WA EPO: Electricity prices could fall by 2020 with reform

With the right policy settings, Australia could see electricity prices falling in real terms by 2020, AGL Energy, Chief Economist and Group Head of Corporate Affairs, Professor Paul Simshauser has told a CEDA audience at the 2013 Economic and Political Overview in Perth.

With the right policy settings, Australia could see electricity prices falling in real terms by 2020, AGL Energy, Chief Economist and Group Head of Corporate Affairs, Professor Paul Simshauser has told a CEDA audience at the 2013 Economic and Political Overview in Perth.

"But demand-side reforms must become the focus of policymakers and industry to get there," Professor Simshauser said.

Demand-side reforms are needed in the energy sector to address Australia's current peak energy demand which has grown at twice the rate of underlying energy demand, he said.

"It's not how much you use throughout the day, it's what you use on those hottest days in the year, and there are roughly 12 of those each year that actually drive the peak load," he said.

"The peak load is what drives investments."

Such reforms would include time-of-use pricing and a shift to contestable markets for metering and metering services, he said.

"Our experience and modelling has shown that 77 per cent of households would be better off with time-of-use pricing," he said.

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Irina Cattalini
Chief Executive Officer
Western Australian Council of Social Service

Professor the Hon. Christian Porter
Former WA Treasurer and
Curtin Law School, Director of Professional Programs

Professor Peter van Onselen
Contributing Editor
The Australian

Michael Blythe
Chief Economist
Commonwealth Bank of Australia

Christopher Kent
Assistant Governor (Economic)
Reserve Bank of Australia

Professor Simshauser said the supply side reforms of the energy sector in the 1980s and 1990s were enormously successful at focusing on competition and investment and driving efficiency.

However, once these supply side options were exhausted, reform actually stalled, he said.

"What should have occurred was demand side-reform following on from the supply-side reforms, but they dropped the ball on the demand-side," he said.

"While this is understandable in the late 1990s early 2000s, now we have the availability of interval meters (so) there is some low hanging fruit that we can grab a hold of and finish the reforms."

Western Australian Council of Social Service, Chief Executive Officer, Irina Cattalini said that the social services sector is not just concerned with the growth of demand for services but also the growing complexity of their clients' needs.

Four years ago we were servicing 400,000 people each year in WA, today the figure is over 515,000 people - a growth rate of almost 30 per cent, she said.

In addition the complexity of clients' needs is driving need for greater collaboration and support across organisations and sectors, she said.

In particular, the housing affordability crisis is of no surprise to anyone in WA, she said.

Growth in population far outweighs new builds and we're simply not keeping up with the social infrastructure, she said.

Ms Cattalini welcomed the State Government's focus to shift public sector agencies out towards the fringes of metropolitan centres to align with the population shifts to the fringes.

Former WA Treasurer and Curtin Law School, Director of Professional Programs, Professor the Hon. Christian Porter said the federal election will be fought on two issues: growth and recurrent federal government expenditure.

"There is a spending problem in the federal budget," he said.

"(We) have to find ways to cut recurrent government expenditure in the federal budget which has a fiscal flow on effect of causing a dampening in the short term of economic activity."

On growth Professor Porter said: "Growth is the church of the holy trinity to productivity and particularly the manufacturing industry."

If there had been normal and nominal jobs growth in WA in 2012, as we've seen over the last 10 or 15 years, employment would have been the number one issue in every newspaper in Australia, he said.

In the year to April 2012, 70 per cent of new Australian jobs created occurred in WA, he said.

The Australian, Contributing Editor, Professor Peter van Onselen examined the upcoming federal and WA elections.

On the federal election Professor van Onselen said he expects Tony Abbott will be the next Prime Minister unless it's Kevin Rudd.

The current minority government needs to pick up seats if it wants to retain government.

"I can't find those seats when I look around the electoral map," he said.

"In Queensland, without Kevin Rudd in the leadership it's hard to see Labor picking up seats."

The only way there can be a true game changer would be for Kevin Rudd to come back, and that is full of risks, he said.

Professor van Onselen said the 2013 federal election is all about a change of Government.

In terms of policy, he said the tragedy for those of us interested in economic reform is that we won't see much debate about that.

On the WA election he said: "I expect Colin Barnett to win that election but it could be a lot closer than the polls are suggesting or indeed than people think.

"The biggest barrier that Colin Barnett faces, I think, is a public apathy. And there is always a risk when the public thinks that you are going to win…there's a protest vote that eventuates."

Professor van Onselen said he expects Mr Barnett to increase his majority - keeping in mind that he only governs a majority with the help of independents and importantly the nationals.

I expect the nationals will pick up the bulk of seats, he said.

Commonwealth Bank of Australia, Chief Economist, Michael Blythe said the opportunities for sources of growth in Australia lie with the older middle income consumers.

UN projections show the middle income group is moving from about half a billion to 1.7 billion people, representing rapid growth in the number of people with money to spend, he said.

Mr Blythe said that middle income spending tends to go down certain channels like better quality food, schooling and holidays - representing opportunities for Australia in agriculture, education and tourism.

Additionally, with demographic changes implying an ageing population over this period, there are also opportunities for Australia in the services sector because people spend more on health and financial services as they get older, he said.

It will be a challenging environment but there are opportunities for Australia if we have the ability to grasp them, he said.

Reserve Bank of Australia, Assistant Governor (Economic), Christopher Kent, said China's demand for commodities will slow, but remain strong for a long time into the future.

Australia is well placed to benefit from the ongoing development in China as well as other developing economies in the region, he said.

"For much of the past year we have been looking for signs that China's growth might stabilise," he said.

"A broad range of indicators suggest that this has now occurred, with economic conditions improving through the second half of 2011, and the national accounts data indicating that growth is running at around eight per cent in year-ended terms."

On commodities, Mr Kent said China's demand for steel, driven by urbanisation and rising incomes, has roughly doubled the quantity of steel used in residential construction.

"While we would not expect growth to continue at such a rapid rate, steel use from this sector is not expected to peak for some years," he said.

"Through 2012, the more accommodative stance of financial policies and increased public spending in China have helped to support an increase in the growth rate of investment in infrastructure and dwellings and thereby helped to stabilise growth of the economy.

"In short, with a lower rate of trend economic growth, Chinese demand for commodities will grow somewhat less rapidly than in the past."

Mr Kent said that with the potential for further growth in the demand for commodities from China and other developing economies, the RBA expects commodity prices to gradually decline over the next few years.