Micro Economics: Energy Industry In Australia – Reforms Needed

Reforms Done or Needed

Discuss about the Micro Economics for Energy Industry.

The topic chosen for this critical analysis is the Micro Economics: Energy Industry in Australia. The main focus addressed in the article selected is the urgently needed reforms in Australia’s energy system. Particular areas of reforms in Australia have been highlighted in the article relating to the energy policy problems. The article recognizes that Australian energy market model as currently constituted is obsolete and disintegrating (Crowley 2017).

To achieve these reforms, the article provided a clear objective: avail reliable, affordable along with low-carbon energy services to business and household, alongside an energy export sector that is sustainable. The article recognizes the need to improve and harmonious the present little agreement on how goals are framed and interpreted leave alone how to accomplish the same goals. This is because certain individual see opportunities whereas other see them as threats (Sovacool 2017).

A powerful interests exist in the industry who remain ardent to safeguard investments individually. Tentatively, varied rivals remain evolving from diverse directions alongside clamour for rights by consumers, impartiality, affordability as well as choice. Calls are being made by Australian business for certainty in both climate and energy policy. However, it remain sad as these people are persuaded that such calls will not be achieved in the near future.       

The state government has introduced uncoordinated along with excessively aggressive policies of renewable energy. There is a need for harmonization to be sought as started by Josh Frydenberg, the energy and environment minister. This should focus on getting the code for renewable energy growth capping. The state government support the renewable energy as a mechanism to win votes and the economics alongside climate pressure that have shifted in support of renewable energy (Pears 2017).

Table: Australia’s metallurgical coal outlook

	Units	2016s	2017 f	2018 f	2019z	2020 z	2021 z	2022 z
World
Contract prices b c
– nominal	US$/t	114.4	193.8	138.8	124.5	120.8	120.8	120.3
– real d	US$/t	116.9	193.8	135.8	118.9	112.7	110.3	107.5
Spot prices g
– nominal	US$/t	143.5	156.8	133.7	117.4	114.6	114.5	114.0
– real d	US$/t	146.7	156.8	130.8	112.1	106.9	104.6	101.9
Production	Mt	1,033	1,021	1,015	1,010	1,018	1,023	1,028
Consumption	Mt	1,037	1,024	1,016	1,011	1,018	1,024	1,030
	Units	2015–16	2016–17 s	2017–18 f	2018–19z	2019–20 z	2020–21 z	2021–22 z
Australia
Production	Mt	189.3	195.7	197.6	199.6	204.7	207.8	209.8
Export volume	Mt	188.0	191.7	193.7	195.6	198.5	201.5	203.5
– nominal value	A$m	19,790	36,574	32,814	27,738	25,987	26,297	26,531
– real value e	A$m	20,125	36,574	32,123	26,521	24,246	23,936	23,555

Notes: b Fob Australian basis; c Contract price assessment for high-quality hard coking coal; d In 2017 calendar year US dollars; e In 2016–17 financial year Australian dollars; f Forecast; g Hard coking coal fob Australia east coast ports; s Estimate; z Projection

Source: ABS (2017) International Trade, cat.no 5465.0; Company Reports; Bloomberg (2017) Steel Business Briefing; Department of Industry, Innovation and Science (2017)

The above outlooks gives an insight into the need for reform the energy industry.

The contracts for difference of ACTs auctions strategy to the renewable has decreased the risk for the supporters of renewable energy while it delivers low cost projects for renewable energy supplementing RET, alongside determined target delivery on climate. The main challenge facing the minister is that the energy industry nature has shifted from a centralized, top down, gradually altering systems subjugated by large business, governments together with investments to an increasingly chaotic, decentralized, diverse as well as swiftly altering jungle (Tayal 2017).

Supply Reliability

Even where the state government interventions are ushered, local private sector, local governments, community and household groups will still pursue their individual agendum. The competitive democracy is being felt. A rethink of the energy markets design and operations in 2017 is inevitable. The governments have to emphasized on energy security, reliability, rights of consumers and provide fair access for the evolving rivals balanced by great expectations.

There is a need to look at the LNG also to give insights into the need for reforms in the gas energy.

Table: LNG outlook

	unit	2015–16	2016–17 f	2017–18 f	2018–19 z	2019–20 z	2020–21 z	2021–22 z
Australia
Natural gas production  b	Bcm	83.6	105.5	128.1	142.8	144.3	147.1	144.3
– Eastern market	Bcm	40.7	49.9	51.2	50.6	51.1	51.8	51.1
– Western market	Bcm	42.2	54.8	71.8	79.8	80.7	82.6	80.7
– Northern market   c	Bcm	0.7	0.7	5.1	12.4	12.5	12.6	12.5
LNG export volume	Mt d	36.9	53.1	67.6	76.1	77.0	77.9	77.0
– nominal value	A$m	16,576	23,654	36,118	40,448	43,487	46,346	47,451
– real value  e	A$m	16,856	23,654	35,358	38,673	40,574	42,185	42,128
LNG export unit value g
– nominal value	US$/MMBtu	6.6	6.6	7.9	7.8	8.1	8.6	8.9
– real value  e	US$/MMBtu	6.7	6.6	7.7	7.5	7.6	7.8	7.9
– nominal value	A$/GJ	8.5	8.4	10.1	10.1	10.7	11.3	11.7
– real value  e	A$/GJ	8.7	8.4	9.9	9.6	10.0	10.3	10.4

Notes: b Production includes both sales gas and gas used in the production process (i.e. plant use) as well as ethane; c Gas production from Bayu-Undan Joint Production Development Area is not included in Australian production. Browse basin production associated with the Ichthys project is classified as Northern market; d 1 million tonnes of LNG is equivalent to approximately 1.36 billion cubic metres of gas; e In 2016–17 financial year Australian dollars; g 1 MMBtu is equivalent to 1.055 GJ; f Forecast; z Projection.

