By Liana Downey (CEO of Blueprint Institute)

Our new report – “How the Sausage is Made: Assessing Australian Policymaking in the Energy Sector” gives both sides of government a lukewarm grade when it comes to energy policy.

The Blueprint Institute, together with the centre-left think tank McKell institute, was commissioned by the Susan McKinnon Foundation to independently review policy-making processes behind a raft of state and federal Australian energy policies passed under Labor and Coalition governments, and both think tanks found plenty of opportunities for improvement.

Why energy? 

Energy policy is an area undergoing massive change, with big costs incurred from both action and inaction. Action is expensive because energy infrastructure is expensive. But inaction is actually more expensive. The costs to the Australian economy of  adverse weather events associated with climate change are huge – currently $38 billion annually, a figure anticipated to climb to up to $94 billion per annum by 2050. This represents a cumulative cost of $1.35 trillion dollars between now and 2050.

Failure to learn

Voters expect bureaucrats will pick up the phone and talk to their colleagues in another state to find out what has and hasn’t worked, before they barrel headlong into a new approach. Yet our research shows that more often than not, this just isn’t happening.

State and Federal governments from both sides of the political spectrum have consistently failed to learn from other states. Examples include missed opportunities to translate experiences from South Australia’s renewables roll out – now 74% of their energy mix - into the NSW, WA and Queensland contexts, as well as a failure to learn from some hard won lessons from the roll-out of smart-meters across the country. 

Declining competition

Competition regulation is failing to protect consumers. If it was, you’d expect to see lower prices, and more competition. Instead, the opposite is happening, with competition in the energy market decreasing over time. 

Today, the ‘big 3’ AGL Energy, Origin Energy, and EnergyAustralia hold 70% market share in the national electricity market.

Consumers the losers

Complex and opaque regulatory structures aren’t adequately protecting consumers. Consumers are still struggling to make sense of complex pricing structures and get themselves a fair deal. In Victoria for example, the government's own research found that almost 80 percent of residential customers are paying more for energy than they could be, with the government’s own research showing that these customers could achieve a better offer if they switched to a competitively priced acquisition offer.

It’s even worse for apartment dwellers – a growing category of householders. Research shows they are more likely to be paying higher prices for energy than those who live in houses or townhouses, despite price caps and information meant to protect them.

Pace of regulatory change not keeping pace

Several of Australia’s energy regulatory mechanisms are poorly suited to the current pace of change. Examples include institutions like the Australian Energy Market Operator, designed in a very different era. Their role was to consider an application for a new coal-fired power plant every decade or so, but now struggle to keep pace with the hundreds of applications for new wind, solar and battery facilities being received each year.

Inefficient regulation

Poorly coordinated regulations and requirements between states are proving a drag on efficiency. And the time to coordinate is now – no one in their right mind would think it made sense for states to use different voltages or plugs, yet in some areas, that’s the direction we’re heading. One such example is the energy backstop mechanism, a piece of technology that can enable rooftop solar to be remotely turned off if the grid is ever in danger of being overloaded. For no clear reason, states are setting different technical requirements for this technology, forcing manufacturers and installers to produce and stock multiple variations of equipment, driving inefficiency and slowing down the roll-out of rooftop solar.

Questions of rigour and transparency

One major gap in most policies was the absence of clear and transparent economic analysis. Very rarely were policies lined up against alternatives, and when they were, the assumptions underlying the economics weren’t always made explicit. Critically, we rarely came across examples of what might happen if those assumptions shift. No company in their right mind would back a proposal that didn’t consider the sensitivity of key assumptions, no government should either.

Limited Consultation

There were some great examples of consultation, but there were some pretty weak ones too. A strong theme was the overweighting of vested industries, at the expense of young people – a group who will have to live with the consequences of these decisions for a long time. 

The Path Forward

Addressing these challenges requires a concerted effort to reform our energy policymaking processes. We call on Governments at both the state and federal levels to:

• Do more for consumers: Better represent the interests of energy consumers—including getting tougher on the implementation of anti-competition law
• Modernise governance structures: Define and streamline the roles of State and Commonwealth Governments to ensure cohesive policy development and implementation.
• Enhance transparency: Consistently evaluate policies and share insights—undertake independent, standardised, public analysis of State and Commonwealth energy policy and project proposals, costs and outcomes; publish business cases and analyses for all major energy projects to foster accountability and informed public discourse; publish ministerial diaries and expand the scope of lobbying regimes to cover all forms of lobbying
• Reform governance: Collaboratively redefine the roles of State and Commonwealth Governments, ensuring clear responsibilities and improved policy coordination.
• Do better on consultation: Young people and consumers have to live with these changes, they should have a real seat at the table; and improve the regulation of lobbyists.

The best time to do better on energy policy, is now.

Liana Downey is the CEO of Blueprint Institute, an independent think tank, and leader of Australia’s first Greenhouse Gas Abatement Cost Curve with McKinsey & Company. Contact Liana at: [email protected]

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