to bring down power prices.
Four days later he was no longer prime minister.
On Tuesday prime minister Morrison, who on 20 August was standing next to Turnbull, announced that the government would be introducing a “price safety net” (ie default) which “will stop big power companies ripping off loyal customers who don’t have time to shop around for a better deal”.
The government is charging the Australian Energy Regulator to come up with this default price by the end of April next year, and it will come into effect from 1 July 2019. In the meantime (because there will be an election between now and then) the government will write to energy companies “to take action to lower prices, specifically their standing offers by January 1”.
It’s obvious why electricity prices are such a big deal. In Sydney over the past two years only tobacco has gone up by more than electricity prices:
But the problem is not just the past two years. Electricity prices once rose along with inflation, but since 2007, they have bounded ahead:
In the past 10 years, average rental prices in Sydney have risen by 47%, while electricity prices have gone up 127%:
So will this new policy work? And will it work as well as Morrison hopes?
One difference between Turnbull and Morrison is that Turnbull was rather more circumspect about how much this could reduce prices.
Turnbull told the media that “the ACCC estimates that for average customers” the savings from moving to a default market offer “could range between $183 and $416”.
Morrison instead cited figures by the Australian Energy Market Commission “that customers on standing offers could be paying up to $832 per year more than the cheapest market offer in some regions.”
That is a big difference, and in his press conference he gave a few more details when he noted that “the savings for residential consumers range from $273 in the ACT, through to $832 in savings in South Australia.”
But even here we need a fair bit of caution. While those are the numbers provided by the AEMC, they apply to those who are on the median standard offer and who switch to the cheapest available option.
Most people however are not on the standard offer. The ACCC found that in Victoria only 6% of customers were on the standard offer, 15% in NSW, 16% in South Australia and 12% in south east Queensland.
So those hoping for a $800 reduction in electricity prices are most likely going to be sadly disappointed. That doesn’t mean it is a bad policy; just that in these matters it is better to under-promise and over-deliver (especially when there is no hope of delivering anything before the next election).
The policy may have problems for smaller energy companies who may struggle to operate with a higher default price, and thus it may lead to the further entrenchment of the big players such as AGL and Origin.
What it won’t do is help reduce emissions.
Morrison and energy minister Angus Taylor ensured the climate-change-policy ignorance remains the standard for the Liberal party by suggesting it could indemnify new coal fired power generators against a future carbon price. Not content with trashing our emissions policies under their own government, they seem desperate to ensure the stench of their ignorance remains long after their time in power is over.
And this is a big issue because as the OECD noted in a report released last month, Australia is doing worse than all but one nation in the OECD when it comes to properly factoring in a price on carbon:
The report found that “governments need to raise carbon prices much faster if they are to meet their commitments on cutting emissions and slowing the pace of climate change under the Paris Agreement.” Astonishingly it found that across the OECD at the current pace, “carbon prices will only meet real costs in 2095”.
But don’t worry, under this government of climate change denial the only talk is of “fair dinkum” power “that works when the sun doesn’t shine and the wind doesn’t blow”, and remains in utter ignorance that the industry has moved past them with a number of battery projects such as the Tesla battery in South Australia which offer dispatchable power.
The government’s big energy plan is really a relic of the past – in some ways a past of just two months ago, but in the broader context, one much older, and which in a world of rising emissions and a shift to renewals is completely past its use by date.

• Greg Jericho is a Guardian Australia columnist