Energy policy takes center stage

The action is getting hotter on the energy front.  Having been in a small minority for years, readers and writers on catallaxy are now finding themselves closer to the mainstream on the policy on energy/climate.

To recap, the recent initial incendiaries were thrown by backbencher Craig Kelly in forming the Monash Forum and calling for the abandonment of the renewable energy subsidy policy which is destroying the competitive fibre of the economy.  Unnerved by the whole process Mr Turnbull then moved once again to gently suggest to AGL that it might defer the next planned power station closure (Liddell in 2022).

I covered the developments here and Judith covered them here in a critical article about the market regulator Audrey Zibelman that brought Ms Zibelman to castigate the AFR for alleged misrepresentation (not that this caused the AFR to pause in its rooting for renewables and claiming AEMO as a cohort).

AGL rejected Mr Turnbull’s legendary persuasiveness.  It now claims precedence over the government as the nation’s social arbiter, saying the closure must go ahead since Australia must reduce its greenhouse gas emissions.  Some part of this is a rationalisation for the huge profits AGL earns from closing down capacity and boosting prices – the firm earns 80 per cent of its profits from the coal that it demonises.

The momentum is continuing.  Following the 30th Newspoll, Tony Abbott’s pollie-pedal charity ride passed by the Hazelwood plant, the closure of which, stemming from government policies, has forced a near doubling of wholesale electricity prices.  Mr Abbott first suggested that we ought to be tougher on AGL then argued for a forced acquisition.  Discovering his inner liberalism, the PM dismissed this as alien to the free market capitalism he said he espouses.

The forces are arraigned.  Some on our side take the Turnbull line and, overlooking the history, call for policies involving termination of subsidies and suspension of the Paris Agreement on which, via the National Energy Guarantee, the next round of subsidies to renewables is to be based.

Others, including Terry McCrann point out that Liddell has assumed the position of being an essential service and the Constitution (in fact every government constitution) would allow for the acquisition of such a facility.  As he points out this must be on “just terms” but, as AGL values the facility at virtually nothing, those terms should be set low and the government could then dispose of Liddell to one the interested parties (three groups have already emerged).

The ALP is having a ball hoisting the Coalition on its free market petard.  But they are likely to be in office come 2022, and if by then they recognise that the plant’s closure would bring increased prices and lower reliability, they would not hesitate in taking it over.

Power prices stemming from governmental sabotage of the electricity industry are now the hot button issue.  They, or their corollary, climate change ideology, brought down Malcolm Turnbull from the Liberal Party leadership in2009.  Abbott as PM, aside from abolishing Gillard’s carbon tax was unable to do anything to mitigate the renewable policy’s erosion of electricity competitiveness but now says he would act differently.

Turnbull could change policy and abandon the renewable policy and the Paris Treaty he ratified the day after Trump, its avowed enemy, won the US Presidency.  But his judgement is so poor, as evidenced many times (refusing to drop climate policy of 2009, Grech, Don Dale, 2016 ratification of Paris, Snowy2), that he is incapable of doing so.

The alternatives outcomes are therefore that

  • the Coalition slouches to the next election with Turnbull and present policies and loses to a Shorten Government so radical on energy, spending union power that will perhaps push us towards the Venezuela outcome
  • the coalition under Turnbull actually wins the next election and we continue the gradual decline that is the inevitable outcome of following Labor-lite policies
  • a leader (Abbott, Dutton or some other conservative) takes over, suspends the Paris Agreement, removes all tariffs, encourages new coal based power station construction as well as pursuing other deregulatory, expenditure reducing measures. Then Australia becomes what it should already be: the most prosperous country on earth.

Does the electorate and political leadership have the capacity to allow the third development?

 

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34 Responses to Energy policy takes center stage

  1. Myrddin Seren

    Turnbull could change policy and abandon the renewable policy and the Paris Treaty he ratified the day after Trump, its avowed enemy, won the US Presidency.

    Every single f**king pronouncement by Turnbull and his lickspittles starts with:

    ‘We will meet our Paris commitments..’

    and then some blatantly obvious BS about energy prices and reliability.

    Turnbull is totally and utterly beholden to the UN on Climate Change and reducing our energy supply to pre-industrial levels. Sun…shine, wind…blow, we live for another day.

  2. wal1957

    Ditto wot billie said.

