I have an article in the Spectator on-line which traverses the disaster that has been created in the energy market with renewables and gas search restraints. The result has been the dearth of new investment in reliable power, with $72 billion spent on negative value-added wind and solar.
As a result we have seen a doubling of wholesale prices leading to even more desperate efforts to paper over the cracks, most of which, like price controls, exacerbate the problem. Compared with prices at wholesale now at about $100 per MWh (compared to under $40 just a few years ago) new wind and solar offer no relief and while new coal generation can be as low as $40 per MWh the sovereign risk created makes this unviable; the only paliative of any merit, short of dismantling the ediface of subsidies, is some form of subsidy to new coal to countervail that in place for wind/solar.
The malaise is further compounded by the assault on coal through the courts, politicians and agitators within those representing institutional investors.
Almost all the portents for the immediate future of the Australian energy system (and hence for the Australian economy) are negative. Aside from the minor conservative parties and a handful of Coalition politicians, the politics is driven by focus group analyses which report people being in favour of ‘free stuff’. There is little stomach for leadership by politicians who either support the prevailing ideology or, valuing their careers above the public good, prefer not to explain that the free stuff is both paid for and undermines the low cost electricity from which Australia should be benefitting.
Sub-optimal economic performance is therefore set to continue.
Longer term relief for Australia may have to await the results of the outcome in strong economic performance stemming from the leadership that President Trump is demonstrating in abandoning costly measures that require suppression of carbon dioxide emissions. Trump has shown commendable scepticism about climatic catastrophism. Moreover, he has recognised that actions by the US – indeed the entire western world – can have no climatic effect in view of the explosive growth of India, China and other developing nations, growth that is powered by fossil fuels, the resulting emissions of which now dwarf those of the rest of the world.
Trump’s leadership is already paying dividends with US growth outpacing that of other developed countries. Energy intensive industries, including those of the Pratt Group, are responding by shifting the balance of new venture spending towards the US. But it may be some time before Australia awakens to the self-inflicted injurious policies that have transformed the nation’s energy supply from the world’s cheapest to among the world’s most expensive.