Energy crisis worsened by Government interventions: Grattan Institute

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Governments could be making the nation's energy crisis worse through interventions to soothe concerns about surging

energy-crisis-worsened-by-government-interventions-grattan-institute photo 1 Photo: AGL has committed to eventually dump coal-fired power generation entirely. (ABC News: Dean Faulkner)

Governments could be making the nation's energy security crisis worse through rushed interventions to soothe voter concerns about surging energy bills, the Grattan Institute warns.

The warning comes as the Prime Minister prepares to meet AGL chief executive Andy Vesey today over the planned closure of the Liddell power station in the NSW Hunter Valley by 2022.

The Grattan Institute's Tony Wood urged against the Government "arm twisting" Mr Vesey to keep Liddell open in the face of the company's commitment to eventually dump coal-fired power generation entirely.

"I think there's almost certainly a deal to be done there, but I think AGL would have a very strong view that their corporate position and their advertising says they're getting out of coal," Mr Wood said.

energy-crisis-worsened-by-government-interventions-grattan-institute photo 2 Photo: The Prime Minister will meet AGL chief executive Andy Vesey (L) later today. (ABC News: Nick Harmsen)

"It's quite possible that a commercial arrangement that suits AGL and satisfies the concerns the Government has is the way forward. But it's going to be a tricky pathway to follow."

Treasurer Scott Morrison said he was prepared to help AGL sell Liddell to a "responsible party" but repeated the importance of keeping it open to ensure future power supplies.

But Mr Wood counselled against any plan for the Government to intervene and possibly buy a guarantee to keep Liddell open, warning any perception of nationalisation would destabilise the market.

"I think it is always a bad idea for governments to intervene because then we're heading back towards re-nationalisation," he said.

"It is understandable that governments feel the need to do something, but the danger is they will rush in and make things worse. What Australia needs now is perspective, not panic."

Cost of energy security is higher prices: report

Instead, the Grattan Institute report said all sides of politics should work with energy companies and regulators on new ways to ensure reliable and affordable electricity supplies years ahead.

It suggests work needs to begin now on a "capacity mechanism" to encourage companies to invest in new power generation to reduce the growing threat of shortages and blackouts as early as this summer.

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With such a mechanism, according to the report, energy companies could be paid for committing to providing power years into the future rather than only meeting the current demand.

However, the report warns the price of peace of mind for energy security would ultimately fall on consumers through higher energy prices.

"Eventually the customer pays for all of this. That's why it's very important to get this right to ensure we have the insurance we need to make sure we have the capacity in the future," Mr Wood said.

Last week, the Australian Energy Market Operator urged "a longer-term approach" in a bid to ensure electricity supplies.

The Grattan Institute report urged the Government to implement the recommendations of the Finkel Review, including a clean energy target to put a price on greenhouse gas emissions.

It also wants a more comprehensive assessment of future energy adequacy of generated supply and if capacity cannot be met, AEMO should introduce a new capacity mechanism.

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.

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