Energy White Paper 2014 –
Issues Paper submission template
Details of person making the submission
First Name
Brian
Surname
Green
Country (if not Australia)
State
Victoria
Company or Organisation (if relevant)
Australian Paper
Position in Organisation (if relevant)
Energy & Regulatory Manager
Type of Organisation. Please choose from the
dropdown list right
Other
Sector. Please choose from the dropdown list
right
Manufacturing
Email. Please provide an email address if you
would like to receive updates from the Energy
White Paper Taskforce
brian.green@australianpaper.com.au
Confidentiality
Submissions may be published on the Department of Industry website.
If you do not wish to have your submission made public, please tick the box.
Issues for comment are listed against each of the Chapter Headings. In making your submission, you
are welcome to make comment against some or all of issues in the fields provided. A field for general
comments is provided at the end of the template.
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1. The Security of Energy Supplies
The Government seeks comment on:

ways community expectations can be better understood and reflected in reliability standards;

the value of developing fuel reserves to meet Australia’s international oil security obligations, and augment
domestic security;

ways to increase new gas sources to meet demand and measures to enhance transparency in market
conditions; and

issues relating to the regulation of energy infrastructure.
Please provide any comments on The Security of Energy Supplies below:
1.1 Natural Gas: Supply Issues
Granting licences to 4 LNG plants simultaneously has caused a serious imbalance in the east-coast gas
market. The failure to segregate domestic conventional gas supply from the CSG-based LNG export
plants has created a hiatus in gas supply to domestic large-scale customers at realistic market rates.
Without a molecue of gas being exported from the Qld LNG plants, the price of gas on the east coast
has risen, almost overnight, to levels exceeding LNG netback costs. Whilst the long-term gas price may
well be linked to international energy pricing, there should be a transition period that would allow
manufacturers to adapt to a higher price path. Future gas supplies should be linked to a National
Interest Test to ensure that both Domestic and Export markets are satisfied.
1.2 Natural Gas: Market Issues
The current gas market has developed along bilateral contract deals: there is no transparency in the
market to support an independent market arrangement. The balance of information is strongly in the
hands of a couple of major producers - this is not conducive to a natural market conditon.
A common base is needed for market information: currently the STTM and DWGM give information
based on widely different parameters (contract carriage/market carriage, ex post/ex ante, gas +
transport/gas only). Whilst this condition remains market information will continue to reside in the
hands of major suppliers.
Unlike the NEM, there are no transparent forward markets for natural gas purchases. The STTM is
merely an imbalance trading market.
1.3 Natural Gas: Market Competition
There is no real market competition in the upstream gas market: producers have been allowed to jointly
market gas; smaller producers, who could have brought true competition into the market, have been
acquired by the larger players. State government restrictions on the development of on-shore and nonconventional gas are further impeding competition in the gas market.
1.4 Natural Gas: Future Supplies
Domestic gas supply and gas for LNG exports need to be catered for into the future: they are not
mutually exclusive but, at the same time, Australia's natural energy competitive advantage should not
be sacrificed to increased profits for offshore oil and gas producers. Current policy has seen Australia
move from being in the lowest quartile for energy costs to being near the top of the highest quartile for
energy costs thus destroying our competitive advantage.
Lessons learned from gas markets operating in the UK and EU countries highlight the importance of
ensuring a balance between domestic and export markets and the desirability to maintain adequate gas
supplies, at an affordable price, to secure domestic industry.
1.5 Energy Market Design
There has been a lack of Holistic energy policy objectives: past policy has focussed on securing
investment in a fledgling energy industry to ensure sufficient levels of generation and transmission.
Successive studies have been undertaken into energy market reform but none of the many
reccomendations have been fully implemented. Generators, Producers and Distributors have been
adequately represented but the missing link is the absence of Consumer representation in the design
and implementation of energy policy. Consumers should be represented at SCER and AEMC level to
provide a balanced input to consideraions.
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Reliability Standards should be subject to an Economic Value test and not left unsubstantiated as they
are currently. Further, Network businesses should be excluded from the setting of reliability standards.
Currently there is a conflict of interest with jurisdictional governments both owing assets and setting
reliability standards which in turn impacts upon revenues received.
1.6 Energy Policy: International obligations
The lack of a holistic energy policy has contributed to the decline in industry, including the petrochemical industry. With the foreshadowed potential closure of refineries it is probable that reliance
upon commercial stockholding will be insufficient to meet Australia's obligations under IEA.
Successive governments have relied upon industry stockholding and there is now the real potential that
stockpiles will need to be created. This cost should not be passed on to consumers.
2. Regulatory Reform and Role of Government
The Government seeks comment on:

