Remarks at the COSBOA Small Business Energy Summit, Melbourne

Speech

20 March 2019

E&OE

ANGUS TAYLOR: Thanks for that, Erin. Thanks for having me back to COSBOA. Of course, the first speech I gave as Minister- it was only a little over six months ago was at your summit. It's wonderful to have the chance to speak again at a COSBOA event. And I firmly believe in small business. I want to because I've been involved in it all my career, all my life; fifth generation farming family. We should never forget farmers and small business, absolutely. They think like small business people, act like small business, and are small business people. And it's very important we remember that strong link between agriculture and small business more generally. But of course, on our side of politics, a larger portion of us have been involved in small business for some, or all, of our careers. And we have seen the enormous work that your sector has done in recent years. About 1.2 million jobs created and a large proportion of those have come from small businesses across the country. We should never forget that; it's too easy to forget that. I know in my electorate, I made a point constantly to remind the media, to remind council leaders, local government leaders and others, community leaders, that small business is the backbone of the economy in my electorate; it's the backbone of most electorates across Australia. So, well done on the work you're doing in not only today's event but more generally. Can I also acknowledge Pat Conroy; I know he's here today, good to see you, Pat. And Pat and I've sat just across the aisle for a number of years now. I think he came into Parliament same time as me. [Inaudible] ... and I don't know if Adam's here as well. Good to see you.

There's no doubt, and you said yourself, Peter, that we are facing real challenges in our energy sector in Australia. And it's a sector that I've worked in for much of my career as well. And small businesses aren't immune to the impacts we're seeing in the energy sector. Supply and demand are having a real impact on reliability, security, and of course, consumer and retail prices. And I think it'd be fair to say that the situation we face now comes down to two primary challenges.

First, we are seeing unprecedented investment in energy and renewable generation; solar and wind. More than $70 billion invested in the last decade. The forecast for the next three years in somewhere between $20, $25 billion of investment; unprecedented. We've never seen this before. And by global standards, this is as high as you will ever have seen, as high as you will ever see. About a third household solar; a third utilities scale solar; and about a third, wind. Now that is great for emissions reduction. Emissions from the electricity sector are down by 15 per cent in recent years. We've seen them continue to track down rapidly year on year. And on the Department of Environment and Energy's numbers, we'll reach 26 per cent emission reduction target in the national- I think that's mine, so I better deal with that.

We'll reach the 26 per cent emission reduction target in 2022, eight years ahead of schedule. So that is in the national electricity market. So, that is an extraordinary achievement, and we shouldn't undersell it. But it is creating big challenges when the wind doesn't blow and the sun doesn't shine. Keep in mind that this kind of generation, solar and wind, delivers in its capacity about 10 to 30 per cent of the time. [Indistinct] for household solar and 30 per cent higher for wind, against traditional generators which deliver 90 per cent capacity.

What we're also seeing is that the push into wind and solar is pushing out dispatchable base-load power, 24-7 power, that is necessary when the wind doesn't blow and the sun doesn't shine. That of course, is why, and we can talk more about this later, we're investing in Snowy 2.0 to relieve some of those pressures. Now in Victoria, we've seen the real impacts of those challenges. In late January, 200,000 homes lost their power. The Portland aluminium smelter had to be put on hold. And when you're running that aluminium smelter, that is not fun, because your pots freeze if it goes for too long, and once your pots freeze you are in deep, deep, deep trouble.

So the challenge is real and it has to be addressed; has to be addressed. We can't put our heads in the sand because we have to work out how to manage storage, and the ability to back up intermittency in a sensible, realistically, economically rational way. Because there's lots of ideas out there and a lot of [inaudible].

Now secondly, the second problem we face is- we have just three players controlling around three quarters of the retail in generation markets in Australia. That is the reality - just three players. There are some others, like the Queensland Government, which [inaudible]. This is an industry, electricity, that is highly integrated and highly concentrated. And that's why the ACCC has expressed deep concern about the lack of competition and the need for more competition and more supply. And we saw the impact of the dramatic price hikes following the closure of Hazelwood, well above what was the model to have occurred in a competitive market and what should have happened in a competitive market. It did not behave like a competitive market; and that probably tells you what you need to know.

