Interview with the energy minister Angus Taylor and Guardian Australia political editor Katharine Murphy. The discussion follows government announcements on measures to reduce power prices, including a “last resort” divestiture power to break up power companies, and mechanisms to boost investment in new electricity generation.

I’ll get on to today’s announcements [about measures to lower power prices and increase investment in generation] in a second, but first, what are you doing with small-scale renewable energy scheme (SRES)? Labor has now said it stays until 2030.

AT: There’s no plan to change the SRES. The SRES and the large-scale renewable energy target are around until 2030. They fade between now and 2030, there’s decline as technology continues to improve. That’s our position.

You are not going to scale SRES back, you are not going to change it?

AT: The deeming rates fall every year between now and 2030. We are not proposing to change that. That’s designed to ensure the subsidy comes off as technology continues to improve.

Now to divestiture, it’s often quoted, but never sighted. We haven’t seen this, the legislation …

AT: We are very clear there will be a legislative package coming forward this year.

I’m not being unnecessarily combative, there’s a sharp end to the question. You are absolutely confident you have the power to do this?

AT: Look there’s a series of powers we’ll be putting in a legislative package this year. Divestiture is one of them. It’s a last resort. A lot of this is about saying to the industry we want to see the right behavior, the right outcomes. Then we won’t need to wield the big stick. But we want to see the outcomes. Look, when industries behave badly, one of two things discipline them: competition is always the best, the alternative is regulation. As a utility sector, there is a responsibility to customers which is above and beyond and we want to see that over the coming months.

You are confident you have the power to do it?

AT: We will put in place a legislative package.

Do you expect to be challenged legally in the event you ever use this power?

AT: I can’t predict what people are going to do. We want to see the ACCC and the courts with the appropriate set of powers to use if necessary. My strong hope is it will not be necessary, but we’ve got to see the outcomes.

If you impose a divestiture power for the power sector, why not other sectors?

AT: This sector has seen some extraordinarily poor economic outcomes. We’ve seen people hit with very significant penalties for late payments well above the cost of the payments. We’ve seen market practices which the ACCC outlined in detail in their report, which are completely unacceptable. We’ve seen rapid escalation in standing offers, doubling in Victoria in four years, for people just because they are loyal. This stuff has got to stop. It is a utility sector and an essential service that Australians rely on and there hasn’t been enough competition to get the discipline that’s required. So one of the things we want to do is enhance the level of competition and we will use regulation if we have to.

What’s the trigger for forcing divestiture?

AT: It’s a last resort.

Yes, but what’s the trigger?

AT: The issue is have we got enough capacity and supply in the market to meet customers’ needs, and are companies in the sector thwarting that, are they deliberately taking anti-competitive action to withdraw supply from the market to drive up prices.

What investors are most concerned about is political risks Angus Taylor

So the trigger is competition?

AT: It’s competition and supply. The two are related. But [the behaviour has] got to be extreme. It’s a last resort, but we will use it if we have to.

Competition is the trigger, and withdrawal of supply ..

AT: Obviously price is the outcome of that. Competition and supply, leading to higher prices, is the ill we are focused on here: lack of competition and lack of supply leading to higher prices and a loss of reliability – that’s what we are concerned about here. This can play out as extreme penalties for customers, it can result in wholesale prices that are too high, it can result in retail prices that are too high, it can result in a failure to participate in the market, and we’ve seen that in South Australia. There’s been very little trading in the wholesale market which makes new entry extremely difficult and that contributes to higher prices.

Indemnity? Will the commonwealth indemnify some projects [it supports with the new investment mechanisms] against future carbon risk?

AT: What we are saying is the risks that government needs to absorb to get investment in reliable generation, we will look at absorbing. We need the investment.

So yes, is the answer?

AT: It depends on the circumstances. I am not going to anticipate how to bank these projects. What I am going to say is projects need to happen. We’ll leave it to the experts and the bankers to work out how best to get that happening with the least impact on the public purse.

You are open to indemnifying these projects?

