Energy Minister Martin Ferguson has ordered a high-powered inquiry to test claims that uncertainty over carbon pricing is causing power generators to delay crucial investments and saddle households with even higher electricity prices.
He has appointed a “reference group” of top bureaucrats, chief executives and financiers to report on investment and uncertainty, and the impacts of this on energy security, reliability and electricity prices.
The members include the secretary of the Victorian Department of Primary Industries, which is warning of a risk that the National Electricity Market - which supplies power to more than eight million consumers - will suffer supply shortfalls in the second half of the decade.
The department warns that new capacity may not come on quickly enough to maintain reliable power supplies and is demanding that electricity prices be allowed to rise further to encourage new investment.
The group held its first meeting yesterday.
Mr Ferguson said it was important to properly consult with “those who are making the investment decisions” as the government develops a carbon price and to ensure that it was “properly and sensibly developed”.
“Maintaining energy security and reliability is critical as we transition our electricity generation sector to reduce greenhouse gas emissions,” Mr Ferguson said last night.
Australia needs to spend up to $130 billion on new power generation over the next 20 years.
But the energy sector has warned that electricity generators have slashed capital spending on power stations by $10bn because of uncertainty about the power supply.
AGL Energy economists this week told a conference in Queensland that uncertainty around carbon policy would add $2.1bn to power bills by 2020 because there was a rush of open-cycle gas turbine generators rather than more cost-efficient baseload combined-cycle gas plants.
While Julia Gillard has vowed to put a price on carbon pollution, industry has said this has failed to give it the certainty it needs because her announcement last week failed to specify the initial fixed carbon price, the implementation arrangements or the triggers for moving to a full emissions trading scheme.
The group will be chaired by the Department of Resources, Energy and Tourism secretary Drew Clarke and also includes Credit Suisse Australia heavyweight Campbell Lobb, TRUenergy managing director Richard McIndoe and Alinta Energy boss Ross Rolfe.
Sources said the financiers had been appointed “to actually counteract the Ross Garnaut view of the world that the generators are just full of shit and making it up”.
Mr Ferguson’s department has also commissioned consultants Deloitte to review investment in the generation sector.
The consultants will look at whether investors are factoring in a “shadow” (or assumed) carbon price given the uncertainty. They will also examine the impact that policies such as the government’s 20 per cent renewable energy target is having on investment.
