Australian government intervention on energy ‘can lower investor confidence’

Interventions in Australia’s energy sector may be harming investor confidence, the government’s top energy policy advisor has said.

The Energy Security Board this week published its annual Health of the National Electricity Market report, a scorecard on how the National Electricity Market is functioning.

The ESB was established in 2017 by the Council of Australian Governments Energy Council to co-ordinate the reforms put forward by the Finkel Review, and provide system oversight and policy advice to the council. The annual report is part of its remit and sees it assess performance on the basis of customer affordability and satisfaction, reliability and security of supply, whether the NEM has an open and competitive market, and whether investment in networks is happening in a timely and efficient way.

This year’s report rated both reliability and security of supply as “critical”, its highest rating of concern.

The ESB also found that the ability of investors to efficiently manage risk to support investment, operation, retirement and innovation decisions was at a “critical” level and that this was a reflection of government intervention.

In its report, the ESB said: “Some government intervention is intended to improve reliable supply but it can also distort the market and lower investor confidence.”

The ESB did not elaborate on which specific interventions it had in mind but said that there was a continuing need to monitor the impacts of continued policy uncertainty on investment.

“Inappropriate investment, including lower investment, may lead to a lessening of competition, lower reliability, higher long-term pricing through inefficient investment decisions and the requirement for increased government support for future investment,” it said.

It also rated the optimisation of investment solutions across all resources as critical, and worse than 2018, because of problems that some renewable generators have had in connecting to the grid.

“Constraints have been experienced but will be fixed as the grid changes its configuration to suit the new location of generators,” the ESB said. It added, though, that making large-scale investments in transmission infrastructure to address this in a timely manner that was efficient and affordable would be a challenge.

Debate over Australian energy policy has continued for several years, with recent points of contention including the doomed National Energy Guarantee and arguments over transmission loss factors.

Investors have argued that the current transmission loss factor framework, known as marginal loss factors, has had a strong negative impact on some of their assets and could lead to a steep drop-off in investment in the sector.

Minister for energy and emissions reduction Angus Taylor said in a statement that the report highlighted the challenges facing Australia’s energy sector but that government policies were helping to increase resilience while driving down prices.