I have a post in the Spectator, a shortened version of which is as follows
It seemed too good to be true: Snowy being bought by the Commonwealth from state governments in what appeared as a money creation process – the Commonwealth had no apparent increase in debt or other costs, while Victoria and New South Wales got $6 billion for their Snowy shares. The reason behind the acquisition was to simplify the political process whereby the Snowy 2 pump storage project is pursued.
The credibility of innovative balance sheet practices aside, what we also now have is a major electricity generator owned by the government operating as a rival to other businesses in a market which is highly competitive. The Minister for Energy is responsible for the government’s energy policy and is also the shareholding minister of the major entity.
The suggestion that the Commonwealth acquisition might foreshadow bestowing favours on a particular technology and entity is more compelling in the context of Minister Frydenberg’s boss, Malcolm Turnbull. As a rusted-on supporter of carbon-light electricity generation, Turnbull has clearly been the driver of the Snowy 2 project. He also insisted on locking-in Australian greenhouse gas abatement policy by ratifying the Paris Agreement the day after Donald Trump was elected President on a platform that promised to torpedo it. In addition, Mr Turnbull has made key green energy supporting appointments, including his Departmental head, Martin Parkinson, and Chief Scientist, Alan Finkel.
Snowy Hydro Chief Operating Officer, Roger Whitby said “Snowy 2 is a project assuming the world that most players accept, where coal-fired generation is ageing and retiring and there’s increasing penetration of intermittent renewable energy. Clearly, if we have a reversion, essentially, to the past then of course under that scenario Snowy 2 is not viable.”
There is therefore a strong likelihood that the government’s interests as a shareholder of Snowy will operate to forestall new plant that might adversely affect the project’s economics even if such new plant would reduce electricity prices.
All of this assumes a new topicality in light of the threats of President Trump to place tariffs on Australian aluminium and steel.
Tomago, the giant NSW aluminium smelter, like all other Australian aluminium smelters (and a chunk of steel production) will need to close if the present renewable subsidy continues to operate and to destroy the low cost power industry Australia enjoyed just three years ago. Portland in Victoria is already on life-support following the closure of Hazelwood.
We do not know what price the Snowy board is factoring-in to allow Snowy 2 pump storage to proceed but it would be at least $80 per MWh and likely over $100 per MWh.
The irony of the Trump threats of dumping tariffs is that such measures may not be necessary – Australian politicians are far more capable of destroying our own industry than anyone in Washington.
See the full piece here.