Eutility's weekly news

Big energy breakup power a 'catastrophe', says Danny Price

Big energy breakup power a 'catastrophe', says Danny Price

Giving the Australian Competition and Consumer Commission the power to break up powerful energy companies would be a catastrophe for the electricity market.

Energy expert Danny Price said it would freeze fragile investor confidence and make things much worse for consumers.

Mr Price, the architect of the carbon emissions intensity scheme once championed by Prime Minister Malcolm Turnbull, said a breakup power aimed at energy companies would also freeze investment in other sectors facing scrutiny, such as banking and supermarkets.

He said that if there was any semblance of confidence left in building new merchant generators – generators that sell to the spot market rather than contracting their output to large buyers – "it'll be gone" and big players in other sectors will fear they're next.

"It's not just energy any more. They have raised the level of risk for all industries. It's hard to know what the Liberal party stands for any more," Mr Price, whose firm Frontier Economics modelled the National Energy Guarantee for the Energy Security Board, said. "It'll be a catastrophe."

He said the big three integrated power companies that the government is targeting – AGL Energy, Energy Australia and Origin Energy – had been responsible for three-quarters of investment in new generation over the last decade and "if you break them up then you are going to have a much more immediate investment problem".

"There will be literally no-one else investing. No-one else is big enough to bear the risk, and the risk has gotten a lot more magnified, which means that investment is less likely to go ahead than ever. So the consumer will suffer more and be much worse off," Mr Price said.

Kobad Bhavnagri, Bloomberg New Energy Finance head of Australia, agreed. "This is a spectacular own-goal that will sow the seeds for further prices rises and future blackouts," Mr Bhavnagri said.

"The Coalition government's implosion to irrational policy-making and ill-considered interventions will drastically heighten risk for investors. That will lead to less investment, higher costs and deteriorating reliability."

Ian Harper, Dean of Melbourne Business School and a member of the Reserve Bank of Australia board of governors, calling the breakup policy a blunt instrument that could make things worse by leaving a sector with fewer players than it had in the first place.

Mr Harper led a review of competition policy for the Coalition under Mr Turnbull's predecessor Tony Abbott, which noted that a breakup power had been rejected by previous competition inquiries led by former High Court judge Darryl Dawson and Fred Hilmer, and rejected the option. The ACCC's own review of retail electricity also rejected the breakup power as too "extreme".

Mr Harper said breakup powers were rare around the world and rarely used, because decision-makers can never be sure the individual parts of the broken up business will be viable on their own.

"The problem with breaking an institution up is it could be counterproductive. The pieces by themselves may not be viable and you may end up creating a market with fewer players left than when you started," Mr Harper said.

He said other remedies falling short of breaking up dominant companies could do the job. "What you are really trying to do is control the conduct of the players not the number of players in the market."

Allan Fels, a former chairman of the ACCC, said a breakup power was an obvious solution to monopolies but said it should be a general one administered by the courts rather than an industry-specific one triggered at a time when energy companies, banks and are being targeted for "political breakup".

"I prefer that to the government in the next year enacting special industry specific legislation regarding electricity and regarding banking. (It would be) better to have a general divestiture power administered by the courts, and in this era of populism it would be better to move sooner rather than later."

Australian Financial Review

Post a comment

Captcha Image