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Remarks at the Melbourne Institute Outlook Conference


11 October 2018


ANGUS TAYLOR: When Scott Morrison, the Prime Minister, gave me my job, he gave me one very clear KPI, and that is to get electricity prices down while we keep the lights on.

If there's one thing I've learned in my career in business and in politics, is that clarity works. If you look at our Government over the last five years, some of our best achievements have been where there's been absolute clarity.

Scott made the point that when he became Immigration Minister he was given one clear KPI, which was stop the boats, and we did. Everyone said we couldn't but we did. Tough issue. Very, very tough issue.

When we came into government we said we were going to pursue three free trade agreements. We did.

When we came into government, we said we were going to move the Budget into surplus - it'd be a tough, tough exercise - next year, we'll be there.

So, clarity I think is crucial. It's not just crucial for me - it's crucial for everyone in the industry. There's lots of ways to achieve a goal, but you will never achieve it if it isn't clear, and that is exactly what we're seeking to do in the electricity sector with our focus on keeping downward pressure on prices, pushing prices down, while we keep the lights on.

I think it's very relevant that in a conference on economic prosperity and opportunity, that we should talk about this issue, because for almost every business in some form or other in this country, particularly a lot of small businesses, energy costs, reliability, and security are a crucial issue - and not just small businesses, large businesses as well - go and talk to smelter operators and ask them how important is not just an affordable electricity supply, but a reliable and secure one as well. These are absolutely crucial issues for jobs, and particularly jobs, I would say, in regional areas.

Just last week I met an auto repair owner - a business you wouldn't necessarily associate with energy intensity, with electricity intensity - who told me that he was in a position where electricity and gas prices had meant that he isn't able to hire more staff or offer higher wages to his staff. This is a business that at face value you would think: "Do they really use that much energy?" When you get into it - absolutely, the bills were high, and unfortunately, particularly between 2007-2013, you saw a doubling in nominal terms of their bills during that time period.

We know from the AEMC, the Australian Energy Market Commission, that about a third of small business people experienced bill shock in the past year.

We also know that about 20 per cent of small business people are still on standing offers - these are the high prices you pay if you haven't negotiated a better market price, as they're known. That's largely because small business people simply don't have time. I grew up in a small business family - you are stretched from dawn until dusk and beyond just getting the job done, paying bills, employing people, and doing your work.

We're taking practical action to focus on lower prices while we keep the lights on. Let me focus for a moment on that second bit, which is keeping the lights on, because yesterday I announced that we'd be asking the COAG Energy Council to work with us to implement the reliability obligation this year.

We of course are about to approach summer and the peak time of system stress, and AEMO forecast that Victoria's supply will be extremely tight over summer 2018/19, as it was in summer 2017/18, but so much so that there's a one in three chance of load shedding or targeted blackouts unless we can fill a gap of about 300 megawatts of capacity, and that's on top of work that was done last summer to fill a gap of almost 2000 megawatts.

Unfortunately, some of that isn't done through enhancing supply, some of it has to be done through reducing demand, which is in itself can be very costly for businesses and households involved.

Last summer it was a close run thing, but we kept the lights on this summer. But in the medium term, as you look forward, you'll see reliability challenges without further investment in supply that are extremely, extremely challenging.

In 2017, AEMO - market operator, was forced to make 25 market interventions to ensure that we keep the lights on. To put that in perspective, that in total is more than was made in the whole of the seven years leading up to it. So less than 25 interventions made in the seven years leading up to last year, 25 interventions made last year, and in fact, in some areas we see permanent interventions in the market having to be made by AEMO to keep the lights on. An example of that is 600 megawatts of wind in South Australia, that is not permanently curtailed, that is curtailed a very significant portion of the time. That's about a third of the wind fleet, which would have cost up towards $1 billion to invest in curtailed, because we simply haven't worked out how to get that to work properly in the system.

This is an example not just of a market not working well, but a market on life support.

On the price side, we are focussed on three things.

One is, a price safety net, making sure that every customer gets a fair price, even when they don't have time to negotiate it, and we'll have more to say about that in the coming weeks.

We're backing investment in new generation. We need to make sure there is enough firm, reliable supply in this market to keep the lights on, and in particular, in markets where we've seen particularly higher prices - South Australia is the most obvious example of that. We put downward pressure on those prices.

And we are challenging the big energy companies to do the right thing because there are many cases in the recent past, where the ACCC has told us they are not doing the right thing.

There's a whole suite of recommendations in the ACCC report, which we are in the process of implementing. We'll have more to say about a whole series of those in the coming weeks, as we have said, about many of them in recent weeks and I'm sure we'll talk about some of them in the panel.

Thank you again for giving me the opportunity here to speak today.