As the Minister responsible in this area, finding solutions to those challenges is my main concern. And the Government has embarked on a sensible and balanced program to drive down prices and ensure there's enough supply and competition in the grid to meet demand and keep the lights on. We have committed to underwrite new reliable, affordable supply and competition. Where the business case stacks up and the focus of this, increasing competition and driving down prices. And I'm a huge believer that competition will deliver; it always has, it always will. People in the small business sector; of all who almost invariably work in deeply competitive markets understand the pressures that competition creates. It makes you accountable to your customer. So we want to see more competition in the electricity market; we must see more competition in the electricity market. And whilst that push to competition is emerging, we need to see responsibility; responsible action from the players in the market who have very high market shares. They need to understand that they have a stewardship role, they have a responsibility- a role where they've got to act responsibly. And as the ACCC has pointed out - their words, not mine - the current conduct in the market is unacceptable and unsustainable.

Now, as I say, we've committed to new reliable and affordable supply. We've invested in over $1.4 billion in reliable, renewable generation in Snowy Hydro, the 2.0 scheme. We've also invested in the development of the Marinus link, interconnector and Battery of the Nation project in Northern Tasmania. And those backup storage technologies will provide the support for intermittent renewables that are needed to ensure we do have a solution when the wind isn't blowing and the sun isn't shining. For small businesses, that's crucial. It means they can be confident this is the market that will work the way it should, that will have enough competition and enough supply, and particularly enough supply as the transition that's currently occurring continues to take place.

Now, it's no secret that energy costs are one of the biggest costs for many small businesses in Australia. Energy costs are restricting those businesses from expanding, investing, from hiring and paying more to their staff. And I hear that regularly when I'm getting around my electorate of Hume, which as I said earlier, is a small business electorate. Whilst lots of those businesses are innovative in the way they manage their energy use, they don't all have time to become an expert in keeping energy bills down. And that's tough for small businesses: how do I find the time between paying my staff, doing the job I have to do - managing my suppliers, managing my customers; how do I find the time to look for those energy efficiencies?

Now, we find that around 3.3 million of Australia's small and medium sized businesses, they are paying as much as 24 per cent more on their electricity bills than they should be. And in one of the most comprehensive pieces of work I've seen since I've been involved with public policy, and that's been for many years now. The ACCC has listed a number of recommendations in its report to address this, and we're working to implement those recommendations. Our important reforms that tackle poor market behaviour and drive competition in the market. That has, in some cases, led to reforms met with fierce opposition. Our legislation which Labor has voted against 12 times, to address a number of these issues, has picked up a range of ACCC recommendations to introduce new prohibitions against market manipulation; to bolster the powers of the Australian Energy Regulator; to address misconduct in the electricity sector that's not already prohibited by existing laws. We won't be deterred from delivering those reforms and lowing prices for consumers and our action is getting better results. We're absolutely determined to deliver a fair yield for energy customers, which is focused on directly driving down the prices, increasing supply, competition and supporting energy initiatives.

Now, about one in five small businesses are on the highest offers in the market, known as standing offers. That's higher than households. So standing offers, the default offer you get when [inaudible] - there's a higher penetration of those in the small business sector than there is in the household sector. This is a really important issue. Often that's the case because of the time poor nature of small business people, and they can't be experts in everything. It can be confusing and time consuming to negotiate another contract. The outcome of that is simply unfair. No one should be paying more than what is reasonable for an essential service, and when I was appointed Energy Minister I said to the energy retailers: I expect them to do something about this and lower their standing offers. And many of them listened, and I appreciate this. In January this year many of the major energy retailers including Origin Energy, Energy Australia and AGL all responded to demands by reducing their standing offer prices for half a million families and small businesses by up to 15% which was a good move and as I say, we appreciate that that was done. But, it wasn't done by everybody and it was only the first step. We are now stepping in to say we'll set default prices across the country. These are default prices - not prices for everybody - but they are an important price for a small business person that just doesn't have the time to go and negotiate a better deal.

