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The Federal Government is pushing up power prices for consumers instead of bringing them down with its "picking winners" policy of funding some energy projects, according to the Grattan Institute.
Key points:
- In March, the Government announced 12 projects to be underwritten with taxpayer funds in a bid to deliver more affordable and reliable power
- The Grattan Institute report says government interference in the market puts off lower-cost and more-efficient investments
- The report shows several of the projects are yet to get development approval
In March this year, Energy Minister Angus Taylor announced 12 projects to be underwritten with taxpayer funds, ranging from upgrading coal-fired power stations to building new hydro plants.
The Government launched the Underwriting New Generation Investments (UNGI) policy to deliver affordable and reliable power, but new analysis by the Grattan Institute has found it is preventing more viable projects, which could generate power sooner, from being built.
The institute's Tony Wood told ABC's The Business program the Government should abandon the policy.
"When governments start announcing that they are going to support a certain range of projects or investments, what that does is it puts off what might have been much-more-efficient and lower-cost, better-placed, more-timely investments that the market could have delivered," Mr Wood said.
"As soon as they do that, by definition they almost create the very problem we're trying to solve … we are not getting the investment we want into the future requirements."
The Grattan report rates six of the projects the Government has picked as dubious.
These include pumped-hydro projects proposed by BE Power in Queensland, Hydro Tasmania and UPC Renewables in NSW, as well as a gas plant in NSW owned by Australian Industry Energy.
The report shows none of these yet has development approval, there isn't a clear need for them, and in three cases it's unknown how much power they would actually contribute to the grid.
Delta Electricity's Vales Point coal-fired power station upgrade is the only project the Government is underwriting where the Grattan identifies a "clear need".
Government picks 'inferior' says report
The Grattan report compared prospective projects that would be privately funded against those the Government is planning to underwrite, and found the majority of the Government's picks were inferior.
"The 'Big 3' integrated generator-retailers — AGL, Origin, and Energy Australia — are planning investments that, in most cases, can be delivered faster than competing projects seeking government assistance [through underwriting]," the report says.
Energy Australia's two gas-turbine projects make the top of the Grattan list for being very fast to market, fulfilling a clear need and having development approval.
However, Energy Australia previously told The Business it was unwilling to proceed with the projects if inferior gas projects would be built for much less thanks to taxpayers underwriting it.
Echoing complaints from the big power companies, Grattan says the Government's interference in the market has made it harder for investors to deliver new capacity, which in turn is pushing up prices.
"Basically, the best way to do it is to have confidence in the markets and for the governments to support the markets where they need to, and sometimes governments have to, but do it through the rules and the agencies and don't introduce completely new things that just spook everybody," the report says.
The massive Government-backed Snowy 2.0 is another project Grattan argues is likely to have delayed other investments in new power sources.
At the announcement of the underwriting policy, Prime Minister Scott Morrison said it would have a positive impact on prices.
"Underwriting new electricity generation will attract investment in the electricity market, increasing supply and reducing wholesale prices," he said at the time.
Topics: business-economics-and-finance, environment, energy, hydro-energy, federal-government, coal, australia