POWER April 2014 - 69

ENERGY POLICY AND POLITICS
a market mechanism in order to achieve the
lowest cost per mt. It also envisions long-term
contracts for abatement, overseen by the Clean
Energy Regulator, to help entities to secure financing
or undertake projects.
Industry observers note that the package
of 11 repeal bills will easily pass the lower
house, where the Liberal-National Coalition
has a clear majority, but it could face a standoff
in the Senate, which is dominantly held by
the Labour, Greens, independents, and several
smaller parties. Abbott has vowed to call a
double dissolution of parliament if the Senate
blocks the bills, but even if this occurs, the
earliest that the law may be repealed is in September
2014. Irrespective of the date of repeal,
CEF rules can only cease to apply on the first
June 30 after repeal, industry experts say.
According to consulting firm Energetics,
the proposed fund could " reward business
for undertaking meaningful action to reduce
emissions. " Significantly, if the carbon
price is removed, power and gas prices could
plunge by about 15%, it says.
Lower Consumption but Higher
Prices
Since 2006, against the backdrop of Australia's
climate politics, electricity consumption
that had climbed at an average rate of 6% for
nearly 40 years before it suddenly slowed,
plateaued, and then dropped, surprising even
some market specialists, including the Australian
Energy Market Operator (AEMO),
which releases annual energy forecasts. Yet
during the same period, average household
power bills soared 85%. The reason lies in
the structure and regulation of the electricity
market. Generators and retailers both operate
in competitive markets, which means if
demand deflates, so do profit margins, which
are pegged to wholesale power prices.
But grid operators, which are regulated monopolies,
may actually increase prices to meet
regulator-determined revenues they are allowed
to collect over a five-year period, transferring
the cost of falling consumption to grid users instead.
" A bigger problem over the last decade
is that some network businesses have spent
too much on their network assets, " explains
Australian think tank Grattan Institute. The
independent Australian public policy organization
suggests that regulatory incentives for grid
companies have led to excessive investment.
The need for new assets isn't unfounded,
the entity admits. Upgrades have been warranted
to address the risk of bush fires being
ignited by faulty power lines, to help the rollout
of smart meters, and to support the high
penetration of rooftop solar systems. However,
allowed returns for grid companies " have been
higher than they should have been, " it says.
Also underlying the nation's demand dilemma
is a general long-term decline in energy
intensity, which the government otherwise
attributes to energy efficiency improvements,
fuel switching, and structural changes, including
the growth of less-energy-intensive sectors
over manufacturing. The manufacturing
sector's share of economic output nosedived
from 13% in 1990 to just 6% in 2013. This
February, for example, aluminum giant Alcoa
announced the closure of its Point Henry
smelter, making it the second of Australia's
six smelters to be retired after the demise of
Kurri Kurri in 2012 and dealing a blow to
Australia's status as one of the world's biggest
aluminum-producing countries.
The overall statistics are alarming: Electricity
demand plunged nearly 5% across the
National Electricity Market (NEM, see sidebar
" A Disconnected Market " in the online
version of this article) between 2009 and
2013, according to the AEMO.
Over the next decade, annual electricity
demand has been forecast to spurt a paltry
1.3%. Yet, as recent heat waves in Victoria
and South Australia showed, " peak demand
has not been eroded in the same way
as overall consumption, " notes the Energy
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POWER April 2014

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