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Select Committee on Electricity Prices
09/10/2012
Electricity price increases in Australia

REARDON, Mr Tim, Executive Director, National Generators Forum

ST BAKER, Mr Trevor, Chairman, National Generators Forum

[17:10]

CHAIR: Welcome. Do you wish to make an opening statement?

Mr Reardon : We have not as yet provided our submission. We will do so immediately after this hearing. There are some graphs in it to which I will talk. The National Generators Forum is the national industry association representing electricity generators in all states and territories and across all fuel types—coal, gas, solar, hydro, wind et cetera. The national electricity market is a highly competitive and well-functioning market and has been for more than a decade. It has sustained a number of major threats, including supply of fuel, technical failures and policy changes, and maintained a stable and competitive market over that time frame.

The first graph, figure 1, shows wholesale electricity prices in the national electricity market over the past 14 years. It shows the nominal electricity price. What you can see is that the price has remained almost constant over that period of time. There was a period during 2008 when, principally due to the drought and the hot weather conditions, the prices increased. But, generally speaking, prices have been very flat and stable. Today the prices are around 50 per cent lower than what they were in the mid to late 1990s when electricity generation was owned and operated by state governments. I should say that that excludes the impact of the carbon price.

The second graph demonstrates that, over the past five years, electricity demand across the national electricity market has been declining. It has declined by around 3½ per cent over that time frame. That is due to a range of reasons—notably, the increase in the retail price of electricity; declining industrial demand; reduced manufacturing activity; energy efficiency initiatives; and solar PV systems. It should be noted that, during that time frame , the carbon price has significantly increased the cost of generation for coal and gas fired generators and, particularly in the case of black coal generators, they have not received compensation for the impact of the carbon price.

I would like to focus on demand forecasting, which is shown in figure 2. Demand has been declining for the past five years but part of the investment in networks that has occurred has been to offset forecast growth in demand. We can see that these demand forecasts have been very ambitious and remain ambitious despite a significant revision of the data that has gone into those. That is particularly important in relation to the renewable energy scheme. These same ambitious forecasts have underpinned the renewable investment target of 41 terawatts. The renewable energy target is 20 per cent by 2020, which, using forecasts that were established in 2008 and 2009, translates to 41 terawatt hours of electricity generation in 2020.

The NGF supports the continuation of the RET and the objective of achieving at least a 20 per cent renewable generation target by 2020. The RET is an important component to reducing greenhouse gas emissions to five per cent below 2000 levels by 2020 and has been effective in its objective of attracting investment into renewable generation. The majority of NGF members, however, are concerned that the fixed target of 41 terawatt hours, in light of an unprecedented reduction in electricity demand, has the potential to cause material harm to the National Electricity Market. The target was based on forecasts which were undertaken before we had seen an unprecedented level of decline in demand, so the fixed LRET target of 41 terawatt hours is forcing an increase in the supply of electricity into a market that is experiencing decline. The majority of NGF members support the LRET target of at least 20 per cent of Australia's electricity supply being delivered from renewable sources by 2020 being expressed as a real 20 per cent, not as a fixed terawatt hour target.

Another issue that I would like to draw specific attention to is in relation to electricity derivatives, and specifically the Corporations Legislation Amendment (Derivative Transactions) Bill, which is currently before parliament. This bill will impact on a range of electricity derivatives well beyond the original intent that the Australian government made at the G20 meetings. Just to explain that, following from the global financial crisis in 2008 Australia and a number of other countries made commitments to regulate certain types of derivatives—specifically interest rate and exchange rate derivatives. Those derivatives are highly liquid products that are traded globally and not associated with physical assets. We are not specifically concerned about the regulation of those derivatives. We are, however, concerned that that legislation adds risk and uncertainty to the energy industry and could result in higher costs to the industry and subsequently higher electricity prices.

