THE uncertain regulatory future facing energy generators has led to "investment paralysis" that may cost consumers dearly, a new study argues.
Commissioned by The Climate Institute and its corporate partners, the report analysed how uncertainties around climate change legislation affect investment options for generators.
Uncertainty effectively leaves the generators and their financiers "backed into a corner", Climate Institute chief executive John Connor said.
"Unless a State government underwrites the risk, no-one is going to underwrite a coal-fired power station."
"And with such uncertainty in direction of the political parties, no-one is going to finance a utility into clean energy alternatives.
"They are being forced to put into place open-cycle gas turbines, the cheapest plants to build, but most expensive to operate."
Once built, the cost of investment in these plants is effectively locked into the economy for years, and into the future power bills of consumers.
Currently, those future bills are climbing steadily, according to the report prepared for The Climate Institute by economists and strategists within AGL Energy.
The authors calculate that delaying regulatory certainty even until 2013 causes wholesale electricity prices in 2020 to be 13 percent - or $8.60 per MWh - higher than if greater certainty was provided immediately.
Across the economy, this equates to electricity consumers paying an extra $2 billion in 2020, or an extra $60/year for the average household.
For each additional year of delay, end costs to consumers rise further.
Mr Connor said more efficient, but more costly, generation technologies can be quickly brought online if more regulatory certainty is provided.
"AGL and Origin Energy have closed-cycle gas projects ready to go, but they aren't moving on them. If the current market conditions prevail, the return on their investment doesn't make sense."
The Climate Institute has long argued that the most effective policy mechanism for guiding future investment is an emissions trading scheme.
Mr Connor said this is particularly the case for energy generation, where investments may have a 30- to 50-year life span.
But the paper acknowledges that other measures can be taken, including laying down policy that actively fosters energy efficiency.
"If you take away the need to build new generation, you take away the problem," Mr Connor observed.
Alternatively, government could use the blunter instrument of emissions performance standards, which would place a legislative limit on the emissions produced by future generation utilities.
That might effectively rule out further investment in coal-fired and open-cycle gas power generation, Mr Connor said.
Government could also further encourage investment in renewable technologies to lessen reliance on emissions-intensive generation methods.
Mr Connor said the failure to provide a clear regulatory environment also means other missed opportunities that could come from being part of the global race toward clean energy and low pollution technologies.
"The race is being run not just because of concerns about climate change, but because of issues around energy independence and energy security, clean air and clean water.
"Proportionally, our investment in this area is behind those of our Asian competitors.
"Australia should be a regional, if not a world leader, in the renewables and clean energy space. We're at the T-intersection of whether we continue to export our brains and import our technologies, or whether we want to keep both of them here."
The Climate Institute describes itself as "a non-partisan, independent research organisation that works with community, business and government to drive innovative and effective climate change solutions".
Its Climate Partners program includes Westpac, KPMG, Pacific Hydro, OgilvyEarth, AGL, and GE.
* The full report, "Delayed carbon policy certainty and electricity prices in Australia" can be found at www.climateinstitute.org.au
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