From 1 July, we'll begin implementing the default market offer, which will act as a price safety net to protect small businesses who have found themselves subject to to these unfairly high prices. It will effectively cap prices for those standing offers in all unregulated markets, lowing those prices by up to just over $1000 for small businesses in some energy distribution zones. This will see the end of the loyalty tax and importantly, what we've also seen in these reforms, and we're pushing in these reforms, is misleading use of discounts to attract customers. By having a single reference price that all offers and contracts must be referenced back to, it means that businesses will an apples with apples comparison when they ring around and ask for a better deal; not apples with oranges, apples with pears, apples with strawberries; that's what you get now. One company will say 10 per cent, another will say 25 per cent and there's no easy way without a spreadsheet for a small business person to work out which is the better deal. And that's just not on. It's unfair, it's confusing, it's inappropriate.

So, a single reference price will ensure that that all offers and contracts are referenced back to the same price. We owe it to Australian businesses, Australia's small businesses, in particular, to take action.

We're also giving businesses a hand up and better understanding to navigate their energy use and costs through the Business Energy Advice Program. We're investing $11.6 million to help small businesses identify and reduce their energy costs. There are two key elements. The first is a dedicated advisory service which will function like an energy advice concierge for small businesses, directly helping them to reduce their bills and build energy efficiency. The second element is a benchmarking tool, which I know, Peter, you've been a very strong advocate for, for a long time, which will enable small businesses to enter information about their business to find out what they should be paying for their energy. We know that every small business is different and one size fits all doesn't work. So work is underway on this to allow for users to be specific about their size, their location, the industry they're working in, whether they're owning or renting; other parameters like whether they've got solar on the roof, and get instant advice on what comparable businesses are getting for energy. So that benchmarking, which we know, is very powerful for small businesses. I've said it myself in businesses I've been involved in. It's a great tool that will allow businesses to make a comparative if they need to.

Now, we recognise that there can often be financial barriers to drive up energy efficiency as well, and that's why we're investing $50 million in grants, we invested a few weeks ago, to support businesses and community groups to improve their energy efficiency; more than 2500 grants to eligible businesses to help them save energy, and that will include equipment upgrades; it will reduce energy consumption; investment in energy and emissions monitoring in management systems; completion of energy system assessments according to the Australian standards; feasibility studies to investigate energy efficiency opportunities. So that'll be grants of up to $20 thousand for small businesses or $25 thousand for energy intensive or high energy users. And I've been speaking to a large number of small businesses around the country in recent weeks since we announced this initiative who I know will use it and will use it well.

It's important to note, by the way, that of the $67 million we're spending on energy efficiency initiatives announced as part of our total program to reach our Paris commitments, $67 million- we will achieve 63 million tonnes of carbon abatement - that's just over a dollar a tonne, which is an extraordinary opportunity. And this is what small business people, I know- I know you give them a chance, you give them the support they need, they will actually do a lot of the work you need to get it done. That's what they're like. So, at just over a dollar a tonne, that is about as good a value as you'd ever get in an energy efficiency campaign. So, this is a really exciting issue for me.

Now, you can see then that we are very focused on supporting business as part of our energy and climate policies. It's wonderful that we know that we have an energetic, innovative sector out there to work with in this area.

Now, with apologies to Pat, it is important that I describe the alternative. Because I do worry about the future of small business. I've worked in it all my career in various ways. If we lose the strength of our small business sector, we lose the strength of Australia. We know Labor has set for itself a 45 per cent emission reduction target, which is four times the level of abatement we have to achieve. So, our abatement's currently at 328 million tonnes; Labor's, at 45 per cent, is over 1.3 billion. We've laid out how we're going to achieve that 328 million tonnes. The Business Council's described the target as economy-wrecking. Just how big that wrecking ball will be if implemented was then confirmed by the academic market modelling published yesterday by Dr Brian Fisher - one of Australia's most respected climate advisors, former advisor to the Hawke and Keating Government, contributed to three UN IPCC reports.