Electricity derivatives are not standardised products; they are complex and unique to the industry and have evolved to meet the needs of the industry. They are not internationally traded commodities; they rely on the physical delivery of electricity within the National Electricity Market and are generally between generators and their customers. Importantly, they are underpinned by physical assets. Participants within the NEM are required to hold financial services licences and undertake appropriate training. The AMC has undertaken a review of financial resilience within the NEM and shown that there are no major concerns. There are existing regulatory arrangements in place to mitigate risk to the continuity of supply within the NEM, and to our knowledge there is no evidence that the OTC electricity derivatives market poses a material risk to national or global financial security. Similar parallel legislation in the EU, UK and US has, through a variety of different mechanisms, exempted electricity derivatives from regulation. We see that any form of regulation will add to increased costs to the industry and uncertainty. It is our strong view, therefore, that this legislation should seek to achieve minimal effective regulation and, in the absence of concerns over OTC derivatives for electricity, that they should be explicitly exempt.

I might leave my comments at that point and take questions.

CHAIR: Thank you. The graph in figure 2 shows the difference between actual and forecast energy demand. Why is it that the regulators continue to forecast demand and get it wrong?

Mr Reardon : The historical answer to that is that they are reliant on information from network and transmission businesses, and that information was always optimistic about the outlook. They have changed their methodology and significantly revised down the targets—off the top of my head, I believe that peak demand was revised down by about 36 per cent this year—and they are continuing to have an ongoing dialogue with the industry over how to better forecast electricity demand. An important component for us is the release of public information—what is known as bulk supply point data. We only receive information from a jurisdictional level at this stage. What we would like to be able to do is better analyse the data at more of a regional level to understand quite what the factors are that are changing within the market and causing the decline—to understand whether that is from residential areas, certain geographical regions or manufacturing activity—in order to better forecast what demand would be.

CHAIR: This graph would seem to support the view that some of the network businesses are overinvesting and that there is an incentive within the system for them to do that. We have heard evidence today, and on other days the committee has conducted public hearings, that this is the case and that the rules allow that. You would have been here when the network businesses appeared and refuted that—I am wondering if you have a view on that.

Mr St Baker : That is a matter that the AEMC is looking at the moment, but it is fair to say that the load forecasting over the last four years has been abysmal. The reality is that we are now forecasting 35 per cent less electricity demand in 2020 now than we were three years ago. As you see from this graph, even the one they are projecting now assumes that demand is going to pick up immediately and start trending up again. As to why that has happened, and what the consequence of that has been, the forecasting process through the state network entities advising AEMO have not picked up on the price elasticity that has come about with such dramatically increasing household prices.

But that goes only to a certain extent. There really has been a drop off in industrial energy. As an example, the aluminium smelters, which are under threat at the moment, use 15 per cent of all the electricity in the NEM. It puts into perspective how energy-intensive our industry was.

Senator BOSWELL: What was that?

Mr St Baker : The National Electricity Market. We have to get rid of these acronyms—they are always a problem.

CHAIR: There are plenty in this industry.

Mr St Baker : It is a matter that the AEMC is looking at, but clearly the networks had to respond to being able to handle the official forecast loads. Whether there was overinvestment or not, they were aiming to handle them—it is a long lead time to have networks in place, and they were clearly putting up proposals to meet those demands.

CHAIR: You said the AEMC is looking at it; is that a particular report?

Mr Reardon : The Energy Market Operator is responsible for developing the forecasts, and they have changed their methodology for developing the forecast this year. They are going through another process which is looking at a more of a bottom-up approach.

CHAIR: You do not have the name of that process, do you?

Mr Reardon : It is the National electricity forecasting report.

Mr St Baker : The NGF is working with AEMO, and for its part it is just one of the associations in the industry. We are pushing very strongly for the networks to release the loads at different points in the market so everyone can get a total view of it. Getting just one answer out is part of what the problem is. It is probably the lack of transparency; if there had been more information released as to what the background of it was participants could make their own judgements and decide whether or not they believed the forecast—they would have more information to form a view about that.

