Energy

Budget Review 2018–19 Index

Dr Emily Hanna

Energy is a significant issue for parliament, with discussion since the last Budget focusing on the reliability and security of the electricity system as well as the inclusion of renewable sources into our energy mix. Significantly, since the last Budget, the Independent Review into the Future Security of the National Electricity Market – Blueprint for the Future (the Finkel Review) has been published and the National Energy Guarantee (NEG) introduced.[1] The states and Commonwealth have been in dispute over levels of renewable energy that should be included in our energy supply, and the Council of Australian Governments (COAG) Energy Council has not reached agreement on the NEG.[2]

This Budget has two main energy measures. These relate to the acquisition of Snowy Hydro Limited and further funding of $41.5 million over six years from 2018–19 to broaden the ‘Powering Forward’ initiative.[3] The latter, which was introduced in the 2017–18 Mid-Year Economic and Financial Outlook, aims to deliver ‘more affordable, reliable and sustainable energy’.[4]

Snowy Hydro Acquisition

Snowy Hydro Limited is an operational power company, which was jointly owned by the governments of New South Wales (NSW), Victoria, and the Commonwealth, with share allocations of 58%, 29% and 13% respectively. It features ‘16 power stations with a combined generation capacity of 5,500 megawatts, including the Snowy Mountains Hydro Electricity Scheme, and ... more than one million retail customers’.[5] The Australian Government will soon become the sole shareholder, due to an agreement reached with the two states to transfer their shareholdings to the Commonwealth in July 2018.[6] In return, NSW and Victoria will receive $4.2 billion and $2.1 billion respectively in funds for infrastructure.[7] This arrangement appears as a new capital appropriation worth $6.1 billion for the Department of the Environment and Energy (DEE), paid for in 2017–18 using ‘capital appropriation and interim dividends payable from Snowy Hydro Limited in respect of their profits for the half year period to 31 December 2017’.[8] This purchase was reported in The Australian in March as being ‘excluded from the budget bottom line’ with the asset ‘classified as a government business, “off the books”, similar to the Western Sydney Airport and NBN Co’.[9] The report claims that, nevertheless, this will ‘add to the nation’s debt, with the government increasing its borrowings to fund the multi-billion dollar deal’.

After the transfer of shares in July this year, all future dividends from Snowy Hydro Limited will go to the Australian Government, and therefore the forward estimates show the acquisition creating revenue for the Commonwealth of $1.1 billion over four years from 2018–19.[10] This is an increase in earnings from the shares of $941.1 million over the four years.[11] In addition, the Commonwealth will no longer need to compensate Victoria and NSW for their relative shares of income tax paid by Snowy Hydro Limited, reducing Department of the Treasury expenses by $225 million over three years from 2019–20 ($75 million per year).[12]

The Budget includes no further funding specifically for Snowy Hydro or the Snowy 2.0 scheme (estimated in the Snowy 2.0 feasibility study to have a base cost of $3.8–4.5 billion).[13] However, this is likely due to the Government reporting that the feasibility study found ‘Snowy Hydro can finance the project itself using retained earnings and borrowing’.[14]

‘Powering Forward’ program

‘Powering Forward – delivering more affordable, reliable and sustainable energy’ is a measure designed to ‘support long-term energy affordability, security and governance’. Funding of $11.7 million over five years from 2017–18 is provided ‘to support recommendations from the Finkel Review and the Energy Security Board’, including establishing the Government’s current energy and emissions reduction policy, the NEG, and ‘developing a distributed energy register to improve and lower the costs of system security and grid management, and allow consumers to receive a benefit from their demand reduction’.[15] In addition, the measure aims to improve the functionality of the gas market, with funding of ‘$2.5 million over two years from 2018–19 to improve gas pipeline regulations, and to improve the national gas law and rules’. The development and implementation of the NEG will also continue with funding of $7.5 million for the Council of Australian Governments Energy Council’s ‘agreed work program’ over two years from 2018–19.[16] Episodic assessments of national energy security and resilience are also funded, with $12.8 million over six years from 2018–19 as well as a further $4.9 million every three years from 2024–25 (with no end date given for this commitment).[17] These assessments will include the recently announced investigation into Australia's domestic liquid fuel security.[18]

As well as coming under DEE’s Energy program (program 4.1), the Powering Forward measure is listed as part of DEE’s programs 2.1 and 2.2, Reducing Australia’s Greenhouse Gas Emissions and Adapting to Climate Change, respectively.[19] This appears to be the only place in the Budget where new funds related to climate change are provided:

  • $0.9 million over two years ‘to undertake modelling for a long-term whole-of-economy emissions reduction strategy as recommended by ... the Finkel Review’[20] and
  • $6.1 million over three years (from 2018–19) ‘to improve climate change information for the energy sector’.[21]

