National energy policy has been front of mind for the Federal Government for many months now, and its importance on the national agenda was underscored in August when it resulted in a new Prime Minister and new Energy Minister. Since assuming the portfolio, Angus Taylor has been focused on developing a plan that will allow the government to reduce power prices, keep the lights on and win over frustrated voters. Energy Editor Laura Harvey had the chance to catch up with Mr Taylor to discuss his thoughts on where the industry has gone wrong, and the things we need to do improve performance, adapt to our changing environment and win back the trust of consumers.
Let’s start with what we do know about our new Energy Minister. He’s been given a clear mandate to reduce power prices – in his first days in the role, he was described by Prime Minister Scott Morrison as the “Minister for Reducing Energy Prices”. Since assuming the role in August, Mr Taylor has frequently and repeatedly referred back to this mandate when speaking about the energy industry, and his role in it.
But there’s a lot more to energy than just prices, and our new minister is going to have to do a lot more than wave the proverbial “big stick” at the industry to win customers over; and he’s certainly going to need to bring more than that to the table to earn the respect of the industry itself.
So what else is he planning to bring to the Federal Election next year? From our conversation, it’s clear that for Mr Taylor, reliability is equally important as prices.
“Number one is getting prices down while we keep the lights on,” said Mr Taylor. “I do want to underscore that, because there will be no compromise there.
“But reliability is obviously crucial also. We have a 250 per cent increase in solar and wind in the National Electricity Market coming in the next three years, so for that reason, we are determined to get the Retailer Reliability Obligation in place.”
True to this statement, the Retailer Reliability Obligation – one of the few remnants from the now defunct National Energy Guarantee – was front and centre of discussions at the most recent COAG Energy Council Meeting. All states agreed to move forward with this plan, and the Energy Security Board will now prepare a final draft Bill for the council to consider at its next meeting in December 2018, to be implemented by 1 July 2019.
Naturally, from here it makes sense that the government will also be focused on shoring up supply for domestic energy markets. Mr Taylor has been quoted as saying he will be focused on “fair-dinkum, affordable and reliable generation”. It would be easy to interpret this statement as meaning coal or other fossil fuels – so what does the Minister have to say about these assumptions?
“When it comes to dispatchable generation, there are a lot of different fuel sources that can play a role. There’s coal, there’s gas, there’s hydro,” said Mr Taylor.
“Let’s be clear: all dispatchable generation will play a role. The notion that we can pick one fuel source and it will solve all of our problems is ludicrous. The answer here is balance. And the craziness in the energy sector has all come from people who want a lack of that. I’m into balance, and getting the balance right will get us through what is a challenging time in the energy sector.”
When pressed on how that balance would actually be determined, the Minister was very quick to say: “The right balance will be the one that gives us lower prices and reliability. That is what customers want.”
Where has energy gone wrong?
Some of the conversation between the Federal Government and energy utilities has been pretty hostile in recent weeks and months. What is particularly interesting about our new Energy Minister is that in his life before politics, he spent considerable time working in the energy industry, both on the service and customer sides. Given his previous experience in the sector, it’s important to gain an insight into his interpretation of where the energy sector has gone so wrong.
“I would say that if there’s a disappointment for me, it’s that there’s been less of a focus on customers than there needs to be,” said Mr Taylor.
“I think refocusing on what customers want, whether that’s a residential customer or an aluminium smelter, focusing on what customers need and what’s going to make them successful has to be the focus now.
“There hasn’t been enough talk about price. Those who want energy to be a very profitable industry don’t want to talk about price, because there is a risk to profitability.
“I want the energy companies to be sustainable, but they also have to offer a service, and a price level for that service, that is sustainable for their customers. And currently, that is not the case.
“If there’s one lesson we can pick up from business in recent years, it’s focus on your customers, or you will perish. That is a really important lesson, and it’s one that the industry and I need to focus on every day.”
Turning the focus back to customers naturally brings the conversation back to prices in the energy sector. When asked point blank what sort of changes the Federal Government wants to see from the energy industry moving forward, the answer is swift, and simple.
“A sharp focus on lower prices while we keep the lights on. Full stop. It’s that simple.
“If the industry does that, then I am absolutely confident that the relationship between the government and the energy companies will be a good one.”
The role of clean energy
With all this having been said, it leaves just one elephant in the room still to be discussed: where does clean energy, and more specifically an increased emissions target, fit in with the Government’s plans for the energy industry?
“Let’s look at the numbers,” said Mr Taylor. “We have an international commitment to emissions reductions, and the reason we can focus on price is because the emissions reductions through our investments in solar will be very significant, and we’re confident they will reach the 26 per cent reduction – the 2030 target – well ahead of time.
“The crucial thing for us is to drive prices down and keep the lights on, knowing those emissions reductions will occur.”
Mr Taylor believes that this approach is in line with one of his general business principles, to manage the pace at which change is introduced.
“The one thing I’ve learned in business is pace. There is a natural pace of doing things that all of the different stakeholders can cope with.”
Mr Taylor is adamant that the Opposition’s target of a 45 per cent reduction in emissions is too much – he believes many stakeholders won’t cope with that.
“But 26 per cent is achievable. And let’s not understate this – there is $15 billion of renewables investment lined up for the next three years in order to help meet our target.
“This is a big change, and a big challenge, and it will take an enormous amount of work to digest this.
“We will reach our emissions target, but no, we don’t accept that it should be higher.”
The road ahead
There were a number of key points that stood out from our conversation, beyond the obvious emphasis on price and reliability. Pace, balance and sustainability were all words that came up repeatedly and with emphasis. The Minister wants a balanced, sustainable approach to how we address the challenges the industry is currently facing as a result of the energy trilemma; and he
wants the challenges tackled at a sensible pace.
The problem with that sentiment is that the industry is dealing with fundamental changes to the way it operates, with innovations being delivered with breakneck speed. On top of this, we are faced with customers (and in the case of a Minister, an electorate) who want change (in the form of action on prices) immediately. How exactly will we balance the urgent change that is required in an
industry that is evolving every day before our eyes?
How we answer this question, and how we marry these two opposing forces is a critical focus for the industry moving forward. For the Minister, it’s most likely what he will be judged against in merely a matter of months.