Image: HELE coal-plant: a natural power price suppressant.
The Australian Labor Party is funded by the Union Super funds that its faithful band of apparatchiks control. The likes of Bill Shorten, Greg Combet and Garry Weaven are all heavily invested in maintaining Australia’s Renewable Energy Target, because Union Super money, under their control, has been thrown into wind and solar power outfits like Pacific Hydro. Labour Unions provide the financial backing to the ALP and Union Super funds are the cash cows that make their largess possible.
There aren’t many businesses where the management gets to control investment and guarantee the returns, at the same time.
Back in 2010, Greg Combet (as Environment Minister) increased what was a fairly modest 2% RET (or 5,000 GWh by 2010) – introduced by Liberal PM, John Howard in 2001 – to a 45,000 GWh monster by 2020: 41,000 of which was to come from large-scale generators (the LRET) and the balance from small-scale generators, primarily rooftop solar (the SRES). The history of Australia’s Federal RET is detailed by Ray Evans and Tom Quirk here: The Ruinous Privileges of Renewable Energy
Combet and his mate Weaven set up IFM Investors and it threw hundreds of $millions of workers’ saving retirement funds into wind power outfit, Pac Hydro.
By setting a mammoth Federal target for the LRET, including underwritten subsidies worth over $60 billion during the life of the scheme, Combet and his ALP/Union mates had literally written their own meal ticket (see our post here).
So, it’s little wonder that Opposition Leader, Bill Shorten is prepared to lie through his back teeth about the causes of Australia’s self-inflicted power supply and pricing calamity.
The line about the privatisation of State electricity generators causing Australia’s rocketing power prices started with South Australia’s vapid Premier, Jay Weatherill (his beleaguered State, notionally powered by the wind, now enjoys the ignominious honour of having the highest power prices in the world).
Shorten, working on the same, ‘hey, quick look over there’, theme is deluding himself if he believes that he can fob off recent price hikes on events that took place 20 years ago; and which actually reduced wholesale power prices, across the country. He also ignores the fact that Queensland, which has also seen its power prices rise at the same rate over the same period, still owns and controls the bulk of its generating assets.
In truth, the recent power price surge has nothing to do with privatisations and everything to do with the introduction of wholly weather dependent wind and solar power generators across the Eastern Grid. Here’s Judith Sloan, belting another energy market myth.
Energy price rises are not powered by privatisations
8 September 2017
There is no doubt focus groups are telling Labor and Bill Shorten that people don’t like privatisation.
With it seemingly seen as equivalent to selling off the family farm, there is a widespread tendency to attribute all sorts of bad outcomes to privatisation.
You see it in banking, you see it in telecommunications, you see it in electricity.
But here’s a tip: the escalation of electricity prices doesn’t have anything to do with privatisation.
Most government-owned electricity assets that have been sold changed hands decades ago — in Victoria and South Australia in the 1990s. Here’s another important point: Queensland’s electricity assets stay in government hands.
The privatisations that took place also had the advantage of removing the massive featherbedding that had existed in those states, permanently taking out costs and benefiting consumers.
If we look at when electricity prices began to rise, it was after 2007 when the federal government seriously began to interfere in the workings of the electricity market with various “green” schemes.
To be sure, there has been an acceleration of electricity prices in the past several years but one of the principal reasons for this has been the increasing penetration of intermittent renewable energy in the system coupled with the retirement of synchronous coal-fired power stations.
Almost 6000 megawatts of coal-fired capacity has been withdrawn from the market since 2011. If we add the mooted closure of Liddell, that’s another 2000MW from 2022.
The loss of Hazelwood this year was a biggie, accounting for the removal of 1600MW or about 20 to 25 per cent from baseload power in Victoria. In trying to justify its decision to lamely sit by and watch the plant shut down, the Andrews state government dishonestly predicted the price effect of the plant’s closure would be minimal — 4 per cent or 28c a week.
As Victorians open their most recent power bills, what they are experiencing are increases of between 15 per cent and 20 per cent. So much for the 28c.
But, you say, surely this current mess is because of privatisation? Didn’t the NSW government recently flog its electricity assets?
Here’s the conundrum: the rate of increase in electricity prices has actually been highest in Queensland where the electricity assets are still held in government hands. And there have been many times in the past year when the wholesale price of electricity has been highest in Queensland of all the eastern states. Go figure.
The explanation for (wholesale) electricity prices is complicated but boils down to the marginal price bid by the generator that can ensure that demand is fulfilled in half-hourly intervals. Increasingly, this marginal player has been a gas generator (up from 9 per cent of the time in 2014 to 25 per cent now) and with rising gas prices, this has escalated the rate of increase of wholesale electricity prices.