priority issues, barriers or gaps within the COAG energy market reform agenda;

possible approaches and impacts of review of tariff structures including fixed network costs, further time-ofuse based electricity tariffs and the use of smart meters;

possible measures to promote greater price transparency in gas markets; and

areas where further privatisation of government-owned assets would contribute to more effective regulatory
frameworks and better outcomes for consumers.
Please provide any comments on Regulatory Reform and Role of Government below:
2.1 Governance
There has been limited consumer representation in the NEM governance framework, a position that has
only marginally been addressed by the Better Regulation Framework - much more is needed. Whilst
recent changes implemented by AER and AEMO are welcomed they do not go far enough; there is little
consumer representation in SCER or the AEMC. Energy users fund the governance framework through
NEM fees and taxes: the level of representation is not consistent with the payments made.
2.2 Tariff Structures
Existing network tariffs are not cost-reflective of customers use of the network services: large energy
users are subsidising the service provided to SME's and households. This is particularly true of recent
changes to tariffs to extract higher fees from large users for energy profiles that have not changed.
2.3 Network Service Providers
Analysis carried out by the EUAA clearly showed that government-owned networks earned more
revenue per customer connection and had a greater expenditure per customer connection than the
privately owned networks (EUAA Australia's rising electricity prices and declining productivity: the
contribution of its electricity distributors. {2011}). The Grattan Institute came to similar conclusions in a
2012 study and the Productivity Commission has commented negatively on productivity in the
government owned networks. Reliability standards are similar between both government and privatised
NSP's hence the reduced level of investment, and subsequent cost to consumers, is not leading to an
inferior service. Whilst stoping short of advocating the privatisation of all NSP's, Australian Paper is
calling for the government owned networks to efficiently manage their businesses and run them on
similar lines, and costs, to the privatised businesses.
The reality for the pulp and paper industry is a 40-year history of prices decreases of 3% p.a. ongoing:
containing cost increases to less than CPI is a necessity - power distribution businesses should also
have a CPI-x cap on expenditure increases.
2.4 Revenue Resets
The current arrangement is both cumbersome and expensive with network businesses producing
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voluminous reports and submissions to justify an increase in revenue. Consumers are footing the bill
for the cost of such submissions. In turn, the same costs and prescriptive approach, restrict
consumers from adequately challenging reset submissions.
The models used in the UK and USA are more conducive to consumer engagement and a fairer
outcome. The Productivity Commission's Electricity Network Regulation report (2013) made
recommendations which included adopting arrangements to give consumers a formal capacity to
engage with NEM institutions in network determinations.
2.5 Monopolies and Use of Market Power
2.5.1 Generator Market Power
There remains potential for selective rebidding of prices and removal of generation from the market
system at times of high demand. This has an impact upon spot electricity prices which in turn are
reflected into higher costs for contracted electricity. SCER should take this opportunity to accelerate
efforts to improve competition in the wholesale energy market and significantly lift penalties and
develop positive rule changes to limit the exercise of generator market power.
2.5.2 Monopoly Rent
Consumers are being held to uncompetitive and non-commercial terms in projects to upgrade existing
natural gas connections or, indeed, in gaining access to a natural gas connection. Such assets are in
the control of a limited (and deminishing) group of companies. Consumers are restricted in choice and
obliged to accept terms and conditions that would not be acceptable in an open market negotiation.
This is another example of processes that are leading to increased costs and reduced competitiveness.
Transmission and distribution businesses should be compelled to either enter into a regulated return or
strike a deal using accepted business practices. Currently the monopoly position of these businesses
is being used to their advantage.
2.5.3 Generation v Interconnection
When considering the merits, or otherwise, of interconectors between NEM nodes the rules should be
modified to take into account the impact on spot and contract prices that such an interconnector would
have in the market place as well as any potential to increase competition between Generators.
2.6 General Process
The government is to be commended on seeking to address reforms but, whilst acknowledging the
compexities involved, the process is too cumbersome and slow. By the time recommendations are
being enacted the market dynamics have changed and the reforms may no longer be the best solution.
The rate of change in the market is rapid and increasing: reform processes need to undergo the same
level of change to enable adequate and timely changes to energy policy and market regulations.
3. Growth and Investment
The Government seeks comment on:

commercial or market initiatives that could enhance growth and investment in the energy and resources
sectors;

areas where approvals processes could be further streamlined while maintaining proper environmental and
social safeguards;

further ways that regulatory burdens could be reduced while maintaining appropriate levels of disclosure and
transparency in energy markets; and

the impacts of variable land access policy and ways the community could be better informed and engaged on
development in the energy sector.
Please provide any comments on Growth and Investment below:
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The current embargos on the development of on-shore gas are a disincentive to both growth and
investment. Legislation in some States has been crafted in such a manner that unintended
consequences have resulted in the same parameters being applied to conventional and nonconventional gas supplies. Legislation should be streamlined to reflect the justifiable concerns
attached to a development and limited to that development. This would call for a separation of
restrictions applicable to the different gas sources and the methods used to bring such resources to
market. Current legislation (State & Federal) also has the effect of doubling up on requirements and
reporting: this should be streamlined to minimise the red/green tape whilst ensuring adequate
safeguards for the community.
The treatment of the RET and SRES has resulted in disproportionate costs to business for relatively
small amounts of greenhouse gas reduction. The RET was intended as a means to assist the
development of a renewable energy industry in the face of competition from a fossil-fuel dominated
industry. It could be argued that the intent of the program has been delivered and it is time to
grandfather the existing program and seek a new scheme that takes into account the significant
reduction in electricity demand and the excess generating capacity that this lower demand has created.
As per the comments on gas above, Federal and State schemes should be assimilated such that there
is only one scheme and one cost to deliver the required outcomes.
Greater consideration is needed in respect of "social licence" to develop new resources. A lack of
information and education has contributed to the current groundswell of opinon against the
continuance of practices that have existed in Australia for many years.
4. Trade and International Relations
The Government seeks comment on:

how to grow the export of value-added energy products and services;

ways to remove unnecessary barriers to continued foreign investment in Australia’s energy sector;

ways to strengthen support for access to export markets; and

ways to support business to maximise export opportunities for Australia's energy commodities, products,
technologies and services, including the value of Australia’s participation in the variety of international forums.
Please provide any comments on Trade and International Relations below:
A national interest test should be applied to all future licences for gas developments. This would avoid
any sovereign risk concerns for existing developments and reassure the community that the overall
interests of the Australian people were being considered in future decisions.
Currently, Australia is the only known country that depends upon commercial stockpiles to meet its
obligations under IEA. If, as is likely, independent stockpiles are required then this should be met from
consolidated revenue and not become another expense passed on to industry.
An abundance of energy has in the past given Australia a national competitive advantage that has
contributed to significant investment in domestic industry with resultant contribution to gross domestic
product. A process should be put in place to ensure that all Australians, not just exporters, benefit from
the energy reserves that this country possesses. A mechanism to ensure Australian consumers
contiune to benefit from Australia retaining an internation competitive advantage should be considered.
5. Workforce Productivity
The Government seeks comment on:
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
the nature of any current skills shortages being experienced and how these could be addressed by and with
industry;

the capacity of industry and education sector-led programs to meet long-term training and skills development
needs of the energy and resources sectors; and

