The Australian Federal Government released its Energy White Paper today. Its focus is on ensuring that regulation is efficient and that markets and pricing incentives are allowed to operate properly to ensure efficient outcomes.

The White Paper's focus is on high consumer power prices; it recognises that in large part these have been driven by cross-subsidies embedded in fixed network charges that do not adequately correlate with the demands placed on the network on peak days by increased domestic air-conditioner usage, and households which are required to pay for these peaks by their energy consumption at other times, whether or not they have the same peak load.

Addressing this will require more flexible time-of-use tariffs for networks and energy, the deregulation of existing tariffs, and some changes to the network revenue setting process (such as the review and appeals process). The paper also calls for privatisation of power generation and networks where these are still in State Government ownership (NSW, Queensland, Tasmania and Western Australia).

The challenge for the Federal Government will be that much of the regulatory change required to implement the White Paper's proposals is in the hands of State Governments. It is the States that set regulated consumer tariffs (in those states that still retain them) and control decisions such as whether to implement the smart time-of-use metering which is required for flexible tariffs.

For those States (such as New South Wales) where deregulation and privatisation is currently being considered, the White Paper will be added impetus and support for that policy direction. Other States, such as Queensland, have more recently been moving towards greater regulation of power pricing, and the White Paper is implicit criticism of that path.

Industry will be watching the next meeting of the COAG Standing Council of Energy and Resources (SCER) in December 2012, where representatives of State and Federal ministers consider joint policy, to see exactly how much of the Federal Government's White Paper is adopted with enthusiasm by the States.

The Federal Government's proposals include:

  • there should be a regular four-yearly strategic review of energy policy, commencing with this Energy White Paper;
  • the National Energy Customer Framework should be implemented as a matter of priority by jurisdictions that have not yet done so (NSW, Victoria, SA, Queensland);
  • considering developing an upstream gas trading hub;
  • updating the Government's offshore and production lease arrangements to continue to promote transparency and domestic supply outcomes (but without domestic gas reservations);
  • considering whether the Federal Government ought hold a liquid fuel stockpile or strategic reserve, given that most liquid fuel is now imported;
  • developing national guidelines that provide a benchmark approach to reasonable feed-in tariffs for micro-generation;
  • developing a national framework for the implementation of smart meters;
  • calling for the NSW and Queensland Governments to allow uranium mining in their States;
  • commencing a Productivity Commission investigation into the regulatory and non-financial barriers to mineral and energy resource exploration;
  • reviewing and reducing the regulatory arrangements relating to the liquid fuels industry;
  • preparing a nationally harmonised regulatory framework for the CSG industry; and
  • reforming regulation of energy networks to better incentivise demand-side investment.

We will provide more detailed discussion of the White Paper over the next few days.