Here’s the important point: there’s less and less coal-fired electricity to be that marginal bidder.
To be sure, wholesale prices make up only a portion of the final prices paid by households and businesses, but it has been the change in the wholesale price rather than the transmission/distribution charges or retail margins that accounts for the recent surge in the prices paid.
Don’t get me wrong. I’m no fan of the big energy companies: AGL, Origin or Energy Australia. I don’t believe they should have been allowed to integrate vertically to be generators and retailers.
There has also been some serious overpricing of the poles and wires because of regulatory errors made as a result of government decisions, including in relation to accounting standards. But to think privatisation is the source of the problem is to be mistaken.
The pressing challenge is to ensure there is more dispatchable electricity, coal or gas, in the system. This means retaining these assets for as long as feasible as well as building new ones.
Australia’s Renewable Energy Disaster Sends Government Scrambling for Reliable Power
Australia’s self-inflicted renewable energy calamity has its Federal Coalition government in a state of perpetual panic.
Sometimes panic is warranted, either by the gravity of the threat or the limited time within which to respond to the threat.
In this case, time really is a factor. The AEMO has released a report that shows Australians will be scrambling to obtain reliable power supplies this coming summer.
In Australia, things heat up from the end of November and, with an uptick in temperatures, comes an increase in the demand for power, used to cool homes, offices and businesses.
By early December, it’s not unusual to have experienced a widespread heatwave across South Australia, Victoria and New South Wales with temperatures up in the 40°C range. With a serious shortfall in available baseload generation and increasing reliance on the weather for power, blackouts are guaranteed across the entire Eastern Grid.
In politics, a week is said to be a very long time. However, for PM, Malcolm Turnbull and his hapless sidekick, Josh Frydenberg the next 90 days – between now and the first December hot spell – will pass like the time it takes to fall off a cliff.
The trouble with acting in a panic is that the number of unforced errors generally increases. In the current climate, it’s apparent that those in on the greatest subsidy rort of all time will say and do anything to keep the game alive. Including, adding yet another band of rent-seeking boffins to Australia’s growing list of ‘regulators’. Here’s Judith Sloan on the front foot, yet again.
It’s not clear whether the Australian Energy Market Operator is part of the problem or part of the solution. Its head — an import from the US whose affection for renewable energy is well-known — has made some very strange statements since arriving here.
But let’s face it, AEMO is just part of the dazzling array of regulatory agencies interfering with the workings of the national electricity market and this includes a lot of state bodies.
The best thing about AEMO is its emphasis on ensuring the reliability of the electricity system. It is less concerned about the rapidly declining affordability of the system, however. Indeed some of its recommendations will add to the costs borne by consumers, such as developing a strategic reserve to deal with the potential gap between supply and demand in South Australia and Victoria in the coming years.
I’m not sure it really took a bunch of physicists and engineers in AEMO to point out what is absolutely apparent to everyone: that the subsidised penetration of intermittent, renewable energy has reduced the reliability of the system and increased the costs while undercutting the incentives for investment in dispatchable energy that can be delivered 24/7.
For all the carry-on about behind the grid, demand management, (short-lived) batteries, storage and energy efficiency improvements — they add up to small beer, by the way — the simple fact is there will not be sufficient reliable electricity either in the near term (in South Australia and Victoria, at least) or, from 2022, in NSW as well.
But trying to establish means of incentivising dispatchable energy to be available but keeping this separate from the market — a form of capacity payments — runs the risk of further distorting the market.
In true bureaucratic fashion, one of AEMO’s responses is to create an expert panel (this could be the basis for an episode of Utopia) in which the usual suspects are assembled to push their own barrows.
Most of those on this panel are just the chief rent-seekers within the system. Some have even been the source of extremely lousy advice to governments, such as keeping the Renewable Energy Target because wholesale prices would fall. Sure.
But here’s the key: there is not one person representing the large energy users on this so-called expert panel. Recall that one half of all electricity generated goes to these large users — think smelters, fertiliser factories, steel mills — while a quarter goes to households and the rest to other businesses/organisations. But the head of AEMO didn’t think it worthwhile inviting any of the chief executives of these large users along.
There was one welcome development this week — the recognition by the government, and maybe the opposition — that we need investment in reliable electricity generation. This can take the form of extending the life of existing plants as well as investing in new ones. (Move over AGL, you are not part of the solution.) But here’s a hint: it will not be achieved by instituting the daughter of the RET, the Clean Energy Target. All a CET will do is spur even more investment in unreliable renewable energy and we already have enough of that, arguably too much.
