Just to prove that they are doing something to combat high electricity prices, the PM (and his energy Minister) called the major retailers to Canberra. Mr Turnbull offered the retailers the sharp end of his tongue, admonishing them for the high electricity prices. Mr Frydenberg nudged them along saying he was reluctant to regulate but unless they looked to reduce prices etc, etc.
The firms promised to do more to advise customers of better offers and many of them said what was needed was a move to the Finkel recommendations of a form of carbon tax which would offer greater subsidies to renewables. Some of them may even believe this but all of them see more renewable energy subsidies as a more certain means of profitability than fighting it out in the market, especially since government has demonised coal as a future supply option.
Not everybody is hurting on electricity prices. Today AGL issued its annual report. This saw a profit rise of 14 per cent for 2017. It is expecting a further 25 per cent increase next year. AGL’s profits are dominated by electricity generation which has seen gross margins increase from $1038 million in 2014 to $1549 million last year.
Judging from its tiresome adds (the bearded one and synthetic family appear prominently even in the financial reports) you’d think this must be because of all the renewables AGL is providing. Well you’d be wrong. Just 6 per cent of its generation is from wind and solar and a whopping 85 per cent is from coal.
But, rest assured, the future belongs to renewables since the firm shows how they are now cheaper than coal, and on a par even with the insurance (‘firming costs’) they must pay to combat their inherent unreliability.
The disconnect between this picture and the firm’s on-going campaign for (apparently unnecessary) wind and solar subsidies is not addressed. Nor is there any mention of alternative estimates. Minister Frydenberg puts the cost of wind with (totally inadequate) insurance at $108 per MWh and the spate of coal plant building across the world testifies to its cheapness – the Minerals Council used one of the most prestigious engineering firms to put Australia’s cost of new coal at under $50 per MWh.
AGL explains how its wholesale prices have shown a healthy increase. This is purely because of the forced closure of coal capacity in Victoria and South Australia bringing much lower supply (and a previously unprecedented NSW-Victoria export norm).
Since the gross profit is dominated by electricity generation and the costs of the dominant form of generation, coal, have not changed AGL’s escalating profits might be considered to be “economic rent” and this is something that governments – especially those which cannot cut spending to make ends meet, are likely to regard as seizeable without such an act having a disincentive to future output.
They might see such a course as particularly attractive once they realise the fallacy of homilies about exotic renewables being cheaper. Even for a bladed-on wind fan like Turnbull, the reality must eventually give pause for thought. Zealots must see some correlation between Australia leading the way in renewable installations and taxes on fossil production while simultaneously being catapulted from the world’s cheapest to the dearest electricity supply.
A government not intent on its own suicide is likely to look at many measures “in order to buy time for the inevitable triumph of exotic renewables”. Price controls and the absurd requirement that fossil fuel power stations give there years notice of closure are among these.
But increasingly attractive in preventing the price rising before the renewables have achieved their forecast cost parity and resolved their reliability deficit is a government owned or underwritten coal base load power station. This would staunch the price increases and reduce the chance of outages as reliable power stations continue to close, battered by subsidised renewable competition. Having it financed by a levy on excess profits earned by the remaining coal generators may prove irresistible.
Such a measures would appear to be the inevitable steps in governments’ destruction of the competitive electricity supply industry that heralded the present century. It returns us to a version of the nationalised industry that once prevailed and which operated with plant productivity (‘availability to run’) at 20 per cent less than today and with a labour force fivefold that of today. Some people would see these inefficiencies as progress.