    We have no political leadership in this country. Vote chasers yes, leaders – no.

    The electorate have allowed themselves to be brainwashed. They have been fed a daily diet of crap and have swallowed the bait.

  3. Dave of Reedy Creek, Qld

    We desperately need to get rid of the current PM. He is a train wreck as a leader, I cannot think of one thing he has done in governance that has benefited our nation. The polls are claimed to say that people want him to stay….probably the left especially want him to keep his position and would be affirming him as leader so their mob can finish what Rudd and Gillard started.
    Get Abbott back, we have nothing to lose! He would be head and shoulders over Turnbull. Plus while we are at get rid of the treasurer and get someone with a brain. We are not all so stupid as to believe the feigned ignorance and mediocrity of this pair.

  4. Rob MW

    Power prices stemming from governmental sabotage of the electricity industry are now the hot button issue.

    Alan – a huge understatement. Anecdotally, my farming business, all told, from two years ago paid about $6k per quarter for power. I just finished paying this last quarter power bill which came in at well over $14k.

    It really has passed the point of arguing anything about the efficiency of free-trade and competition, on any level, because the fact is that Australia’s over the top domestic cost of producing anything has reached the point of no return, that’s not simply diminished, it’s totally fucked and for the most part, by suffocating Government interference and regulation.

  5. Dave in Marybrook

    Radio news had Dutton declaring that he wanted to be P.M. sometime in the future.
    Bring it. Self made man, a man per se, history of service- everything Gramsci’s guttersnipes hate, just like Tony was, and they were apopleptic to the point of paralysis for years.

  6. RobK

    To me, the issue is straight forward.
    Coal should be utilized where coal is. Nuclear should be utilized where it is sensible (say at Roxby), where there’s a baseload demand and other fuel is scarce. Solar and wind have some utility around the edges eg. Agricultural. Doing this will mean, by default, a lower CO2 emmission (for what it’s worth), simply because fuel hungery, large minesites and like will be nuclear if they are remote. RE will happen at niche sites where they might be economic. No subsidies required. No need to experiment with the grid. No need to risk stratigic security. It’s simple.

  7. Leo G

    The alternatives outcomes are therefore that

    (1) the Coalition slouches to the next election with Turnbull and present policies and loses to a Shorten Government so radical on energy …
    (2) the coalition under Turnbull actually wins the next election and we continue the gradual decline
    (3) a leader (Abbott, Dutton or some other conservative) takes over, suspends the Paris Agreement …

    Outcome (3) can only occur if a majority of the PM’s parliamentary party colleagues are convinved that a significant proportion of voters who have consistently voted Liberal will vote Labor at the next election if Turnbull remains leader.

  8. max

    The thing is so many interests are locked in to the continuation and expansion of renewables. Union super funds, forward thinking progressives everywhere, academics, journalists, the ABC, Turnbull’s son making a motza – they all have staked fortunes, reputations and careers on the shiny new stuff.

    They’ll never give up.

  9. RobK

    Packaged correctly, with the dog’s breakfast prevailing at the moment, a leveraging to the acceptance of nuclear and an acceptence of high efficiency coal could turn the economy ship around to something better than we had, all be it at an unfortunate cost. It’s certainly high time to put this crazy energy capper behind us.

  10. cohenite

    billie

    #2682648, posted on April 9, 2018 at 9:38 pm

    no

    Yep.

  11. DaveR

    Does the electorate have the capacity to understand the third development is the only option that can preserve the Australian way of life?

  12. Faye

    President Trump is cutting through the impossible in America. Tony Abbott should get a go to do the same here (with Dutton alongside). Tony’s last two and a half years of listening, observing, judging and planning would have strengthened his loins and cleared his head.
    Also the POTUS would appreciate PM Abbott to deal with rather than you-know-who.

  13. IRFM

    A little bit of history – at one stage all of the base load power supplies were built by governments mainly state. They combined built a grid to improve the distribution. Somewhere the whole game changed. We saw the introduction of gas peakers which became increasingly necessary as the subsidised renewable began to have an effect. Or did they. There is no base load gas just coal. Compare to the USA where for a long while it was compulsory for coal fired power stations to have a standing 10% minimum gas base load capacity. This underpinned the development of the CBM/CSG industry in the US. No such regulation here to achieve the same end. The gas peakers are a wonderful source of profit – rarely used but when in use enjoys amazing returns for a complex piece of machinery that is idle about 90% of the time. So if you are are going to ameliorate the market excesses then you are going have to increase the base load capacity by a combination of coal/permanent gas/nuclear. All have new technology. Heading towards a base load defined grid means wiping all spasmodic mini suppliers. Those old enough can remember the MFG plants in days of yore will remember their fate. They (MGP) were eliminated by the influx of bulk electricity supply as the MGPs were an expensive source of power in local markets. And so history is repeating itself through the renewables fad.