Mr Reardon : The Energy Market Operator has recognised that and we are working through a process at the moment to ensure that any individual large energy users' information is not disclosed inappropriately.

CHAIR: The AEMC has this power of choice review going on at the moment, and a lot of people submitting before us have been recommending those approaches. I am wondering what your organisation's view is on that particular report.

Mr St Baker : It is a current thing at the moment, but the NGF does not believe that is a constructive suggestion. To go into a bit more detail, this is an energy market we have in the National Electricity Market in the east.

In the west, we have a capacity market. It is a flawed market over there. It is struggling to achieve. There are a number of flaws in that market. One of the flaws is the right of people just to gamble on curtailing nothing and get a capacity credit if it was called upon with very little backing. We feel that that has failed in the west. But in the east the point about it is that it is being floated as something that large consumers ought to be able to do. The large consumers have a right already to be a participant in the market. There are two separate markets. One is the business energy market, which is deregulated.

Senator THISTLETHWAITE: Contracts.

Mr St Baker : People are being charged between 11c and 13c a kilowatt hour. That market is working much more efficiently than the regulated market, which is an example of regulatory failure in terms of getting the power from the power stations to the households. But in the large market, all of the participants have the right to power their power, have their own curtailment and have their own in-house backup generation to operate alternatively. They choose not to because there is huge competition in that totally deregulated market. The margins are very fine for operators in that market. They are choosing to do their business through the retailers and compete with each other to offer curtailment opportunities and different sorts of tariffs. All of that goes on in the non-household market. This suggestion is really coming from people worried about household prices and thinking that it would be good if they had individual choice. The proposal is to look to a solution in the business energy market because they have a problem in the regulated market. But each household does not have the power to buy capacity credits, as is being floated. The NGF working groups are working through their proposals. There is a fairly strong view in favour of that, and we are engaging consultants to put together a sophisticated and readable submission on that question.

Senator BOSWELL: Let me say this: if you ran a business and 36 per cent of your market was disappearing you would be in trouble, wouldn't you?

Mr St Baker : You would not be building new generators.

Senator BOSWELL: You are not building new generators.

Mr St Baker : We also have RET, with renewables pushing and forcing new generation into the market, further affecting demand.

Senator BOSWELL: One of the reasons is that you must be losing manufacturing. In other words, manufacturing in Australia must be falling away.

Mr Reardon : Certainly with major energy users the indications are that that is the case.

Senator BOSWELL: That is food processing and manufacturing.

Mr Reardon : We do not have specific data available at this stage. We are working to get that data.

Senator BOSWELL: Then you have your aluminium.

Mr Reardon : When we look at demand at this stage, we know that Kurri Kurri is closing on 1 July next year.

Senator BOSWELL: Then there was the Gladstone company that said a couple days ago that they were not going to go ahead.

Mr Reardon : Yes.

Senator BOSWELL: My view is that the carbon tax is going to cost about $8 billion a year. I have estimated that the RET will cost $5 billion a year. That is $13 billion that is added on to industry costs. When industry cannot compete, it sheds its loads or reduces its input. I cannot understand why people such as you are pushing a renewable energy target which is diminishing your customer base. We all know that we are in a competitive market. If we are not competitive, then the customers will buy from somewhere else and you will lose further business.

I am concerned about this because I was a manufacturer before I came into this place and I can see what this renewable energy is doing to manufacturing. As far as the director of Exxon Valdez is concerned, the carbon tax in its present form is estimated to cost about $8 billion and the rent tax will cost about $5 billion by 2020. Would you indicate what these two measures mean to the cost of electricity to your members and what kind of impact they might have on their ongoing business operations.

Mr St Baker : You ask why the generators are supporting this. I think the generators are not supporting it at all; they do what the law requires and there is a 20 per cent RET law at the moment.

