I had a piece in the Australian Spectator on the saga that is AGL’s determination to milk the regulatory induced energy price hikes. Here is an extract
Like a border skirmish that develops into a global conflagration, John Howard’s policy to require “two per cent additional energy” be met with renewables has escalated into a measure destroying the electricity market. Back in 1998, the idea sounded good: give renewables a leg-up while they march to their inevitable destination involving cost-competitively displacing fossil fuels in electricity supply.
In the interim, an immediate bonus would be that the subsidised renewables, being virtually all sunk and no variable cost, would automatically bid into electricity supply taking whatever price they could get. This would, so all the modelling demonstrated, bring lower market prices from the get-go.
There was a shadow of guilt by those who recognised that a subsidised product, in depressing the price of coal-generated electricity with its huge fixed sunk costs would be partially expropriating those investments. Moreover, in having “must-run” characteristics the renewables’ intermittent nature imposed unanticipated stop-start costs on the dinosaurs they were to replace.
But few gave much thought to these considerations – after all, it was said, the investments themselves were made many years ago and were overdue for the scrap heap.
Then it all went pear-shaped. Once existing power stations were confronted by new costs – either because things broke or Worksafe started demanding new spending – they closed down. The fabled permanent low priced transition to the renewable future unravelled. Prices doubled in 2016 to $80 per MWh
The Liddell issue is only the latest flashpoint.
If Liddell’s continuation meant an electricity price of $10 per MWh lower than would follow from its closure, AGL was likely to forego profits of around $300 million a year.
The government’s acceptance of the closure of Liddell is one prediction that is certain to prove unfounded – there is now just too much awareness of the costs of displacing coal with wind/solar and, economic impacts aside, the political consequences of the higher cost, less reliable system this will entail.
The formerly low-cost Australian electricity system, once the cheapest supplier in the world, has been destroyed by regulatory requirements for high-cost renewable electricity. Electricity generators as beneficiaries of renewable subsidies and of the general increase in prices this has caused are complicit. And the complexity of the electricity market, the vast revenues that subsidies have created and a media ideologically disposed towards green fundamentalism has landed us in the present impasse. Patch-ups through jawboning, new forms of carbon tax, and the horrendously expensive Snowy 2.0 pumped storage cannot remedy this.