  14. Viva

    they all have staked fortunes, reputations and careers on the shiny new stuff.

    Yes. It’s not even about climate change anymore.

  15. jupes

    Billie is absolutely correct I’m afraid.

  16. RobK

    IRFM,
    Some of the new baseload designs have better load following ability than the older units.

  17. W Hogg

    Lets put it in terms the SLF can understand.

    A private hospital operator buys up all the hospitals – private and public. Having become the largest, it then announces bulk closures. The land is more valuable for other stuff – schools, housing, pools, shopping centres. All socially useful – who can object to schools? But then the price of hospital access quadruples. Health insurance covers what it always did, but gaps are 75%. People are bankrupted, forgoing essential care, or dying in their thousands.

    What do you do?

  18. Bruce of Newcastle

    I think there is a very good case for ACCC and ASIC to step in and require AGL to divest Liddell.

    The reason is that AGL effectively has a monopoly of gas supply. Their transparent strategy of closing Liddell feeds that monopolistic behaviour by requiring gas turbines to balance the intermittency of renewables they intend to replace Liddell with. Gas has to be used when the wind is not blowing (often, especially in NSW) and the Sun is not shining (at night).

    Because AGL has an effective domestic gas monopoly the result of Liddell’s closure will be to cause an increased shortage in the domestic gas market, which is already severely under pressure due to ‘lock the gate’ activism preventing domestic sources to be developed.

    So AGL will benefit enormously when the gas price rises. They will be able to bring in LNG from the Gulf and make awesome profits.

    That is clear monopolistic behaviour – just what ASIC and ACCC usually come down on like a tonne of bricks.

    The clear answer, seeing that there are already bidders for Liddell, is to require AGL to sell the asset. Failing that they can be investigated, fined and outlawed if they do not repent.

  19. Elizabeth (Lizzie) Beare

    “They all have staked fortunes, reputations and careers on the shiny new stuff.

    Yes. It’s not even about climate change anymore.”

    Climate change is the hanger on which they have hung their rip-off coat. So they have to keep the momentum high about this. Given the forces lined up in promotion of it neither side will drop it; so the election becomes a toss up between Labor’s Free Stuff and Green Malcolm’s so-called ‘steady hand’. Either will be disastrous for Australia but unless some people somewhere amongst the Libs get truly serious, and there’s no sign of that arriving in time, we are circling the plughole. Option 2 is the most likely, with another cliffhanger result, which means a policy change on energy is made more difficult to achieve before serious and unrecoverable economic damage is done. If Labor win, we are in real trouble for much longer. Ginger groups such as PHON and the Australian Conservatives are the only way to express growing dissent and have any sort of political arm or voice regarding policy.

  20. Does the electorate and political leadership have the capacity to allow the third development?

    That time has passed.

    Too late.

  21. It’s hilarious how quickly the Right have thrown away their Free Market principles over this one. Liddell is a shit plant but you can’t let it close because it means climate change is real. What a perverse way of doing things.

    How will this be any different to Muja AB in Western Australia? It will be a flaming money pit. Liddell has run at half power for a decade, but sure fix it up and run it for an additional 5 years.

    Why not reopen Hazelwood? Why didn’t you try and keep Wallerawang open?

  22. manalive

    Turnbull could change policy and abandon the renewable policy and the Paris Treaty … but his judgement is so poor …

    Besides he would have to run it past the boss first.

  23. OldOzzie

    NICK CATER
    Liddell closure: our energy farce won’t fix itself

    What was the AGL board thinking when it agreed to buy Macquarie Energy from the NSW government? Did no one tell them they would be stuck with two coal-fired power plants, accounting for almost a quarter of NSW’s generating capacity? Now AGL plans to shut one down to show how serious it is about our commitment to the Paris climate accord.