Senator BOSWELL: With due respect, that does not mean that you go along with it. When the carbon tax was coming in, everyone came to me and said, 'We want certainty.' So we stood up and said no. With this renewable energy target, it seems that people are just going down like lambs to the slaughter and saying, 'It's the rule; we'll accept it,' knowing full well that their customers are going to suffer badly and will not be buying as much electricity. And the electricity they will be buying will be coming off renewables, which are inefficient and more expensive.

Mr St Baker : Tom Albanese has been in Australia a couple of times and early in the debate on the carbon tax he was pleading with the government not to make Australia internationally uncompetitive. As it was coming in, he wanted to know, 'You've killed highly intensive aluminium production, the electricity for which is 20 per cent of total costs. You are shutting that down in terms of forward planning. Are you going to shut down refining?' When he was last out here, he announced they would be exporting bauxite. That is just an example and is being gradually reflected in the decisions that are being made in amongst all of the other business decisions you have to make. Certainly that cost is adding to the uncompetitiveness and the difficulty in that industry. And there are other factors affecting that industry.

Senator BOSWELL: So you are saying that Rio Tinto is directly selling bauxite to China now, rather than refining it in Gladstone.

Mr St Baker : Weipa will go across to the Northern Territory for as long as that refinery still goes, but in looking forward it is really very interesting. Countries can go and get electricity put into bauxite to make alumina and, from alumina, aluminium and other things, and they will be doing that. I just give that as an example; I am not here to launch a tirade against the carbon tax. It is affecting demand. The reality is that in America the households are supplied at less than 10c a kilowatt hour and we are approaching 30c a kilowatt hour for households.

Senator BOSWELL: That is absolutely remarkable.

Mr St Baker : Certainly households are paying 30c a kilowatt hour, but business is paying far more than that. So business and energy intensive industries cannot continue. That affects our business. The generator businesses are service businesses. We are there to meet the demand as it exists. The demand is a product of what governments decide. We can only make those points. Certainly the industrial demand is showing some weakness. Consumers are not sure where carbon taxing is going to go in 15 months time, so you probably have not seen the full effect of it if the present uncompetitiveness of charges on electricity were to continue.

Senator BOSWELL: I just want to interrupt you here. What was the figure of 41 that you quoted?

Mrs Reardon : That is 41 terawatt hours. In talking about—

Senator BOSWELL: We are running at 28 per cent renewables?

Mr Reardon : That is roughly the rule of thumb, yes. I think it is important with the RET to understand that a lot of investment has gone into renewable generation over the past 10 to 12 years, and that is reliant in part on relatively stable REC prices. Moving away from that would impact on investments in renewable generation that have been made. What we are proposing, at a real 20 per cent target, is a balance against the investors in renewable energy and the impact on the wholesale market.

Senator BOSWELL: Let me ask you this: the government has got a $10 billion clean energy bill—which is a sop to the Greens. There is a set up, pre-existing clean energy program—a cost of $3.2 billion. There is a flagship program of $1.7 billion. When all this money is invested and it is all invested in infrastructure, has anyone worked out the number of RECs that will be required to pay for that infrastructure?

Mr Reardon : The REC price is a market price based on achieving that 41 terawatt hours. With grants programs that aim to facilitate investment in specific projects, those projects will still seek to apply for RECs under the renewable energy target, and at this stage the target is still 41 terawatt hours. So they would not be in addition to that.

Senator BOSWELL: What is the value of RETs that would be needed to support that?

Mr Reardon : We have not done modelling on what that price would be—

Senator BOSWELL: Isn't that the most basic question?

Mr Reardon : The current price is around $40 for a REC, and the maximum penalty price is a little over $90.

Senator BOSWELL: But if we are going to go to 41 terawatt hours, how many RETs would be required? That is the additional cost of electricity I buy from Trevor St Baker as against electricity I buy from a windmill.

Mr St Baker : It is a simple calculation. It is 41 million megawatt hours up to a maximum price of $90 a megawatt hour in 2008 money. So you can multiply 41 million by 90 and you get a number which is about—

Senator BOSWELL: Five billion.

