Politicians’ ignorance over energy provides them licence to conjure up madcap policies!

Energy remains the cutting edge of the political miasma we are living through but few of the players have an understanding of the market or government limitations on how to make it work better.  Some think the market’s travails are not caused by government and new regulations will fix it all.  Madcap ideas like price fixing and (heaven forbid!) a Royal Commission are mooted.

So what measures are needed?  At the Commonwealth level, aside from exiting the Paris Agreement (or just staying in and doing nothing), two sets of policy changes are necessary.

1. Abolish all subsidies including:

  • government direct disbursements through the Australian Renewable Energy Agency (ARENA) and the Green Bank (the Clean Energy Finance Corporation)
  • cease cross subsidies through the renewables: immediately discontinue the SRES, (roof top solar panel subsidies); cease new subsidies to wind and large scale solar under the LRET, including putting the default cost of failure to meet the obligations at zero, without which the windfarms will continue leeching subsidies from the electricity consumer for the next dozen years
  •  drastically prune the bureaucracy, including abolition of the Energy Security Board, pare the proven inefficient Canberra bureaucracy, abolish energy economic forecasting bodies in the CSIRO, defund the CO2 CRC (“helping industry to reduce greenhouse gas emissions”), and various other agencies involved in carbon capture and storage (funding of at least $200 million in the pipeline); all of these, like the renewable subsidies have amounted to negative value-adding expenditures.

2. Adopt measures to rectify the destruction of incentives to invest in energy induced by government interventions:

  •  require AGL to divest Liddell, selling it to the highest bidder
  •  set up an auction for long term government contracts for dispatchable electricity, a replacement on or near the site of Hazelwood being one with another in Queensland or NSW
  • remove any legal impediments to nuclear power, which might be a better option than coal in South Australia.

See the full piece at Quadrant.

PS RobK makes the interesting point that no forced divestiture would be necessary if the subsidies are gone since it would be in AGL’s interests to keep Liddell on or simply sell it. Depending on how the subsidies are removed this may be correct.

A further issue is how to deal with the existing wind which even if subsidies are removed with its near zero marginal costs will become “must run” facilities and disrupt the operations of dispatchable coal fired stations designed for constant operation

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30 Responses to Politicians’ ignorance over energy provides them licence to conjure up madcap policies!

  1. Obituary
    Today we mourn the passing of a beloved old friend, Common Sense, who has been with us for many years.

    No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red tape. He will be remembered as having cultivated such valuable lessons as:

    – Knowing when to come in out of the rain;
    – Why the early bird gets the worm;
    – Life isn’t always fair;
    – And maybe it was my fault.

    Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).

    His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.

    Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children.

    It declined even further when schools were required to get parental consent to administer sun lotion or an aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.

    Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims.

    Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault.

    Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.

    Common Sense was preceded in death,
    -by his parents, Truth and Trust,
    -by his wife, Discretion,
    -by his daughter, Responsibility,
    -and by his son, Reason.

    He is survived by his 5 stepbrothers;
    – I Know My Rights
    – I Want It Now
    – Someone Else Is To Blame
    – I’m A Victim
    – Pay me for Doing Nothing

    Not many attended his funeral because so few realized he was gone. If you still remember him, pass this on. If not, join the majority and do nothing.

  2. RobK

    Thanks Alan. Well spoken. The only bit i would question is, if the incentives for RE were quashed, I doubt you would need to force AGL over Liddel. They would make a normal commercial decision.

  3. John Brumble

    Haven’t you heard the latest leftist talking point, Alan?

    “Sure, OLD coal was cheap, but that was because it was built by the government and now all those power stations are end of life. New coal is more expensive than renewables.”

    This ignores, of course, that until now the left was claiming ALL coal is more expensive. And from now on, this new mantra will be consider to always have been. We have always been at war with … after all.

    For a visiting audience:
    1) Government may have paid for it, but they tecouped much of that investment in the early years and then recouped the remainder plus when government SOLD it.
    2) The cost of new coal and renewables have been taken from the latest far-left calculation.

    PS: loved how John Faine was this morning claiming that Corman’s change of mind was all a Murdoch conspiracy, exactly at the same time as Corman was visiting Trumble.

