Energy prices and emissions: Compare policies ahead of the Victorian election

By Professor Michael Brear
Director, Melbourne Energy Institute

Key points

Labor promises to:

  • maintain the Victorian Renewable Energy Target (VRET) of 25% by 2020 and increase it from 40% by 2025 to 50% by 2030 as a minimum;
  • replacing all Standing Offers for retailer electricity with a regulated Victorian Default Offer on 1st July, 2019;
  • support investment by low income households in renewable energy generation and storage, particularly through a rebate scheme for solar PV and hot water;
  • introduce a Victorian Climate and New Energy Jobs Target of 100,000 new jobs by 2030;
  • encourage public and community ownership of energy assets where possible;
  • expand use of demand management and increase energy efficiency standards for rental and social housing;

The Coalition promises to:

  • to underwrite 500-megawatt of firm power generation via a reverse auction process
  • deliver cheaper gas and electricity for low income earners via an opt-in tender for low-income and government concession recipients;
  • allow for the exploration and production of onshore, conventional natural gas in Victoria on a case-by-case basis through new legislation;
  • scrap the Victorian Renewable Energy Target of 40% by 2040;
  • require that renewable energy projects with a value of over $50 million use at least 75% local Victorian content, or otherwise prove that local suppliers do not have the capacity to do so;
  • provide all Victorian public schools with access to solar panels and batteries.

The Greens promise to power Victoria with 100% renewable energy by 2030 by:

  • increasing the Victorian Renewable Energy Target and phasing out all Victorian coal plants;
  • building large-scale, publicly-owned, renewable energy projects;
  • setting up a government owned electricity retailer;
  • investing $500 million in big batteries and pumped hydro energy storage in the Latrobe Valley;
  • subsidising rooftop solar and energy efficiency upgrades for renters, apartment residents and public housing residents;
  • declaring a permanent ban on all gas exploration, opposing gas import and identifying options for industry transition away from gas.

Context for comparing party policies

Energy prices

Wholesale and retail energy prices have risen significantly in recent years due to several different factors, and this is now a major political issue.

As an example, Victorian residential retail electricity prices have risen by almost 50% from 20.5 c/kWh in 2007-08 to 30.3 c/kWh in 2017-18 using 2016-17 dollars. However, Victoria is not alone in experiencing significant price increases; this has been a national phenomenon. For example, equivalent prices in NSW over the same period increased from 18.7 c/kWh to 28.3 c/kWh.

There are several causes of these retail price rises, with network charges, wholesale market prices, environmental policy costs, retail costs and retail margins all increasing over this 10-year period. Interestingly, the network component of these charges has risen less in the fully privatised Victorian system than in other states in which the networks were wholly or partly government-owned, whilst Victoria’s retail margins have become the nation’s highest.

At the same time, export of liquefied natural gas from Queensland has significantly increased wholesale natural gas prices. This particularly impacts industrial gas users, who have experienced large retail gas price rises, and impacts wholesale and retail electricity prices for all consumers. Victorian wholesale natural gas prices exceeded 8 $/GJ for the first time in Q3, 2016, rising from historical levels that were typically below 4 $/GJ, and have stayed at these levels since.

A changing generation mix

In March 2017, the Hazelwood Power Station ceased operation after generating electricity from brown coal for more than 50 years. This has resulted in Victoria’s wholesale market becoming more dependent on the performance of the national wholesale market.

September 2018 saw two announcements by the Victorian Government, announcing both the   first successful projects from its VRET reverse auction and the establishment of a rebate scheme for rooftop solar PV and hot water.

Finally, the Victorian and Federal Governments have announced substantial support of the Hydrogen Energy Supply Chain (HESC) project which intends to use Victoria’s brown coal resources to produce hydrogen for export. Should the HESC project become commercial, it must use carbon capture and storage to be consistent with the Victorian Government’s greenhouse objectives.

Energy and environmental policy since the last Victorian Election in 2014

Perhaps most notably, the state-wide black-out of South Australia in September 2016 ratcheted up an already intense policy debate, with the Finkel Review commissioned by the Federal Government shortly thereafter.

The Finkel Review handed down its 50 recommendations in mid-2017, with the Council of Australian Governments (COAG) - which includes the Victorian Government - quickly adopting 49 of its 50 recommendations. The 50th Finkel Review recommendation concerning greenhouse abatement - the Clean Energy Target (CET) - was not adopted by COAG, primarily because of dissent in the Federal Coalition party room.

Having dropped the CET, the Federal Coalition then proposed the National Energy Guarantee (NEG) to COAG in late 2017. This was intended to simultaneously achieve specified levels of system reliability and greenhouse gas abatement. The Victorian Government gave conditional support to the NEG at the time but, with others, also took the view that the abatement target was not ambitious enough.

Further design of the NEG then progressed through to August 2018, at which time it was also overturned by the Federal Coalition party room, accompanied by replacement of both the Prime Minister and Environment & Energy Minister.

The reliability component of the NEG has since been renamed the Retailer Reliability Obligation, and COAG agreed to progress its detailed design at its most recent meeting in October 2018.

A major concern to consumers is that energy continues to be expensive relative to historical levels, and this triggered two reviews whose recommendations are still being implemented.

The first was the Thwaites Review commissioned by the Victorian State Government, which handed down its recommendations in August 2017. The most controversial of its 11 recommendations was the implementation of a form of regulated retail electricity pricing termed the Basic Service Offer (BSO), which was proposed to replace the unregulated Standing Offers of all retailers. The BSO has since been renamed the Victorian Default Offer by the State Government, and is proposed to be implemented on 1st July, 2019 .

The second review was undertaken by the Australian Competition and Consumer Commission (ACCC), which released its final report in July 2018. The ACCC also recommended abolishing the Standing Offer and replacing it with a lower-priced Default Offer, in this case to be set by the Australian Energy Regulator.

The ACCC report also controversially recommended that the Australian Federal Government should enter into off-take agreements for new generation projects. This idea has since been promoted by the Federal Government, which recently published a consultation paper discussing how the scheme might run.

The Victorian Government has expressed concern that these off-take agreements may be used to underwrite coal-fired generation. The months ahead will reveal whether these off-take agreements are implemented and in what form.

Image credit: Pexels

Coalition - Primary Policy Documents

Energy Discount Offshore Gas New Power Station Local Suppliers Scrap Renewable Energy Target

Labor - Primary Policy Documents

Energy Default Offer Renewable Energy Targets Jobs Target Solar Rebates Energy Standards for Renters Community Ownership of Energy Assests

The Greens - Primary Policy Documents

Government-owned Power Retailer Offshore Gas Renewable Energy Targets Latrobe Valley Solar for Houses Renewable Energy Projects


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