Mr St Baker : About $5 billion, that is right.

Senator BOSWELL: When we are up to 41 million megawatt hours, plus the carbon tax, we now have $5 billion being put on our electricity bills.

Mr St Baker : That is only going on for the RETs. The carbon tax is about $20 on 200 million megawatt hours.

Senator BOSWELL: That is about $8 billion, by my calculation. So we are adding another $13 billion. We are putting lead in the saddle of our manufacturers of $13 billion and expecting them to compete. They have got absolutely no chance of competing.

Mr Reardon : I think figure 4 in our submission shows the relative change in costs over the past decade or so, and certainly green schemes are a component of that increase. In forecasting REC prices, though, there are an enormous number of variables around demand and the wholesale electricity market factors relating to local planning requirements for building specific projects, the costs of individual renewable technologies. There are a whole range of factors that come into play in forecasting future REC prices that make it extremely difficult. I should say that the RET review that is currently underway would have some type of analysis of what those prices may be to achieve different targets over that—

Senator BOSWELL: I am roughly right, am I not? I have asked this of the Chamber of Commerce. We are actually putting on, in your figures, about $13 billion. And the amount of electricity is falling away. We are down 36 per cent, so what happens to that renewable target? Does that come down with it?

Mr Reardon : Not currently. The renewable energy target has a fixed target of 41 terawatt hours. What we are proposing—a real 20 per cent—is that that target would be 20 per cent of whatever electricity demand is in 2020. We are saying that demand has fallen by 3.6 per cent over the past five years.

Senator BOSWELL: You said that it had fallen 36 per cent.

Mr Reardon : In the submission we say that it is 3.5 per cent to date. The forecast for peak demand has been reduced.

Senator BOSWELL: How far has it come down? What is electricity usage down by—3.5 per cent or 36 per cent?

Mr Reardon : It is down 3.5 per cent over the past five years.

Senator BOSWELL: Where was the 36 per cent figure you had?

Mr St Baker : That is the projection. That is the reduction in the projection of demand in 2020, which was the basis of where all these aims are going. We were originally expecting 300 terawatt hours—that is 300 million megawatt hours—of demand in 2020.

Senator BOSWELL: So if the electricity usage falls by 36 per cent by 2020, that is your prediction, isn't it?

Mr Reardon : The forecast of what demand would be in 2020 is undertaken by the Australian Energy Market Operator. They have reduced their forecast of demand in 2020. I could perhaps check the numbers but—

Mr St Baker : It is from about 300 to about 235 terrawatt hours or something like that.

Senator BOSWELL: That must really send alarm signals out to manufacturers. When they say we need 36 per cent that means our whole business will be down by a factor of around 30 per cent.

Mr Reardon : We hope that the outcomes are better than what they are forecast to be.

Senator BOSWELL: Well, generally speaking I am a great believer in Murphy's law: they will be worse.

CHAIR: Just on that point, many of those trade exposed industries have coverage, I think, to the value of 94.5 per cent at the maximum in terms of the carbon price, haven't they?

Mr St Baker : That is only the export exposed.

CHAIR: Yes.

Mr St Baker : The small businesses that are import exposed—that is most businesses in Australia—are incurring these extra costs without compensation.

CHAIR: But you spoke of aluminium. That is an industry that has coverage. The steel industry is another industry that has coverage.

Mr Reardon : From our perspective the issue is that particular black coal generators are incurring carbon prices which are now their largest costs—ahead of coal—and they have not received compensation. That has an impact on their asset value, which is demonstrated in figure 3 of our submission, there.

Senator EDWARDS: A business which is losing demand for its product and one of your biggest customers—15 per cent of your market—is quite publicly in trouble in this country is aluminium smelters. That would further lead to reduced demand. That means you have a lot of assets and a lot of capital tied up and not generating revenue. What is going to happen?