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Department of Industry, Innovation and Science (2017); Company reports.

There is a need for efficient and active management of demand and storing energy to manage demand. The mix of supply-side alternatives can then be employed for the demand satisfaction. The government needs to install stowage in the regional pumped hydro dams alongside solar thermal generators. The electricity then needs to be transported through batteries in the electric vehicles in place of power lines. The industry must be prepared to face newfangled challenges like ever more extreme weather events as well as bushfire risk from the power lines, without consumers’ disruption.

The rights of consumers have to be safeguarded where they could have equipment alongside services offered by multiple energy enterprises. The new features must be integrated by the appliance manufacturers, distributed energy as well as storage providers into their corresponding products thereby meeting challenging standards for performance thereby playing their parts in system security and reliability maintenance. The government must open up accessibility to electricity market as well as inspire ventures in a smoother, dispersed energy system. A newfangled framework for the Australian electricity service system has to be designed for effective and reliable supply.

The policymakers of Australia appear to presently have a blind spot on efficiency of energy which plays a central role electricity demand management. The efficiency should be the “first-fuel” –decreasing demand analogous to building more supply along with cheaper energy which is the greatest contribution to reducing fossil fuel carbon emission. This will save money and simultaneously decreasing carbon emission and hence “negative” cost of carbon (Zhou et al., 2017). The demand and energy efficiency management must increasingly capture substantial roles in the National Electricity Market.

The National Electricity Objective must shift its objective/focus from the present on electricity price paid by consumers to total cost of energy service delivery thereby incorporating carbon to promote actions that cut the amount of needed energy.

The existing National Energy Productivity Plan is a plus but it must be effectively funded and governed to deliver a huge chunk of 2030 reductions target in carbon emission. Strong leadership, cultural alteration along with policy intervention are required to drive focus on improving productivity of energy (Simshauser and Whish-Wilson 2017).

Markets for energy must deliver on the purpose of low-prices, dependability alongside safeguard of ‘lasting consumers’ interests”. Evolving nimble technologies alongside business models have outflanked traditional structures and must be embraced henceforth. Impacts of triplicating east-coast gas need arising from 3 Queensland LNG plants  for export must be managed effectively to control the rising gas prices (Goncharuk and lo Storto 2017).  The electricity prices must be controlled by keeping the gas prices alongside shortages at winner peaks to bar the highest bidder from setting the prices in the electricity market’s power stations.   

Conclusion

To sum up, the energy industry has been short-changed by the gas industry that lines its pocket at a great expense of the overall energy industry. The article calls to action for the urgent reforms in climate policy (Mishra and Smyth 2017). This call, however, to action remain greatly controversial among the central decision-makers. It also acknowledges that Australian fossil fuel export is trapped under global forces’ threat.

Focus should be more on efficient use to save gas by switching to electricity and renewable fuels from gas. Peak gas demand and subsequent price spikes’ reduction must be condensed by efficiency at regional gas/electricity storage. Gas industry must have a social license to escalate production of gas from coal seams thereby cutting demand for fossil gas to meet Australia’s climate targets medium-term.

References

Crowley, K., 2017. Up and down with climate politics 2013–2016: the repeal of carbon pricing in Australia. Wiley Interdisciplinary Reviews: Climate Change.

Goncharuk, A.G. and lo Storto, C., 2017. Challenges and policy implications of gas reform in Italy and Ukraine: Evidence from a benchmarking analysis. Energy Policy, 101, pp.456-466.

Mishra, V. and Smyth, R., 2017. Conditional convergence in Australia’s energy consumption at the sector level. Energy Economics, 62, pp.396-403.

Pears, A., 2017. 2017 will be a big year for Australia’s energy system: here’s what to look out for. The Conversation, Issue Energy Industry Reforms, pp. 1-4. https://theconversation.com/2017-will-be-a-big-year-for-australias-energy-system-heres-what-to-look-out-for-71703

Simshauser, P. and Whish-Wilson, P., 2017. Price discrimination in Australia’s retail electricity markets: An analysis of Victoria & Southeast Queensland. Energy Economics, 62, pp.92-103.

Sovacool, B.K., 2017. Reviewing, reforming, and rethinking global energy subsidies: towards a political economy research agenda. Ecological Economics, 135, pp.150-163.

Tayal, V.R., 2017. Barriers and Opportunities for Residential Solar PV and Storage Markets–A Western Australian Case Study. Global Journal of Research In Engineering, 16(7).

Zhou, C., Tremain, P., Doroodchi, E., Moghtaderi, B. and Shah, K., 2017. A novel slag carbon arrestor process for energy recovery in steelmaking industry. Fuel Processing Technology, 155, pp.124-133.