Government spins to disguse its energy policy failures

I have a piece in the Spectator coffee club on the raft of new measures the government has announced to shore up the electricity and gas supply industries, they and their predecessors have destroyed. 

A slow fuse  was lit in 2001, when Prime Minister John Howard Mandatory Renewable Energy Target (MRET) requiring electricity retailers to include two per cent of exotic renewables (wind and solar) into their electricity supply.  This gave a 50 per cent subsidy – paid for by customers — to these renewables.   Things only got worse until we now pay the equivalent to $13 billion a year.  Aside from this cost, these measures bring about highly volatile prices an d destreoy the economics of intrinsically low cost coal generators.

The new energy policy announced on Tuesday is a recognition of the problem but offers poor solutions while flaunting developments that have actually caused it.  

The government has recognised that, having been stampeded into an energy supply based on boosting the high-cost unreliable renewables component, it has to engage in ever-increasing interventions if the system is to avoid a Californian style permanent crisis.   

First government tried to force AGL to keep the Liddell coal generator on line. That having failed it threatens to build a new gas generator to replace it if nobody stumps up the cash to do so and it canvasses a new subsidised transcontinental pipeline to supply gas that state governemnt reegulations forbid to be supplied iocally

Fatuously claiming that “renewables like solar and wind don’t need subsidies but do need integration”, the energy plan earmarks $250 million to accelerate three critical projects -– the Marinus Link, Project Energy Connect and VNI West interconnectors”.  Yet AEMO estimates these will cost $8720 million. And that spending will trigger further operational problems that will be costly to fix.  Papering over the cracks from 20 years of bad policy costs does not come cheap!

Oblivious to these contradictions, the Prime Minister boasts that Australia invested $30 billion in renewables over the past three years and will add 12.6 GW of renewable capacity in 2019 and 2020 – that’s eight times the capacity of the Hazelwood Power Station that was forced to close. 

All renewable energy is subsidised  and poisons the entire system.   

The competition reforms and privatisations that took place from 1990 brought Australia to world leadership in low-cost energy.  At first gradually then rapidly, tinkering by politicians has undermined this. 

Ministerial hubris and denialism will mean increased centralisation, political fixes and perhaps re-nationalisations, giving us excessive costs and unnecessary unreliability.  

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15 Responses to Government spins to disguse its energy policy failures

  1. H B Bear

    Another Howard legacy for The Father of Middle Class Welfare. Cue Neil in two, one …

  2. Catcalling Inebriate

    Moran likes to ignore the facts. The biggest single influence on energy costs in recent times has been the gas price, which sets the marginal supply price of power. The correlation with typical energy costs of any industrial user is plain – though I gather Moran doesn’t talk to any of them.
    The gas price jumped after 2015 because the Gladstone LNG trains (3) were built without dedicated supply and one even had no buyer contracts. (All have been heavily written down and are for sale.)
    One other huge influence on power costs was the political effort to “guarantee” reliability, which gave the transmission owners a licence to gold plate and an incentive to do so (rates of return based on capital).
    No one is going to build new coal. Liddell is stuffed. Yallourn won’t get a refurb. But most scary of all is the uneconomic state of smelters in each State of the east coast. If they go, and they will without huge subsidy, the existing base load plant gets into big trouble. Then you have a network collapsing on itself in cost terms.
    People who think coal can be revived should have a look at the US, where Trump has tried hard to pump it up – yet the withdrawal from coal in power is faster than it was under Obama.

  3. pbw

    C I,

    yet the withdrawal from coal in power is faster than it was under Obama

    Why? Economics or politics?
    Trump can’t determine energy policy in California, and the struggle between sanity and insanity in the USA generally is a close-run thing. Who can risk building coal-fired generation in the current political climate?

  4. Catcalling Inebriate draws attention to gas driving up the electricity price. It actually drove it down this year as surplus supplies became available at low prices as a result of demand reductions overseas.