Mr Reardon : Part of it is shown in the figure 3 that we have shown. The returns that are already being incurred are now subeconomic, and they can only get worse. In time the oldest power stations, the least competitive, will fall away, and there will be retirements. Some of the generation portfolio is 50 years old and some of it is more than 40 years old. So uneconomic plant will fall away and the businesses will just work through how they thrive in that market. That is what happens in a real market.

Senator EDWARDS: They write them off, eventually, as you would a tractor if it wears out, or a truck if you are a truckie.

Mr St Baker : They close it down.

Mr Reardon : The underutilisation of the existing assets is a concern.

Senator EDWARDS: This is what I am trying to get at. I am feeling quite alarmed. You seem quite calm that these assets will just go by the wayside because they are old and obsolete. Mr St Baker, you are making me feel quite okay; Mr Reardon, you have just put in a caveat, 'However, we've got underutilise assets and we are not getting a return on capital.'

Mr St Baker : I did not mean to make you feel comfortable. It is a very difficult business but in business you wake up in the morning and you do what you have to do. The big thing about it is that the generation market is a fully deregulated, open, competitive market and it is demonstrated that it has brought on the generation when it is needed. This is the successful part of the market. It is for 15 years. It brought on generation when it was needed and it is suffering when there is too much generation and overinvestment. That is what markets do.

Senator EDWARDS: Senator Boswell was getting at renewable energy targets and the investment that has gone into—

Mr St Baker : It is making it worse. There is no doubt it is making a worse.

Senator EDWARDS: We are awash with energy generation. We are awash with subsidies, except for your traditional generators which obviously are black coal, brown coal and whatever, and we are trying to get rid of them.

Senator BOSWELL: Why are you supporting this? Why are you supporting renewable energy when it is cutting your throat?

Mr Reardon : A lot of my members are investors in renewable energy which does include some of the larger black coal generators and other generators who have a mixed portfolio of generation.

Senator EDWARDS: Therefore, they have a business strategy to transition from dirty fuels to renewables and they are in that transition period where they have to write off assets as they make that obsolete and—

Mr St Baker : I would not quite put it in that category of shutting down. The baseload industry will still exist and the renewable industry is not providing a baseload alternative.

Senator EDWARDS: Peak demand is when all that baseload electricity is called upon—is it not?

Mr St Baker : The baseload is called upon around the clock and it depends on what the demand is as to whether or not it is—

Senator EDWARDS: By inference, baseload. But you just crank it up a little more because we have turned the plants off.

Mr St Baker : When you have peaking plant, which comes up, that is certainly being affected by renewables. It is not always there at peak demand. It is there when the wind blows and it is there when the sun is out.

Senator EDWARDS: I am trying to help you here. We just heard from the Networks Association and they said: 'We are a yield stock. We need seven per cent.' It sounds like you would love to be a yield stock which is regulated at seven per cent.

Mr St Baker : It would certainly be better than the average that generators are receiving at the moment, yes.

Senator EDWARDS: Negatives return on what you generate is a quick way to go broke, as Senator Boswell pointed out. You make a loss more days than you make a profit and you are out of business. We have all the networks accused of gold-plating, which they deny of course. You have nowhere to go. You have a carbon tax that has been put on your business which you pass on and you have diminishing revenues through lack of demand and competing energies, which you are now getting into. Where are we going? What is the solution? How do we get the balance and when?

Mr Reardon : For us, the challenge there is that, in general market forces, when supply and demand factors change, the market changes accordingly. What we have at the moment is the challenge with demand declining and government policy forcing an increase in supply. What we are seeking with the changes to RET are that those are brought back to some level of equilibrium.

Senator BOSWELL: It will still be there. It will still be $5 billion worth of renewables—$5 billion of inefficient energy being produced, subsidised, cutting the throat of the efficient producer.

Senator EDWARDS: The one that does not require a subsidy. Your businesses are not subsidised outside the renewables—are they?