  4. JohnL

    In addition to the above do the following:
    1) Purchase/nationalize “polls and wires” – distribution network.
    2) Establish a tender scheme were the “generators” will tender to supply the power to the grid at the best price – cost of generation + profit.
    3) Divert the funds saved from abolishing of “renewable scam) for construction of new generation plants – coal, nuclear, hydro, wind or solar.

  5. If ruinable energy is now ‘as cheap or cheaper’ than coal, then why are the subsidies removed (rhetorical question)? Why aren’t more of our sensible politicians posing this question all the time? Those politicians that aren’t climate worriers need to voice some facts to the public to make them think and realise what this ruinable energy boondoggle is all about.

  6. Bruce of Newcastle

    Alan – I would add removing environmental, indigenous and state government impediments to the exploration and development of oil, gas and coal mining projects. And likewise remove impediments to hydroelectricity projects.

  7. Entropy

    I believe the NEM should also be dismantled. It would expose the duplicity of state governments’ energy policies and be their problem to fix. SA and Vic in particular would have supply problems.
    It would cause a revenue problem for Queensland no doubt. On the other hand the non government sector in Qld would boom as prices rapidly fell in that state. The only trick would be effective border control keeping the southern refugees out.

  8. Rafe Champion

    Unreliables doing 8% of demand on a nice sunny day in NSW approaching noon.
    Oh well, “every little helps” as the old swimmer said as he pissed in the sea.

  9. Genghis

    Alan,
    Yet another good article BUT no mention of Nuclear Energy the only long term base load generator that does not increase life giving CO2. Europe has high and low cost producers, the high cost are Germany and Denmark with their preponderance of renewable (wind) generators. The low cost are Norway and France, Norway with its hydro and France Nuclear. The stupidity is our Progressives refuse to believe this data but perhaps they cannot read!
    We can build SMR at the sites of coal stations where the transmission lines occur.
    It is starting to occur to me that sanity is in increasingly short supply – the stupidity of Progressives is extraordinary.

  10. Genghis

    Further to above:
    Last 13 days of April wind farms output ,10% of capacity for 25% of the time.
    Progressives want to put another cable under Bass Strait, obviously cannot remember 18 months ago when Tasmania ran out of water.
    It’s a bit like Frydenberg announcing last year that Australia could have a $100bn agricultural industry, whoops he forgot Australia has droughts – I despair!

  11. H B Bear

    Royal Commission into the electricity and gas markets is a bloody good idea. The NEM has been gamed since it was established. Gas market dysfunction is more due to the Gladstone LNG debacle and State government laws on exploration and fracking.

  12. Justin

    I think there needs to be a third policy and that is that States / Territories that either inflate economy wide costs (hence undermining the efficient price of services) or retard revenue generating opportunities will be penalised under HFC arrangements under the GST. You need to penalise states going rogue with their own renewables schemes. Mendicant states should not be subsidised by productive states from sabotaging their economies. The point of HFC was not to reward a race to the bottom but provide a safety net for less prosperous or populous states. Instead it has institutionalised welfare dependency in SA, TAS and NT and QLD is not that flash either. If Vic turns its back on affordable energy and gas export opportunities then it too should be penalised. We need to reward success not failure under the GST.

  13. Rafe Champion

    Not much wind about today apparently, W&O down to 7%.

  14. Barry Bones

    So Alan – you are advocating forced divestures ???

    I thought this was a libertarian blog.

    Mate – get your socialist idea outta here !

    The reality is that renewables with firming is now cheaper than coal and baseload gas, and the smaller projects better align with retailer needs of generation supply-demand matching.

    Subsidies or not, coal is dead – time to face up to it !

  15. John of Mel

    I would add removing environmental, indigenous and state government impediments to the exploration and development of oil, gas and coal mining projects. And likewise remove impediments to hydroelectricity projects

    I think the better approach would be to end the current selective federalism (we want to ban fracking, but still want to get money from the more productive States) and re-introduce the real competition between States. This way they will be responsible for their own “fundraising” and will think twice before rolling out more green and red tape and blowing up cheap sources on reliable electricity.

  16. RobK

    BB,
    I’m so glad you see there is no need for any subsidies.

