The third world nature of Australia’s electricity industry was revealed this week with wholesale prices in Victoria and South Australia at the maximum $14,500 for lengthy periods in spite of thousands of customers being cut-off, major users agreeing to shut down demand in return for compensation paid by consumers, and even some oil plants being called in.
The causes are clear. For twenty years, Australia has embarked upon a subsidy program for intermittent, unreliable and costly wind and solar. This is accompanied in Victoria and South Australia (and perhaps now in Queensland) by outright hostility to coal, the form of power that had given the nation the lowest cost and most reliable electricity in the world.
As I said in a previous post, there has been no shortage of spending on electricity generation
Over the past decade, we have spent $70 billion on wind and solar. That $70 billion is enough for 12 new coal generators that would give us electricity with a wholesale cost of one third that of the current level. Instead we have been closing down the more economical coal fired power stations because renewables, two thirds of the costs of which are covered by subsidies, are making them uneconomical.
Not one cent of the $70 billion spent on wind and solar would have occurred had it not been for the subsidies. Those subsidies – renewable energy schemes, the Green Energy Bank, direct support from the Commonwealth and state support measures – are running at $5 billion a year.
The subsidies to this activity had (as intended) an adverse effect on existing unsubsidised supplies. It meant coal generators were only marginally profitable and ultimately brought about many coal plant closures, chief among which were the 540 MW Northern plant in South Australia and the 1600 MW Hazelwood plant in 2016/2017 (an additional factor for Hazelwood was a punitive tax increase by the state government). Would anyone seriously argue that the replacement output we got from wind/solar, which supplied only 4 per cent of electricity in SA and Vic yesterday, was adequate compensation, even without the $70 billion cost?
The subsidy-seekers blame our ageing coal plant for the lack of reliability and coal plant did feature in this week’s debacle – one of the Victoria’s remaining eleven major units developed a fault and another was undergoing scheduled maintenance. But such claims by the renewable lobby overlook the fact that renewables are intrinsically unreliable – which is why they are referred to as ‘intermittent’ and ‘non-dispatchable’.
Long lived infrastructure is common. Roads, rail, wharves, are in place for decades – even centuries. But, like grandfather’s axe, they are modified and improved over time. At one stage, in a rare Victorian ministerial visit to Hazelwood in 1995, the staff thought we had come to announce its closure (it was actually originally scheduled for replacement in 2003). Hazelwood went on for another 20 years with relatively minor investment and would have continued operating under different circumstances.
Eventually, repair and refurbishment does become uneconomical and the older plant is retired and replaced. But in Australia the renewable subsidy and government hostility has meant profitable coal plant cannot be built, while gas faces the problem of governmental action against fracking (and all exploration in Victoria) which has prevented new supplies being developed.
While in the past, even with excess supply created as a result of efficiency gains under the post 1995 privatisations, there were plans, some of which eventuated, to expand or renew coal and gas supply. But the last coal plant was built in 2007 (two gas plants were built 10 years ago). It now seems that no new plant can be profitable without some form of governmental support. In a classic of policy madness, the government now needs to provide a subsidy to allow reliable plant to be profitable against subsidised and unreliable wind/solar.
While the ALP and The Greens have been the key political parties conspiring to this sabotage of the Australian electricity industry, the Coalition is not without blame – John Howard introduced the first subsidies and Tony Abbott might have done more to reverse the process. Scott Morrison still could do so. The destruction of competitive electricity supply has ramifications across the entire economy. To rectify the damage, ALL subsidies to wind/solar should be terminated immediately, including those which have previously been ‘guaranteed’.