    The ideal system of supply for the eastern states in Australia is that which a central planner with no concern over catbon emissions would opt for – and the same one that would prevail (did prevail prior to govt subsidies and regulations) in an atomised free market. Coal is easily the cheapest form of supply in Australia – and if it were allowed to operate at 80 per cent plus capacity would be profitable at a price of under $50 per MWh. It needs siomething to balance it for peaks and outages. Hydro is the best but if gas were available (as it should be) at $3.5 per Gj this would perform the service. The mix of output on the east coast would be as, it was in the year 2000, 85% plus for coal; 8% for hydro and 6-8% for gas. That would give the cheapest electricity in the world.

  5. RobK

    Explain why China continues to build coal plants.

    China has lowered the risk ratings for coal-power overcapacity in many parts of the country for the third year in a row. The move opens the door for more regions to build coal power in 2021-23 and has been interpreted by experts as a signal that coal will be a key part of the 14th Five Year Plan, which will start next year.

    Every year the National Energy Administration (NEA) releases a “risk alert for coal power capacity planning and construction”, which looks ahead three years.

    The 2023 Risk Alert, published on 26 February, gave a red rating for capacity adequacy – meaning there’s a high risk of coal power overcapacity – to just three regions. Orange ratings increased from two to three, and all other regions were rated green.

    The alert’s resource constraint assessment, which tracks coal and water availability, remained unchanged from last year, with the same 12 regions rated as red. As for profitability, ten regions were rated red – meaning operations are likely to be unprofitable – and the number of orange regions dropped from two to one.

    While profitability warnings are only advisory, a red or orange rating for capacity adequacy or resource constraints means binding restrictions: these regions cannot approve or start construction on new coal power projects intended to supply local demand; only a green rating gives permission.

    Over the past three years, the risk alerts have seen the number of regions with red or orange warnings for capacity adequacy and resource constraint fall from 26 to 17 to 13 for the years 2021, 2022 and 2023.

    Your assessment of transmission issues is completely inverted. Renewables on a grid scale require more transmission which will be used sporadically as the RE surges and slumps, while the grid tries to balance supply and demand.

  6. candy

    It’s one of the big mysteries of life why gas is so expensive to the consumer in Australia, when apparently there is so much of it we can export heaps too.

    Someone is taking advantage of consumers.

  7. H B Bear

    Coal can never be economic while subsidised renewables with zero marginal cost can displace them and erode historical (and probably artificial) load factors.

  8. RobK

    Someone is taking advantage of consumers.
    In WA the government chose to purchase 10% of reserves at the initial-take-off-Agreement price made at arms length at the time of development.
    Other governments weren’t as far sighted.

  9. miltonf

    Howard- the Malcolm Fraser of the 90s and 00s.

  10. Mark M

    People who believe blowing up coal plants and replacing them with fossil fuelled gas or solar panels to prevent seasonal bush fires are perhaps the dumbest people to ever walk the earth.

    Q. Scomo, for $1.9B of tax payer money, approximately how many square miles of bush will be saved from the next summer wild fires?

    A. Idiot.

  11. Ben

    Recently the federal government’s Morrison-Taylor tag-team has announced intervention in the form of taxpayer funding of hydrogen, diesel and oil fuel security, gas power, gas pipelines /trading hub and the ARENA-CEFC scope expansion.

    While it’s a relief the government has refrained from announcing further support for wind and solar, Otis a shame there is no obvious move away from central planning, picking winners and fixing the broken electricity market.

  12. Herodotus

    Dopey energy policies will sink the nation and will not save the planet from the non-threat of warming.

  13. V

    Government interferes with a functional system, causes it to break and then swoops in to “fix the market inneficiencies” it created.

    Classic government behaviour

  14. EllenG

    Alan Moran: you are right about spot prices but industry rarely gets spot prices. Contract prices have risen in line with gas since 2015. We can expect the soft international market to rise again shortly as the supply tightens. European gas is already high enough to attract new US shipments.

  15. Catcalling Inebriate

    Moran makes the point that central planners make ideal decisions. This is what gave us the system we had, in which supply was largely geared to very large users and subsidy. Literally: the large scale turbine units built in the 1980s were designed for the large continuous loads of smelters – all of which had subsidy deals.
    The system we should have today is the investable one that actually responds to market. Unfortunately the vested interests in today’s supply of large scale energy are enjoying huge windfalls from the status quo.
    Hopefully Morrison will break that headlock.

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