Energy inquiry explainer: how ACCC plans to cut your power bills

Paul Karp
The ACCC has identified a lack of investment in power generation. Photograph: Frederic J. Brown/AFP/Getty Images

According to the competition watchdog, the national energy market is broken and needs drastic change – from consumer rebates for network costs to simpler discounts for customers, new powers to stop “market manipulation” and even government support for new generation.

After an inquiry spanning more than 12 months, in a report released on Wednesday, the Australian Competition and Consumer Commission made 56 recommendations. The watchdog said its suite of reforms could save average residential customers up to $419 in south-east Queensland and $409 in New South Wales by 2020.

But what exactly are the proposals that will result in these savings – and what are the problems they are designed to solve?

Rebates for excessive network costs

The problem: “Excess spending” on electricity network assets with billions of dollars of costs passed on to consumers.

The ACCC’s solution: Government-owned networks in Queensland and Tasmania, and Essential Energy in NSW should write down the value of their assets. In NSW, where networks have been privatised, the government should pay consumers a rebate to “offset the impact of over-investment” in networks.

Estimated saving: At least $100 a year for consumers in all states with subsidies or write-downs, although the ACCC estimated for residential customers in NSW, the total savings on network costs after its recommendations will be $173 a year by 2020.

Simpler discounts

The problem: The current system of consumer discounts doesn’t work. There are “misleading” discounts and on-time discounts that are “excessive and punitive” for customers who don’t pay their bills on time.

The ACCC’s solution:

  • The Australian Energy Regulator to set a default or benchmark rate for households and small businesses to compare discounts.
  • Lower the barriers for data transfers so customers can take advantage of better offers.
  • Restrict conditional discounts to be no more than the reasonable savings to the retailer from the condition being met.
  • A mandatory code of conduct for third-party intermediaries with an obligation that any recommended offer is in the best interests of the consumer rather than on the basis of the intermediary’s commercial relationships

Estimated saving: $37 a year, but potentially much higher depending on users’ current energy deal. At the Queensland media club, the prime minister, Malcolm Turnbull, said customers were already seeing cost savings of up to $500 after a government initiative to prompt electricity companies to notify customers of better deals.

Not enough generation

The problem: A lack of investment in power generation, in part because banks won’t lend to companies that want to build new power plants without contracts locked in from large industrial users that intend to buy the electricity into the future.

The ACCC’s solution: The federal government should agree to pay $45-$50 per megawatt hour of electricity for the later years of new generation projects designed to serve large industrial users, in the process helping small and new developers secure loans to build the power plant.

The reaction:

  • The resources minister, Matt Canavan, seized on this recommendation, arguing it “vindicated” the Nationals’ calls for baseload power such as coal.
  • The ACCC chairman, Rod Sims, said the recommendation was “technology neutral”.
  • Turnbull said it would not “exclude any fuel source” and it “could be a coal-fired project”, although Guardian Australia understands there are currently no coal projects that fit the criteria.

Greater competition in generation

The problem: Market concentration, eroding the competition that lowers power prices. In particular, the ACCC criticised the NSW government’s decision to sell two Macquarie Generation power plants to AGL, and the Queensland government’s decision to consolidate three generation businesses into two.

The ACCC’s solution:

  • A cap on any further merger or acquisition by a company with more than 20% generation market share, although building new generation would be allowed.
  • In Queensland the government should divide its generation assets into three generation portfolios.
  • The Australian Energy Regulator should gain powers to investigate and punish “market manipulation”.
  • Third parties should be able to offer “demand response” into the wholesale market, receiving payments for agreeing not to use power.

Estimated saving: $155 a year for reductions in the wholesale energy price.

Wind back “excessively generous” renewables subsidies

The problem: Most state governments introduced “excessively generous solar feed-in tariff schemes” to encourage rooftop solar. The renewable energy target encouraged wind and solar power but was “indifferent to the ability to provide energy to the market when demand requires it”.

The ACCC’s solution:

  • State governments should pay for solar feed-in schemes from their budgets rather than charging other electricity users.
  • The small-scale renewable energy scheme should be wound down and abolished by 2021.

Estimated saving: $43 a year.

National energy guarantee

The problem: Policy uncertainty. Because of a decade of political warfare, we haven’t had a price signal for electricity generation that helps Australia meet its international emissions reduction targets and provide dispatchable baseload power.

The ACCC’s solution: A recommendation to state and territory governments to commit to develop and implement the national energy guarantee.

What’s likely to happen from here?

This is a substantial report that provides challenges for state governments, the federal government and for players in the energy market. The ACCC has effectively given governments a blueprint to solve a serious political problem, which is high power prices, but told them to do some tough things in order to deliver it.

Delivering all the elements of the report will require co-operation between Canberra and the states. The Turnbull government heaped praise on the report but hasn’t yet signed up to the specifics. Resolving this will take months.