"Industry has written to the Parliamentary crossbench to advocate the passage of the energy price intervention legislation to be proposed to Parliament this week, accompanied by clear signals for future energy investment and transition," Innes Willox, Chief Executive of national employer association Ai Group, said today.
"As we have said to Parliamentarians, there can be no doubt that the energy affordability crisis confronting Australia as a result of the invasion of Ukraine is serious, urgent and full of risks for industry competitiveness and households' standard of living. The situation demands comprehensive action, even though – as Ai Group has consistently acknowledged – all the available response options have problems and complexities to manage.
"The combination of actions chosen by the Federal Government, while far from perfect, is likely to be helpful overall in reducing energy affordability pressures on industry and households over the next few years and improving the long-term position of energy users. The rapid fall in wholesale electricity futures contract prices for 2023 since the October Budget, which has greatly accelerated since last Friday's announcements, is a welcome sign of impact and will itself benefit many energy users. However, there are also important caveats and gaps at present.
"The caps will help, but nearly all large industrial energy users will have already contracted for supply in 2023, many of them at historically unprecedented prices.
"The reasonable price provisions of the proposed mandatory Code should limit the effects of the war in Ukraine. They will be complex to design and implement and will inspire intense arguments over what constitutes a reasonable return on investment. However, the intended temporary nature of these price provisions is also important.
"At some point, perhaps after 2025, global energy markets will have rebalanced sufficiently for international prices to fall into a much closer relationship with underlying costs of supply.
"Energy suppliers and international trade partners have raised concerns about future investment and potential trade friction. Ai Group cannot judge the scale of these risks. Every nation in a position to do so is responding to the global energy crisis. But Australia will require very large investment and partnerships – public and private, foreign and domestic – to achieve our aspiration to be a clean energy superpower.
"The Bill already contains sunset provisions for emergency price orders. Clear statements to also signal the temporary nature of the reasonable price provisions of the mooted mandatory Code, even without a predefined end date, will be important to allay trade and investment fears.
"Australia will also need an effective strategy for our longer-term energy future. The pre-Ukraine status quo ante left energy users highly exposed to shifts in Australia's energy exports, with our energy security under a cloud and our energy systems not yet on a path to net zero emissions. A comprehensive approach will see intervention can give way to transition over time.
"Major electricity reforms and investments are already under way, though efficiently delivering all this at the pace required will involve major challenges – not least to skills, supply chains and social license.
"The biggest missing piece has been a gas substitution and supply adequacy strategy that targets urgent and sustained improvements in energy efficiency; accelerates and underpins both electrification and fuel switching to clean gas alternatives as appropriate for different contexts; and ensures adequate supply of natural gas for as long as it is needed. The mooted National Energy Performance Strategy could help fill this gap, and we welcome the Government's announcement today that, consistent with Ai Group's representations, this will be backed by significant measures in the May Budget. A clear path to lower our domestic gas needs will immediately underpin better planning by energy networks and AEMO and should ultimately also benefit Australia's gas producers, who will have greater opportunity to export at international prices.
"The passage of the Bill, accompanied by signals on the temporary nature of price regulation and the seriousness of intent to lower gas needs, will be an important step to address Australia's exposure to the global energy crisis. An urgent crisis requires speed, but also vigilance for unintended consequences and readiness to rectify them. Ai Group looks forward to playing our part on behalf of our members across Australian business," Mr Willox said.
