A piece of mine in the Spectator on-line addressed if and how the re-elected government might extract the nation from the parlous circumstances energy and climate policy measures have created for the nation.
After recounting all the enmities that Minister Angus Taylor had unearthed within the industry, I continued
With all these protagonists Taylor is clearly doing something right. Chief among these is building upon Frydenberg’s attempt to restore legitimacy to coal by providing some form of government support. This had become necessary because politics, having undermined the market, now needs to bolster coal in order to provide increasingly necessary firm power (which it can do far more cheaply than gas as a result of state policy driven regulatory induced shortages) and the risks to new investment by additional subsidies to renewables bringing further penalties on fossil fuel generators.
Taylor avoided the “C word” in re-legitimising coal, opting instead for the “F word” – calling for “firming” capacity. But this subterfuge contributed to his losing control of the agenda. His long list of 66 proposals included 10 involving coal, but he subcontracted short list’s preparation to his department, which having swallowed the kool aid of renewables, whittled down the targets to 12 only one of which included any reference to coal.
Since his re-appointment in a more extended portfolio, Minister Taylor has moved to clarify his position. He has announced a reliability requirement on generators. This is actually unnecessary since both retailers and generators have tremendous incentives to avoid exposure to very high prices. However he has used these requirements to demand AGL’s NSW Liddell plant be kept in production or expanded. He has also signalled support for a new coal plant at Collinsville as well as for refurbishing Vales Point in NSW.
But, uncertain though the coal expansions are, he has many other problems in re-creating the low cost industry that previously prevailed, not the least being state governments refusing any retreat from green policies. In addition, his refusal to end the subsidies to renewables on grounds that they are no longer costly is ill-advised and not borne out by the data.
For the wholesale market Mr Taylor is targeting a $70 per MWh price for 2022, which is hardly ambitious, being one third above the level that would prevail if coal had not been demonised and comparable to the baseload futures price. While recognising the fundamental issue is state government opposition to new coal plant and to new gas developments, he has reiterated his intent to address phantom issues of “manipulation of wholesale markets, price gouging in the retail markets and derivatives market”.
Meanwhile, the regulators are confronting the damage to reliability that the displacement of coal has caused. The market operator, AEMO, is calling for new expenditures to offset the deleterious effects on grid reliability caused by household and other small-scale weather-dependent generating facilities and its forecast coming exit of coal plant. Unfortunately, AEMO does not suggest those facilities causing the increased risk to the system should be required to incur the resultant costs. Such an outcome may however be required as a result of reviews the AEMC, the rule-making body.
It may be possible for the policies being promoted to avoid a further reduction in the industry costs. But even then, it must be inevitable that the new cost levels will mean the departure of the energy intensive industries like smelting that were originally attracted to Australia by low cost electricity. And the cost uplift will further challenge the competitiveness of most other industries that transform basic mineral and agricultural resources.