    This virtue-signalling will leave an 850 megawatt shortfall in the National Electricity Market. It will mean higher prices, less efficiency and less reliability, the energy market regulator warned last month. But that is AGL’s problem as the rules now stand.

    The farce over Liddell is proof, if any more were needed, that the energy market won’t fix itself. The biggest public policy failure since Federation has twisted incentives to the point where AGL is prepared to scrap, rather than sell, an asset it no longer wants. Chief executive Andy Vesey says the company has adopted “an anticipatory mindset”.

    Indeed. It appears to be anticipating the election of a soft-headed Labor government that will revive subsidies for wind and solar hastening the end of coal. It falls to a Liberal government to fix this problem by 2022. But how?

    A new HELE (high efficiency, low emissions) coal-fired power station on a brownfield site might do the trick for $2.2 billion if the government stumps up the money and starts today. We have learned to be wary, however, of kneejerk policy reactions. The first step, frequently skipped these days, is to establish the nature of the problem to be fixed.

    It is a different problem than the one we faced 10 years ago, thanks in large part to expensive government subsidies that have increased capacity, albeit intermittently, at the mercy of the weather. Millions of solar panels in particular have made demand more “peaky”, reports the Australian Energy Market Operator.

    The fall in daytime demand in the wholesale electricity market has been dramatic; the flip side is a sharp spike in consumption when the sun goes down. If there were enough storage in the system to cover that peak, the challenge would become somewhat easier.

    In the short term we must retain all existing baseload capacity, and arguably increase it. Coal will provide the bulk of our energy for decades, but we should not close our minds to other options.

    The business case for pumped hydro, for example, is strengthening. Its storage capacity makes the world’s biggest battery in South Australia look like an oversized phone charger. Megawatt for megawatt, Snowy 2.0 could release peak energy far more cheaply and in far larger quantities for a week at a time.

    Providing it is backed with a transparent cost-benefit analysis and long-term costs can be carried by the private sector, Snowy 2.0 could be a better solution to the current shortfall than new coal.

    That sort of big decision is better made by the market than governments. Which brings us to the case for the National Energy Guarantee, to which states and territories will be asked to sign up later this month.

    The AEMO sees the NEG as a key part of the solution to spiky demand, along with changes to pricing mechanisms.

    Under the NEG, generators of intermittent wind and solar would be obliged to make up the shortfall in supply when the weather lets them down.

    AGL, for example, would be free to replace Liddell’s coal power with windmills, solar panels, hamster wheels or whatever it wants, so long at it carries the cost of filling in the gaps in supply.

    Only a numbskull would reject the NEG, with its potential to restore sanity to the energy market. A return to subsidies, whether for conventional power generation or renewables, would be a damaging policy reversal.

    Energy Minister Josh Frydenberg’s great achievement in the government’s response to the Finkel review was to phase out rent-seeking and insist generators pay their own way.

    AEMO agrees that the market-driven approach enshrined in the NEG is the key to meeting the shortfall caused by the closure of Liddell.

    “(The NEG provides) a market approach that allows multiple other participants to compete to invest in a variety of resources that can address the reliability deficit to produce the best overall outcome for consumers,” AEMO says.

    “These resources can include new supply, demand-based resources, efficiency gains and transmission investment that increases import capability and better util­ises resources in other regions.”

    AEMO sees December as the deadline for agreeing to the NEG. Beyond that there will have to be what AEMO calls ominously “an alternative approach”, one that requires more expense and heavier government intervention to produce a less perfect solution.

    Since the name of Sir John Monash has recently been dragged into the policy discussion by those committed to building a coal-fired power station whatever the cost, we should ask what, if anything, we can learn from the example of a brilliant military ­tactician and imaginative civil ­engineer.

    Monash was an early investor in the new technology of re­inforced concrete that became available in the late 19th century.

    In 1904, Carlton Brewery in­vited tenders for 21 steel malt tanks at its Swanston Street brewery in Melbourne. Monash tendered a proposal to build them out of concrete instead, arguing it was more suited to the purpose.

    Australia’s first concrete brewing tanks lasted more than a century, serving as a shining example of an innovative, technology-neutral approach to problem-solving — and demonstrating that there is more than one way to brew good beer.

    Nick Cater is executive director of the Menzies Research Centre.

