Explained: Australia's Energy Problem Is About Power, Paris And Prices

It's about prices, Paris and power in politics.

"The current situation is unacceptable and unsustainable."

That's the view of the Australian Competition and Consumer Commission in its recent report into the country's power sector, and the crux of the debate currently tearing federal parliament apart.

On one side we have Labor -- and to a larger extent, the Greens -- pushing for action on climate change, wanting to divest Australia from a reliance on dirty coal and fossil fuels into a new future of cleaner energy, hoping to make the power issue one about the environment.

Wind turbines at Capital Wind Farm, outside Canberra (Martin Ollman/Getty Images)

On the other there is the Coalition, the Liberal and National members aiming to make electricity an issue of hip-pocket economics and rising prices in an attempt to sway poorer working-class voters who will be key to winning the next election.

Parliament is descending into a zero-sum political fight to the death on electricity. But the power debate is about more than just reforming the nation's energy sector. It's the key to winning the next election, and everyone knows it.

Here's what you need to know.

What is this energy debate all about?

It's an intersection of two Ps -- Paris and prices. Power prices have seen an increase of around 56 percent  between 2008 and 2018, according to the ACCC. Other reports showed wholesale electricity prices jumped 130 percent between 2015 and 2017.

People are struggling and the government is under pressure to do something, with rural MPs and One Nation especially making noise. Some MPs, Tony Abbott and Barnaby Joyce chief among them, are angling for the government to support or even build coal power plants, which they say will deliver cheaper power.

On the other hand, we have the Paris agreement, the international climate change pact -- signed under the Abbott government, mind you -- which compels Australia to lower its greenhouse gas emissions. Building new coal stations would somewhat go against the spirit of this.

What's more, Labor is pointing to several reports -- including from the Australian Energy Market Operator -- showing replacing ageing coal plants with renewable energy is the most cost-effective option to deliver lower prices.

What are the solutions to Australia's energy problems?

A few acronyms you need to know this week: ACCC, AGL, and NEG. The government has latched on to a recommendation from the ACCC report saying the government could underwrite new energy projects providing "firm" electricity output -- that is, baseload power.

Coalition members quickly took that as an endorsement of coal power (despite the ACCC just as quickly clarifying that it wasn't) but on Monday, the Daily Telegraph reported the government was planning to "underwrite multibillion-dollar investments" into new coal stations.

Then there's AGL, the power company behind the controversial Liddell power station. The NSW Hunter Valley station is due to close in 2022, and AGL said it wasn't planning to keep it open past then. It became a huge saga earlier this year as the government slammed AGL for the decision, saying the shortfall in power generation would further increase power prices, and called on AGL to keep it open or sell it to another operator.

Liddell Power Station, near Muswellbrook NSW (Getty Images)

On Monday, Joyce reignited the debate in floating the idea of the government acquiring the station. It continued a strange trend of Joyce and Abbott talking up the possibility of the government building and owning power stations, quite a departure for the side of politics that usually vehemently opposes forms of socialism.

What is the National Energy Guarantee?

This is the big one. The NEG. Australia currently has a Renewable Energy Target (RET) and the nation's chief scientist Alan Finkel proposed a Clean Energy Target (CET) to replace it. That was shot down over fears it would rise prices, so as a compromise, the National Energy Guarantee was thought up to tread a fine line between keeping power prices lower and meeting Australia's international emissions targets.

The idea of the NEG is that it will advance renewable power but at the same time "guarantee" that forms of 'dispatchable' power -- coal, gas, hydro -- will always be available, to avoid the sort of blackouts and power shortages seen in renewables-reliant South Australia in recent years.

The CET had a renewables target of 42 percent of total energy production, while the NEG debate is about firming up a renewables target between 28 and 36 percent.

The NEG went to the Council of Australian Governments meeting of state premiers last week. Labor state premiers didn't back it yet, because the final set of details and the energy balance is due to be debated (and probably reshaped) at the Coalition party room meeting on Tuesday, but it will be reconsidered at a later stage once all the details are hammered out.

There's now talk of renegade Coalition MPs like Abbott or Joyce crossing the floor to oppose their own party's plan, if the renewable target is too high.

What does this mean for politics?

As mentioned, energy is not just about power prices, but power in Canberra. Energy will be a massive issue in the next federal election, due by mid-2019.

Labor wants to make the power debate about the environment while not totally writing off concerns about prices. The Coalition wants to make it a debate about prices, with a hint of Trump-like anti-elite sentiment, if Joyce's recent comments are anything to go by.

You'll be seeing a lot of TV ads warning of higher power prices under Labor, or rising environmental issues under the Coalition. But where the NEG debate ends up is anyone's guess.

Contact the author: jobutler@networkten.com.au