Blame shifting and buck-passing are nothing new in politics. However, when the power goes out, those sitting freezing or boiling in the dark look to whoever is in charge to fix it. Blame and retribution come much later.
When the lights come back on and the air-conditioners start to hum again, power consumers (read voters) will, no doubt, take their time to identify and suitably punish the culprits. In this case the culprits are both the Green infused Australian Labor Party and the Labor infused Liberal/National Coalition. History will not treat them well, voters will not treat them any better.
Here’s the Editor of The Australian channelling the fury that is yet to be fully unleashed.
Renewable subsidies destroy national electricity advantage
The federal government’s renewable energy target is emerging as the nation’s largest ever public policy failure. The consequences of the RET are costly and damaging, undermining jobs, industries, the broader economy and our standard of living. Apart from adding an unnecessary $60 billion in costs by 2030 to be recouped in higher power prices, the policy has drastically undermined the security of supplies. In an energy-rich nation that is a major exporter of coal and gas, it takes a special incompetence to make our electricity expensive and unreliable.
Yet both major parties have presided over this disaster; disturbingly, the RET has had bipartisan support. Labor and the Coalition own the policy and its consequences, which are detailed in the Australian Energy Market Operator report on dispatchable capability. AEMO describes an “increasing and unacceptable risk” the market will not deliver enough power to meet demand over the next two summers. But even if we muddle by on emergency measures the threat of unmet demand will persist for a decade in South Australia, Victoria and NSW.
A recent survey found SA power prices were the highest in the world and consumers in Victoria, NSW and Queensland are also being hit by substantial price hikes. These costs hurt businesses and play a role in the destruction of manufacturing jobs. Australia has contrived to turn its cheap energy into a high-cost disadvantage that is coupled with unenviable doubts about energy security.
AEMO outlines the cause in stark terms: “Declining demand from the grid due to growth in rooftop PV and energy efficiency improvements, coupled with the growth of more variable demand and low operating cost variable renewable resources, is eroding the business viability of traditional baseload generation and increasing the need for dispatchable resources that can operate more flexibly than traditional baseload supply.” So state and federal subsidies for rooftop solar panels have reduced demand and increased its variability at the same time subsidies for large-scale renewable generation have made supply less reliable.
These factors have undermined the commercial viability of baseload generation still desperately needed when the wind doesn’t blow or the sun doesn’t shine. Subsidies have so distorted demand and supply behaviour in the grid that baseload investment is almost unthinkable, so we need gas generation that can respond quickly to peaking demand. But just when the nation requires more gas investment it has been hit by a cost and supply crisis caused primarily by state government-imposed restrictions on exploration and exploitation. The extent of policy self-harm in energy is staggering.
This is not wisdom in hindsight from The Australian. We have railed against these policies and warned of ill effects for years. “The support of both major political parties for the current renewable energy target of 20 per cent by 2020 is a sign that economically rational energy policy is not the forte of either the Gillard government or the opposition,” we said in July 2012. “When governments pick winners, there are inevitably losers,” we said later the same year, “first and foremost households and businesses that are forced to subsidise renewable energy providers that could not otherwise compete against cheaper coal-generated power.”
Even in 2009 The Australian warned the RET would fail any cost-benefit test. “However much internal warmth the thought of more windmills and solar panels might generate, the cold hard truth is that renewable energy targets have serious economic implications that warrant close scrutiny.” We were also alarmed by the states turning their backs on our natural gas bounty. “Australia cannot afford to ‘lock the gate’ and pass up the economic benefits of maximising a lucrative resource industry that will supply affordable energy to this and other nations,” we said in 2012.
Our politicians ploughed on; they thought they were on a popular, climate gesturing winner. They have delivered unacceptably expensive electricity and undermined our economic future with the absurd catch that when we flick on the switch the power might not even be there. AEMO now wants to plug into every bit of emergency generation from factories and offer incentives for big users to shut down when demand threatens to outstrip supply.
The closure of more coal-fired power stations — after SA’s Northern and Victoria’s Hazelwood — threatens to exacerbate the crisis. AGL intends to close its Liddell plant in NSW’s Hunter Valley in 2022.
The consequences could be dire. So pitiful is the outlook that the Coalition is considering funding or subsidising coal-fired generation to ensure there is “dispatchable” power available when renewable energy is not. The Australian loathes such subsidies, especially when they are introduced to remediate the consequences of other subsidies. But this is a mess and it is serious. The top government priority must be to supply power to keep the lights on at a price families can afford.