The Treasurer used the Budget speech to reaffirm the Government’s commitment to an emissions reduction target of 26–28 percent on 2005 levels by 2030. He stated:

 ‘...we will not adopt the 50 per cent renewable energy target demanded by the Opposition’ and ‘[a]ll energy sources and technologies should support themselves without taxpayer subsidies. The current subsidy scheme will be phased out from 2020’.[22]

This is reflected in the absence of extra funding for the Emissions Reduction Fund (ERF), which has approximately $265 million left.[23] The Clean Energy Finance Corporation, which under the Clean Energy Finance Corporation Act 2012 had its last financial year of legislatively prescribed funding of $2 billion last year, will receive $530 million in 2018–19 from DEE––only about one quarter of its previous year payment.[24]

Commentary

The majority of commentary around the energy-related parts of the Budget relates to the absence of new funding, and concerns the lack of extra funds for the ERF may make it harder to achieve the national emissions reduction target.[25] The chief executive of the Carbon Market Institute, Peter Castellas, is reported as saying that without more ERF-funded abatement, ‘the need for the Safeguard Mechanism and the National Energy Guarantee to do the heavy lifting of emissions reduction’ is elevated.[26] The Climate Council stated that ‘Budget 2018 ... fell short on new funding to embrace the rollout of clean, affordable and reliable renewable energy and storage technology’.[27] Environmental and climate groups were also generally disappointed in the lack of funding for climate change.[28]



[1].          A Finkel, K Moses, C Munro, T Effeney and M O’Kane, Independent Review into the Future Security of the National Electricity Market – Blueprint for the Future (the Finkel Review), Commonwealth of Australia, 2017; M Turnbull (Prime Minister) and J Frydenberg (Minister for the Environment and Energy), National energy guarantee to deliver affordable, reliable electricity, media release, 17 October 2017.

[2].          COAG Energy Council, Meeting Communique, 20 April 2018.

[3].          The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Portfolio Budget Statements 2018–19: Budget Related Paper No. 1.6: Environment and Energy Portfolio, pp. 20–21, 23.

[4].          Australian Government, Budget Measures: Budget Paper No. 2: 2018–19, pp. 99, 201–202; Australian Government, Mid-Year Economic and Fiscal Outlook 2017-18, p. 150.

[5].          Australian Government, Portfolio Budget Statements 2018–19: Budget Related Paper No. 1.6: Environment and Energy Portfolio, p. 7.

[6].          Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., p. 7.

[7].          M Turnbull (Prime Minister), S Morrison (Treasurer) and J Frydenberg (Minister for the Environment and Energy), Historic Snowy Deal, media release, 2 March 2018.

[8].          Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., p. 87.

[9].          G Chambers, ‘States to reap $6bn in Snowy buyout [Turnbull's $6bn Snowy buyout]’, The Australian, 2 March 2018, pp. 1, 7.

[10].       Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., p. 76.

[11].       Budget Measures: Budget Paper No. 2: 2018–19, op. cit., p. 202.

[12].       Ibid.

[13].       Snowy 2.0 Short Feasibility Study Report, Snowy Hydro Limited 2017, p. 25.

[14].       M Turnbull (Prime Minister) and J Frydenberg (Minister for the Environment and Energy), Green Light for Snowy Hydro 2.0, media release, 21 December 2017.

[15].       The Finkel Review, op. cit.; Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., p. 23.

[16].       Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., p. 23.

[17].       Ibid.

[18].       J Frydenberg (Minister for the Environment and Energy), Budget delivers for energy, reef and environment, media release, 8 May 2018.

[19].       Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., pp. 60–61.

[20].       Ibid., p. 20.

[21].       Ibid., p. 21.

[22].       Scott Morrison (Treasurer), Budget speech 2018–19, p. 82.

[23].       Department of the Environment and Energy (DEE), ‘Emissions Reduction Fund Update’, DEE website.

[24].       Portfolio Budget Statements 2018–19, Environment and Energy Portfolio, op. cit., pp. 27, 161; Clean Energy Finance Corporation Act 2012, section 46.

[25].       ‘No Budget top-up for Emissions Reduction Fund’, Footprint, 8 May 2018.

[26].       Ibid.

[27].       Climate Council, ‘Budget blow: No cash to tackle climate change’, 9 May 2018, Climate Council website.

[28].       For example, Australian Conservation Foundation (ACF), ‘Budget 2018-19: Investment in a healthy environment cut to bare bones, while fossil fuel subsidies continue’, 8 May 2018, ACF website and Climate Council, op. cit.

 

All online articles accessed May 2018.

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