And that work showed that even if Labor is to use Kyoto carryover credits - assuming they use Kyoto carryover credits - to achieve the 45 per cent, the cost to the economy of the target will be $472 billion. Real wages will be hit by $9000 by 2030. $9000 a year. Three hundred and sixty thousand jobs. And electricity prices, the wholesale electricity price will go up by 3000 per cent, let alone gas [inaudible]. The numbers are staggering. And the reason is simple: there is so much you can get out of working with business to find efficiency gains without cutting it too deep. At a certain point, you cut to the bone and you simply have to stop industries doing much [inaudible]. There's a point when you move from efficiency to trashing industries. And the modelling tells us that at 45 per cent you have moved well beyond that point.

Whilst the electricity sector has done much of the heavy lifting on emissions reduction, along with land use, with impacts on farmers in the last decade or more, simple mathematics confirm that the electricity sector can't cut emissions alone by 45 per cent. So any modelling that just focuses on land use is irrelevant here - it's the whole economy that matters. And that means deep cuts to agriculture, manufacturing, mining and gas extraction, transport, with a flow on in the construction sector. These are sectors that have made our economy strong in recent decades. They dominate our top 10 export quarters, account for more than 30 per cent of GDP, and employ 1.3 million Australians. And the sectors can do little to reduce emissions beyond what they're already doing on these efficiency gains that I've talked about, that doesn't involve reduction in economic activity.

So, take transport, for example - in recent years, emissions for transport have stayed in line with the economy despite the fact that vehicle kilometres have actually grown significantly. You will see - and we've seen gains in the energy efficiency of vehicles and fuels in recent years, but at the end of the day, the only way you can get to a 45 per cent target is to burn significantly less fuel. You might say: well, what about electric vehicles? I was out there yesterday looking at hydrogen vehicles in this particular case and we are investing in those technologies. But they take time - as someone who has involved in [inaudible] I've seen it doesn't happen overnight. You've got to do a lot of experimentation, a lot of work, a lot of trial and error before new technology gets to the point where it can scale up. There aren't silver bullets in this area, and we only have to 2030 to reach these targets.

So, Labor's targets will have a disproportionate impact on many businesses, and input costs in particular in electricity, gas, and fuel will go up, while a downturn in economic activity with more unemployment, hits to wages will mean less demand in sectors like construction, coal mining, and manufacturing, which is often energy intensive and sensitive to electricity prices - if your business interacts with those sectors, it will suffer while your cost of doing business goes up.

Now, the carbon penalty - I know Pat has talked about it in the past - whether it's a shadow price or an explicit carbon price, one way or another there has to be a penalty on energy consumption to achieve very high targets. And in the fuel sector, if you apply the modelling that was done, was released 24 hours ago, it'll increase - using the BAEconomics numbers - the average price of petrol to around 230 cents a litre - 230 cents a litre - and diesel to 245 cents a litre. That's what the numbers tell us, independently.

Filling up a hatchback which cost over $120 in every capital city; a tank of diesel from either of the two most popular vehicles in Australia - the Ford Ranger and the Toyota Hilux; used by many tradies, many small businesspeople - will cost over $200. Put simply and plainly, this will hurt all sectors reliant on transport, and that's whether you're a trucker, you're a farmer, you're in the mining and manufacturing sector, or many of the other sectors that are energy intensive users or big users of transport.

It is crucial that all sides of politics lay out clearly their plans to achieve their targets well in advance of the next election so that you can all see what it means for your business, for your sectors, for your industries.

We've done it - we did it two and a half weeks ago when the Prime Minister down here in Melbourne laid out how we're going to reach our 26 per cent reduction international obligations - 328 million tonnes of abatement. And we will use the Kyoto carryover to avoid doing unnecessary damage to the Australian economy, to take credit for the enormous work that has been done in our electricity sector and, in particularly, our land use over recent years, that means we can take credit for the good work of Australians over many years in what they're doing to reduce emissions.

We believe that all Australians have a right to know exactly how they will be impacted by climate policies and energy policies ahead of the next election. So, many Australian small businesses are now better off because of the action we're taking on reforms like the default market offer, like the reference price - from 1 July, you will see those in place. We are delivering lower and fairer prices to make a real difference to the bottom line of small businesses while we keep the lights on. But there is a threat to businesses if targets are set for too high, too fast, and not well thought through. It's time to come clean, it's time for Bill Shorten and Labor to come clean on just what his new energy bill will be for small businesses across Australia.

Topic: 
Minister for Energy