A national energy policy for Australian agriculture

There is a hive of activity and public debate about the future of energy policy in Australia, particularly given rising electricity prices.

The Australian Farm Institute (AFI) is currently exploring how to tackle the challenge of developing a national energy policy that suits the needs of the agricultural sector. This priority was identified by AFI’s Research Advisory Council in February 2017 at its annual workshop to determine priority strategic issues impacting on Australian agriculture – that will be the subject of research projects commissioned or carried out by the Institute in the future.

Access to affordable and reliable energy supplies for all users is critical to maintaining the international competitiveness of Australian agriculture. The rising cost of electricity is currently one of the biggest concerns for many agricultural producers, particularly those in intensive industries.

The key question is what is needed to develop a transparent national policy capable of delivering sustainable, affordable, and reliable energy for agriculture?

It is critical that the industry engages with, and helps inform, the current state and national debates about energy policy. To support this, there is a fundamental need for applied research, including work that examines current and future energy use in Australian agriculture and allows for a more precise understanding of industry requirements.

Electricity has traditionally been one of the biggest production costs for many Australian farm businesses. Uncertainty about the future of power generation and the national energy market is having a significant effect on business confidence, and rising electricity prices are eroding farm profitability.

A 2016 report by Cotton Australia, the National Irrigators’ Council and Canegrowers estimated that retail electricity prices have risen by more than 100% in the past seven years. This is having a significant effect on-farm. For example, there are reports of irrigators switching from energy efficient electric irrigation pumps to diesel burning pumps.

The agricultural industry must identify opportunities as suppliers and consumers of energy. As well as being a large consumer of energy the agricultural sector is also in some cases a supplier of energy. There are potentially huge opportunities for agriculture through the expansion of biofuel, solar and wind electricity generation.

Over the coming decades, there are likely to be fundamental changes in the supply and regulation of energy as the country’s older electricity generation, transmission and distribution assets reach the end of their useable lives. Major investments have been announced for coal, gas, hydro, solar and wind energy generation, but it’s not clear what the final mix will look like. Regardless of the source, questions arise around the need to overhaul the National Electricity Market (NEM) and look at new models for electricity network investment.

Over-investment in distribution networks to enhance reliability has come at the expense of affordability. In turn, escalating prices have encouraged users to leave the centralised network and invest in alternative sources of electricity, further increasing the costs for those unwilling or unable to leave the network. Many farm businesses have little choice about where and when they source their electricity. As a result, wholesale price spikes and inflexible demand tariffs can have a devastating impact on farm profitability.

One of the most important issues to address is the need for greater transparency across all aspects of energy supply, demand, pricing and consumption. The Federal Government has recently directed the Australian Competition and Consumer Commission to commence an inquiry into retail electricity pricing. The inquiry has broad terms of reference but will explore issues relevant to the agricultural sector, including how contracts are structured with business customers like farmers and whether electricity prices are in line with costs and risks.

It remains unclear when the dust will settle and what it will all mean for Australian agriculture, but energy policy is shaping up as one of the key battlegrounds for the next federal election. In the coming year the AFI will look to undertake research to help ensure national energy policy meets the needs of Australian agriculture.

Image:  Geoff Penaluna