specific long-term training and skills development needs for alternative transport fuel, renewable energy,
energy management and other clean energy industries.
Please provide any comments on Workforce Productivity below:
5. The Productivity Commission has found that the government-owned energy businesses have the
steepest decline in productivity.
Our reality, as a papermaker in a world with 3% p.a. reduction in prices, is one of having to contiually
improve the quality of the finished product as well as increasing productivity and reducing costs in order
to survive. Energy productivity MUST increase and costs reduce in real terms - failure to do so is not an
option if end consumers are to remain viable.
6. Driving Energy Productivity
The Government seeks comment on:

the current suite of energy efficiency measures, ways these could be enhanced to provide greater energy
efficiency or possible new measures that would enhance energy productivity;

the use of demand-side participation measures to encourage energy productivity and reduce peak energy
use; and

measures to increase energy use efficiency in the transport sector.
Please provide any comments on Driving Energy Productivity below:
6. Federal and State schemes should be assimilated such that there is one scheme and not a plethora of
schemes adding to expense and compliance costs.
Eliminate double-dipping: where users are compelled to comply with a scheme (such as EEO) then there
should not be additional requirements under a white certificate scheme.
In developing energy efficiency schemes due consideration should be given to early achievers who have
already taken steps to address efficiency measures prior to the introduction of national shcemes. Early
achievers should not be penalised by having their efforts go unrewarded or find themselves excluded
from participation in subsequent developments.
Removing impediments to DSM would effectively tackle the peak demand issue and reduce, or eliminate,
the need for further investment in transmission and distribution assets.
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7. Alternative and Emerging Energy Sources and Technology
The Government seeks comment on:

ways to encourage a lower emissions energy supply that avoids market distortion or causes increased energy
prices;

the need to review existing network tariff structures in the face of rapidly growing deployment of grid-backedup distributed energy systems, to ensure proper distribution of costs;

additional cost-effective means, beyond current mandatory targets and grants, to encourage further
development of renewable and other alternative energy sources and their effective integration within the wider
energy market;

how the uptake of high efficiency low emissions intensity electricity generation can be progressed;

any barriers to increased uptake of LPG in private and commercial vehicles and CNG and LNG in the heavy
vehicle fleet; and

any barriers to the increased uptake of electric vehicles and advanced biofuels.
Please provide any comments on Alternative and Emerging Energy Sources and Technology below:
The RET (electricity) target should be defined as 20% of annual electricity output rather than an arbitary
figure. This will reflect the overall electricity market demand and be a typical variable that businesses
have to face.
The review of the RET presents an ideal opportunity to expand the scheme to encompass all renewable
energy and not just electricity. Currently, thermal energy is excluded from the scheme which is
ignoring a large percentage of energy used in industrial processes.
In a similar vein, biomass from sustainably managed natural forests should not be an excluded fuel
from the list of eligible sources to produce bioenergy under the RET.
Subsidies and FiT should be removed from small-scale renewable schemes: this is a distortion on the
market and has grossly contributed to increased energy costs for all consumers.
Direct Action has an emphasis on "lowest cost." Lowest cost does not always equate to "best long-term
option." With the ongoing development of the Energy White Paper and Direct Action, it would be
encouraging to see policy that embraced the best option rather than just low cost.
General Comments
Any further comments?
In the space of a few years, Australia has moved from being amongst the lowest energy cost countries
to being in the top quartile of the highest energy cost countries. In a country blessed with an
abundance of energy sources it is indeed perplexing that this competitive advantage has been thrown
away.
Network businesses should be exposed to stranded asset risk. It is a general practice that businesses
account for their management and investment decisions - if the market changes or exchange rates vary
then this is a business risk that must be absorbed. Where NSPs have over-invested, or have assets that
are no longer required due to the down-turn in demand, then such assets should be removed from the
RAB and the cost absorbed by the shareholders.
There is a limited window of opportunity to take into account the interests of all stakeholders and
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ensure a far-reaching energy policy that will benefit all Australians, securing future prosperity through a
balanced mix of domestic industry and energy exports. The Federal Energy White Paper can provide
this opportunity.
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