  24. Alan Moran

    evil cricket
    If Liddell under one of its three suitors would be a money pit why is anyone standing in the way of allowing them to lose that money? Oh right – because taking over a plant that AGL values negatively, due to its closure ramping up the price of electricity, would reduce electricity prices. That can’t be good can it?

    On the other hand all those green energy subsidies, without which you could not earn a living, bring the sort of benefits we see in the increase in electricity prices coincidental with the increase in subsidised renewable energy.

  25. Mark M

    1600 – 1601.
    At this point, what difference would it make?

    A new coal war frontier emerges as China and Japan compete for energy projects in Southeast Asia

    Frederick Kuo says Southeast Asia’s appetite for coal has spurred a new geopolitical rivalry between China and Japan as the two countries race to provide high-efficiency, low-emission technology

    http://www.scmp.com/comment/insight-opinion/article/2139667/new-coal-war-frontier-emerges-china-and-japan-compete-energy?utm_source=CCNet+Newsletter&utm_campaign=e173cecd48-EMAIL_CAMPAIGN_2018_04_03&utm_medium=email&utm_term=0_fe4b2f45ef-e173cecd48-36409661

    The more than 1,600 coal plants scheduled to be built by Chinese corporations in over 62 countries will make China the world’s primary provider of high-efficiency, low-emission technology. 

  26. Bruce of Newcastle

    Evcricket – Refurbishment of Liddell would be spectacularly economic. Much of the capital equipment has a lifetime far beyond 50 years – like the electricity high tension lines, cooling water pipework and dam, buildings, cooling towers etc. A refurbishment project would cost well under a billion and extend the life 30 years easily.

    Liddell is producing electricity for around $20/MWh (from this link). The average wholesale price that they get is probably around $70/hr. So they receive a fifty dollar note in cash profit for every MWh they sell – when they’re allowed to. That is something around $800 million per year of cash. A billion in refurbishment would be paid back in 15 months.

    It’s a no brainer.

    That AGL is refusing means that they think they can make even more money off their gas monopoly, by predating on gas users and electricity consumers.

  27. Boambee John

    Lizzie at 0731

    serious and unrecoverable economic damage

    Germany and Japan were totally devastated in 1945. They recovered. It takes hard work and good leaders. Too many Australians lack enthusiasm for the first, at least at present, though that might change when the free stuff runs out along with the rest of the economy.

    The lack of real leadership is the problem.

  28. Dr Fred Lenin

    We won’t get anyone to invest in new coal fired energy as long as the career polliescum interfere in the energy policy ,which of course they don’t understand ,but they understand preference votes .
    Just a thought on the Batman bye election the voters preferred the member of the welfareist loving corrupt union mafia over the representative of the lowest middle class public serviceemployees ,cultimulturist u.n.communist supporters by under two percent ? A massive victory for the mushroom workers best mate .

  29. manalive

    Monash was an early investor in the new technology of re­inforced concrete that became available in the late 19th century…

    That’s ridiculous, there is no parallel to be drawn between reinforced concrete and so-called renewables, not least because it’s rapid adoption wasn’t a result of government diktat and subsidies but because of its obvious advantages, it was more flexible and cheaper than traditional masonry.

  30. BoyfromTottenham

    I wonder if Turnbull has actually read the Paris Agreement that our government ratified in Nov 2016, but the rules of which have not yet been agreed, and which don’t come into force until 2020? As far as I know there are no penalties for not meeting our ‘target’ for GHG reductions, other than being ‘named and shamed’. Big deal! Talk about ‘virtue signalling’!

  31. Kneel

    “That AGL is refusing means that they think they can make even more money off their gas monopoly, by predating on gas users and electricity consumers.”

    I still think they are refusing to sell and/or upgrade on the belief that if they hold out long enough, the govt will stump up the upgrade costs “for the public good”. Longer life for the station, no cost to them if they can pull it off. And they still get to charge more for gas locally, and use that to subsidise their gas export price.

  32. Mother Lode

    But then the price of hospital access quadruples. Health insurance covers what it always did, but gaps are 75%. People are bankrupted, forgoing essential care, or dying in their thousands.

    What do you do?

    Bill Shorten?

    Well, you either introduce a law that ensures politicians health bills are to be funded from the public purse into all futurity, there being no caps or obligations. If you are in opposition you suggest it to the sitting PM who will enthusiastically introduce a law they they too will benefit from.

    Then, you use every opportunity in parliament to blame the other guy.

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