Mr St Baker : To put it in a nutshell, generators are just businesses that suffer all the exigencies of markets and of changes in the law and that sort of thing. They wake up in the morning and they do things. They do not make the laws. They can give advice.

If you look at our figure 5, this tells you where we believe the issue is. Figure 5 shows you the baseload and what we call the 15-hour-a-day NEM peak prices of power in the green and blue. Those over the last 10 years are less in money terms today than they were 10 years ago or when the market started about 14 years ago. Ten years ago the regulated household price was about 12c a kilowatt hour and the generator cost was about 4c, so it cost about twice as much to get it from the power station to the houses. If you look at it today, the cost of generation is now closer to 3c a kilowatt hour and the cost in the homes is 25c, so the cost to get the energy from where it is generated has gone from less than three times to 8 times. The reason for that demonstrates that markets work and regulation does not.

We are looking at growing our business. We will only have a growing business if our electricity prices are internationally competitive and we continue to support the sort of industry and demand. In all my years in the electricity industry, it has been the case that electricity demand is the litmus test of where the country is going. To see it falling is a drastic thing for the country in conventional terms. The country is going to become more IT—

Senator EDWARDS: Did I hear the canary in the coal mine? You're the canary in the mine, aren't you?

Mr St Baker : Yes, exactly.

CHAIR: This committee has had close to 100 submissions and all of them have advocated a need to reduce peak demand for electricity and aggregate demand over time. They also advocated that government policy be geared towards that. We are beginning to achieve that. What is the problem with that from the government's perspective?

Mr St Baker : The seven-eighths of household prices which are regulated are not market-driven, if the regulators will get out of it. In most discussions that I observe everyone says regulation is failing and we should regulate in a different way. You should get out of regulation and leave it to the market. There are things you have to do, such as have safety nets. Other countries do it in different ways, but you look to other countries and how America can deliver electricity to houses in country Colorado and across all of America for less than 10c a kilowatt hour.

CHAIR: If we deregulate, that would involve variable pricing, exposing consumers to the cost of electricity—plenty of people have advocated that. How do you protect low-income households or consumers who cannot afford consuming their electricity during the peak?

Mr St Baker : There are two parts to that question. To have open competition where everyone is trying to get electricity cheaper will produce the best solutions. But in America they are going hugely on prepay. Instead of having a regulated safety net they have prepay. Prepay is for people who do not have creditworthiness. It is so popular there that people are opting to capitalise on the discounts being offered for using prepay.

CHAIR: What happens if they consume more electricity than they pay for?

Mr St Baker : That is part of a green button scheme they have in America. Across America more and more requirements are being placed. Government has to make sure that the open competitive market is working and that is done by having a green button system. The electricity suppliers are required to tell their customers how much of their monthly bill they have used and people can have an opportunity to press a green button to see whether they are over using or under using their electricity in the monthly billing cycle. There are all sorts of ways that modern communications can be used.

CHAIR: Earlier you said no new generation was being built.

Mr St Baker : Only renewables and that is being pushed into the market.

CHAIR: So there is new generation coming on line in wind, gas?

Mr St Baker : No, not gas; no new gas generation is being built.

CHAIR: There has been over the last 10 years.

Mr St Baker : There had been before the demand started falling off, but not since the demand started falling off.

Mr Reardon : The AEMO report of energy opportunities and outlooks certainly shows there has been significant investment in wind. There has also been upgrading of existing generators, mostly around a couple of coal generators.

CHAIR: And solar?

Mr Reardon : Solar and certainly rooftop PV.

CHAIR: So there is new generation. It is just that the type of generation is really in transition.

Senator BOSWELL: It is subsidised.

Mr St Baker : It is all intermittent peaking generation; it is not baseload generation, but the baseload demand is falling away anyway.

Senator BOSWELL: At three times the price.

CHAIR: We have to leave it there, unfortunately. Thank you for your time. Perhaps you can put you question on notice, Senator Boswell.

Mr St Baker : Thank you for the opportunity.