Josh Frydenberg claimed the last week in Parliament was a poor one for the opposition and the triumph for the government. He made mention of the Opposition’s inability to get Peter Dutton and its failure to deliver its preferred outcomes regarding Manus Island detainees.
He also mentioned as a success the government’s energy policy proposals. One such proposal, the “Prohibiting Market Misconduct Bill 2018”, was clearly not a success for the government. The proposal was referred to the Senate for investigation and cannot emerge from that process until the least April of next year.
Wrapped in the normal cautious verbiage about “last resort” measures, the Bill is a desperate attempt to see electricity prices reduced before the next election. To do so it forces retailers to reduce their prices and generators to ensure they operate their businesses “fairly”. With thirty odd retailers around the nation and dozens of differently owned generators, the electricity market is just about the least susceptible to the monopoly activities against which these measures were targeted. The provisions would allow the government to have the ACCC examine suspect behaviour which could result in fines of $10 million or divestiture. Divestiture is clearly aimed at AGL’s Liddell Power Station.
Among the media outlets criticising the bill was the AFR. Ben Potter assailed it as ‘socialist’. The AFR had previously not opposed the carbon tax, renewable subsidies or the NEG all of which involved the expropriation of fossil fuel generator investments. It could be that such epithets are reserved for actions against industries that do not meet the PC test!
The government’s nightmare is that its promised fall in prices will not materialise. And such fears are justified. Notwithstanding the chimeric bonanza of ever cheapening supplies of wind and solar, wholesale prices remain at double those that prevailed prior to the impact of subsidised renewables destroying the competitive market that had been developed.
And there was no sign of Australia’s supposed solar induced competitive advantage officials and lobbyists alike had promised (in fact Australia enjoys no such advantage except in the remote interior).
In addition to these wholesale costs, the market manager feels obliged to incur other costs for frequency control and system strength to compensate for the inadequacies of renewable energy in providing these essential components of a stable supply. These include compensation to gas generators in South Australia which, due to the inherent deficiencies of wind and solar, are forced to stay on-line against their wishes; such “directions” operate around 40 per cent of the time. Origin Energy maintained that the prospects of forced divestment and price controls had caused it to shelve plans for an expansion of its Quarantine gas generator in South Australia but that program would face far greater deterrence from being subject to de facto control by the market operator.
In the medium future Origin indicated a pause in its contracting for new wind as a result of the fall in the subsidy price expected from 2020. The current subsidy of over $60 per MWh (as a point of reference the total electricity price averaged $40 per MWh three years ago) falls to under $20 on the forward market for 2021/2. At that point the forward price for baseload power also shows a fall, from the current $90 per MWh to $65. But wind, aside from the costs it is able to “socialise”, needs to have firming contracts, costing maybe $30 per MWh. Such firmness would be mandatory under the reliability arm of the foundering National Energy Guarantee but would also be insisted upon by retailers in the absence of such statutory requirements.
Someone ostensibly less concerned about the effect of high prices is Sanjeev Gupta who, with the PM, the Leader of the Opposition and the SA Premier, has just announced a 10 million ton a year steel mill for Wyalla based on renewable power and financed by those ever-compliant Chinese (after, of course ,a $40 million feasibility study)! That’s twice the current Australian output. It is unclear who is supplying the power and how much it costs. But one bonus for the existing facility is promised anti-dumping action and government purchasing preferences, thereby raising all Australian steel prices!
Desperate politicians happily provide high priced protection for the favourable media publicity on the back of a mirage of future prosperity.