AT: I’m saying we will look at whatever risks that can’t be managed by the companies that need to be managed to get investment. We need reliable baseload power, but our focus is on getting prices down and ensuring we get a reliability outcome. There are some risks that investors can absorb, there are others they may not be able to absorb. We will look at those risks as we do the work, but the key here is not to anticipate. My experience is when you anticipate the banking, you get it wrong.

So maybe, is the answer.

AT: I’m saying I’m not going to anticipate the banking. You want me to tell you what the banking is going to be and no one who knows anything about it will anticipate the banking. We’ll look at the projects …

And maybe you’ll indemnify future risk …

AT: We’ll look at the risks and we’ll seek to minimise the risks to the commonwealth. What investors are most concerned about is political risks. There’s many types of investments, public private partnerships, where government plays a role. This is not new. It’s a very old mechanism for the public to work with the private to make sure investment happens. We will go down that path and we’ll put experts in, an appropriate team, to assess the projects.

You do acknowledge that creates a risk for taxpayers.

We are not going to load the gun for Labor to have a much higher target Angus Taylor

AT: We are going to do everything we can to minimise the risks. The government is well-positioned to manage some risks and the commercial sector is well-positioned to manage others.

The new government discussion paper makes it clear the underwriting mechanism could apply to retrofitting existing projects. How is that new generation?

AT: It’s new generation if it would otherwise be gone, that’s the point. What we want is additional investment, new investment, that will mean we get capacity we wouldn’t otherwise have.

So the real world scenario here is sweating the assets?

AT: If it’s an existing site and a new facility that may or may not be interesting. If you want a really good pipeline of projects, you don’t close down your options, you look at the broadest range of options available. We do want competition. We do want new entrants. That’s an important criteria. Obviously a new entrant does have an advantage coming into this market. New entrants are more aggressive in their pricing behaviour in many cases. Creating new competition is going to be a good thing.

But retrofitting does apply in some circumstances?

AT: We are not ruling it out.

In the discussion paper one of the criteria is the project should be unlikely to result in an increase in emissions to a level not more than minus-26%, right? You can drive a truck through that wording but let’s assume that wording is there in good faith, why not keep the national energy guarantee target?

AT: We are very confident we are going to get to 26% well ahead of time. The numbers are clear. There will be a 250% increase in renewables in the next three years. We are going from 17.5 terrawatt hours to 44.4 on the Energy Security Board numbers, and since that work was done there has been almost 1,000 megawatts of new renewable capacity has been added to the pipeline. We are very confident we will get to 26% in the early 2020s.

Then why not keep the target if you are going to get there anyway?

AT: Labor want a higher target. We are not going to facilitate that in any shape or form. Labor want a higher target. We’ve committed to 26%. We think that’s a fair share for Australia. Australia has a very good track record on meeting our targets. Twenty-six per cent is achievable and we are not interested in upping that, because all Australians will pay a lot, particularly in sectors like agriculture and transport. We are not going to load the gun for Labor to have a much higher target.

Friday’s energy ministers’ meeting: The Victorian government is four days before caretaker. They won’t agree to anything.

AT: We need a final decision in December on the reliability obligation of the national energy guarantee for 1 July implementation. We will be making sure the remaining work that needs to be done is being done between now and December. We are confident states will support this in December. We are going into summer. Victoria is almost 400 megawatts short of capacity to be avoiding blackouts this summer. We want to see Victoria doing the right thing and we’re sure they will as we go into summer.

What about the ACCC stuff. Don’t you need their cooperation?

AT: There are two ways of doing it, one is through the states and the other is by the commonwealth. We’ve said that we are very open to doing this through the states but it needs to be done properly. Proper benchmark price. Proper reference price. Standing offers coming into line with the reference price. If that is done right we are very happy for that to be done through the states, but we are prepared to override them.

Do they need to agree on Friday?

AT: We would like to gauge whether the states want to do this cooperatively. We’d like them to, but we are determined to get this done, and we’ll do it ourselves.