  17. John of Mel

    of reliable electricity

  18. Snoopy

    From the Herein Lies Another Problem thread:

    BoyfromTottenham
    #2797549, posted on August 23, 2018 at 10:45 am
    For what its worth I sent an email to Dutton yesterday suggesting that just reducing the $65/MWh certificate shortfall penalty in the LRET legislation to $0.01/MWh would be easier and achieve not only a similar reduction in electricity prices by stopping the $85/MWh subsidy from consumers to ruinables, but would also allow base load generators to be profitable again. But will he do it, or mess around with the GST instead and by default let the LRET subsidy destroy our baseload fleet?

  19. jupes

    The reality is that renewables with firming is now cheaper than coal and baseload gas, and the smaller projects better align with retailer needs of generation supply-demand matching.

    So you agree that “renewable” subsidies are no longer needed.

    Well done Bazza, you’re learning.

  20. Barry Bones

    Absolutely – no subsidies.

    But there is this rump that is pro coal (which includes Alan)

    Being pro coal when it’s more expensive, just doesn’t make sense to me.

    Also, Power prices were set to come down with the regulator reducing returns and new generation enetering the market. But with all these policy tweaks, it’s putting off investment. Government just cannot leave we’ll enough alone.

  21. Alan Moran

    No subsidies Barry Bones. Does that include reducing the LRET default to zero?

    If new power is cheaper than coal – as the RenewEconomy crowd maintain (without advocating the corollary of subsidy elimination) then there was never any need for the NEG and the RET can be closed immediately

  22. RobK

    Also, Power prices were set to come down with the regulator reducing returns and new generation enetering the market. But with all these policy tweaks, it’s putting off investment. 
    BB this is inconsistent with your assertion of “no sudsidies”. If RE was cheaper then it would proceed regardless. Your concept of firming is questionable too. Firming can mean any time scale from sub-seconds to weeks. To be dispatchable it has to have ability in all those time scales. RE is a long way off being dispatchable (other than hydro where conditions prevail) at a competative price.

  23. RobK

    It seems to me that BB thinks that the RET, at twice the cost of coal, is not a gift or subsidy to RE. It is contrived by regulations to favour short lived, wobbly and randomly intermittent energy of low use, especially without vast expenditure on storage, transmission, instrumentation and control equipment, all over and above what a baseload regime requires.

  24. Rafe Champion

    No need to feed the troll.

    Amazing, Wind and Other near .740MW, the lowest I have seen, and peak demand for the day 26MW Wand O under 3% of demand.

    Cook your dinner on that Barry:)

  25. Barry Bones

    Somebody offering a different opinion is not “feeding the troll”.

    I said, I agree – there should be no subsidies. But neither should there be forced divestures, which is right out of the Soviet playbook !!

    But even without those subsidies, coal is not competitive – it’s that simple.

    No operator is developing coal – if you disagree, build a plant yourself.

    That is, put up or shut up.

    And Alan, you well know that LGC futures are trading for blot. So there’s not much of a subsidy there in any case.

  26. Barry Bones

    Oh and Rafe – so there was less wind.

    Did the sky fall in ???

    No, because of gas firming.

    Gotta lose the chicken little routine my friend.

    Just embarrassing !!

  27. Rafe Champion

    Getting out of unreliables in the USA.
    China as well.

  28. Alan Moran

    Barry Bones conversion to deregulation is refreshing. After years of promoting renewable subsidies he now calls for their end citing very thinly traded 2022 contract prices as evidence that they are not needed (they have already driven up spot prices from $40 to $80 per MWh so they only now need a RET at $40 to allow profitability). There are several firms wishing to invest in coal generation Sunrise/Delta and Alinta have already said so but I expect the green left to be up on the ramparts protesting and disrupting Adana-style once such a project gets the go-ahead.

  29. Barry Bones

    Conversion after years of supporting renewable subsidies? Huh ?

    I’ve never supported subsidies.

    Alinta’s doing a lot of renewables. They make comments now and then about coal, but it’s only to curry favour with the Libs / seek subsidies- they ain’t building anything.

    No one will build coal power – it’s too expensive- fact – don’t hate the messenger !

    But forced divestures is communism – pure and simple !

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