Australia’s Power Policy FAIL: Runaway Renewable Energy Target Destroying Business, Industry & Jobs
In the, ‘it seemed like a good idea at the time’ category, Australia’s Renewable Energy Target has turned toxic.
Costly and pointless at the same time, the massive subsidies directed to wind and solar power have not only destroyed once affordable and reliable power supplies, they are inevitably destroying not just otherwise viable businesses, but whole industries.
Malcolm Turnbull consistently proves himself to be a man of perfectly studied inaction. Incapable of recognising the economic damage being meted out by Australia’s Large-Scale RET, his Coalition government is drifting to defeat. Meanwhile, Australian businesses and households are drifting to despair.
The first piece from the Australian Financial Review appeared a couple of weeks ago and gives a pretty fair wrap up of the politics and policies that threaten to wreck Australia’s economic fortunes forever.
Lights are going out on energy policy
Australian Financial Review
24 February 2017
The sun doesn’t always shine. The wind doesn’t always blow.
It might seem agonisingly longer but the last election was less than a year ago. Yet the notion of reliable energy didn’t really rate a mention during the entire campaign.
To the extent voters cared about energy, it was all about the virtue of more renewables. The much-used term “sustainable” was only ever applied in that context.
Labor boasted about its commitment to 50 per cent renewable energy by 2030 but the government, knowing the appeal of being seen to be “green”, tried to avoid engaging except as an exercise in political damage limitation.
The Coalition instead referred to a lower but bipartisan renewable target for 2020 and its commitment to the Paris accord, reducing emissions 26-28 per cent by 2030. Nothing to see here.
And while many businesses complained loudly about increasing power prices and increasing difficulty in securing gas supply contracts, no one much was listening. The political focus was negligible.
Household electricity bills were rising but not enough to be a hot-button issue in the suburbs. The fact energy experts were warning that the national electricity market and the grid were under massive “unsustainable” strain just didn’t register.
The South Australian power blackout in September abruptly changed the equation. A state priding itself on having more than 40 per cent of its energy from wind and solar power became the symbol of what could go wrong in terms of reliability.
The Coalition rushed to blame the Weatherill government for not being able to keep the lights on – despite having the country’s highest electricity prices. The SA government insisted the failure was entirely due to a massive storm (reference climate change) and nothing to do with renewable energy.
Amid the outbreak of confused finger-pointing, it was clear it took much longer to turn wind power back on in a state with no alternatives other than quietly relying on the transmission of electricity created by (dirty) brown coal from Victoria. When a key transmission line between the states went down, so did South Australia. It’s called “islanding” – minus the palm trees.
The Turnbull government, seeking its own sustainable political agenda post election embarrassment, belatedly realised a new policy passion.
It attacked as economic vandalism the high renewable energy targets announced by various state Labor governments as well as Bill Shorten’s commitment to 50 per cent renewable energy by 2030. The Coalition warned of higher prices and lower reliability, costing businesses dearly and inevitably leading to closures and job losses. Just as they had in SA.
Variations of that fight have continued since. By last month, even a Turnbull government was re-embracing the idea of new coal-fired generation by building more-efficient, less-polluting power stations. (Tony Abbott could only mutter.) Now it’s awkwardly clear the private sector isn’t interested, especially given the vagaries of politics, the next step is likely to be government subsidies. Hmm.
But, of course, the energy market is always a lot more complicated than political slogans of either side. That NSW also came close to suffering a blackout during a particularly intense heatwave earlier this month should act as a warning there’s a more fundamental problem in the whole market.
Any blackout was only narrowly averted after the regulator asked the power hungry Tomago aluminium smelter to “load shed” on the Friday. It was little consolation to the smelter’s chief executive, Matt Howell, that he had previously warned that the national energy system was “dysfunctional” and needed a major overhaul.
At least this episode might stop the silly push to build a new interconnector from NSW to South Australia. Given NSW is facing its own rapidly dwindling power supply as coal mines shut and there is a moratorium on coal seam gas in a state that imports 95 per cent of its needs, this would only compound the problem.
There’s plenty of blame to go around.
That certainly includes the reluctance to acknowledge the current system of requiring increased levels of renewable energy into the system still requires a degree of baseload power from sources like coal or gas at times of peak demand or when renewable supplies are low. The sun doesn’t always shine. The wind doesn’t always blow. And while better battery storage is the obvious and inevitable technology breakthrough the industry is counting on, it ain’t here yet.
In the meantime, it becomes increasingly uneconomic for many coal and gas-fired power stations to keep running when demand for their product is also intermittent. On days and hours when renewables are readily available, they clearly can’t compete with those prices.
It’s why owner Engie had effectively mothballed its gas-fired turbines in South Australia, for example, and all coal-fired power stations in the state had closed. Engie is also about to close its ageing coal fired power station at Hazelwood in Victoria which will make power supply very tight in a state that won’t even allow exploration for conventional gas any more. What does that mean for Island SA?
Yet federal and state politicians have fallen over themselves to offer subsidies to “save” the Portland aluminium smelter in Victoria from closing. Even if that eats up massive amounts of power, it means jobs!
The contradictions don’t end there.
Labor remains committed to a 50 per cent renewable target and promises Labor’s support for an “emissions intensity” scheme for the electricity sector – a version of a carbon tax. Shorten declared this will mean lower prices (not really). Malcolm Turnbull is condemning this despite his past preference for an emissions trading scheme which is a version of taxing carbon. Policy Lights Out.
Australian Financial Review
Nice work, Jennifer!
Australia once enjoyed the natural comparative advantage of its abundant reserves of coal and gas (and hydro), an advantage that made it a world leader in mining and mineral processing, food and food processing and a fairly handy contender in a whole range of energy intensive enterprises.
That was then, this is now.
Nation’s policies on power ‘a terrible failure’
Sarah Martin & Richard Gluyas
6 March 2017
Two former premiers have joined the push for a major overhaul of the nation’s energy policies as cabinet minister Matt Canavan calls for public funds to build a coal-fired power station in Queensland to save heavy industries.
Former Victorian premier John Brumby said the impasse over Australia’s energy policy was a “terrible, terrible failure” of the peak intergovernmental forum COAG, while former NSW premier Nick Greiner said a summit was needed to achieve consensus on the important issue of power.
As the government prepares to receive a review of the national electricity market from Chief Scientist Alan Finkel, Senator Canavan, the Queensland-based Resources Minister, said a new coal-fired power station providing cheap power could underpin the revival of Australia’s metals manufacturing industry and salvage businesses feeling the pressure of high power prices.
His proposal comes after Rio Tinto’s decision on Friday to slash 100 jobs at its Boyne aluminium smelter in Gladstone because of a lack of affordable power, and as the peak body for the country’s high energy users warns of a “valley of death” facing manufacturers and food processors.
Arguing Australia can compete with heavy industry in China if it had cheap and reliable energy, Senator Canavan said a new coal-fired power station backed with taxpayer money would spur job creation in the manufacturing sector.
“We would not be building a coal-fired power station because we like looking at smoke stacks on the horizon, but I do find power stations inspiring … we would be doing it because of the benefits it would provide in terms of jobs and industry,” he told The Australian. “So any plan for the government to invest in coal-fired power somewhere has to be partnered with a plan as to how that is going to spur industry and job creation through manufacturing businesses and other development.”
When asked if the government would use taxpayer money to publicly fund a coal-fired power station, Senator Canavan said, “Don’t completely rule that out.”
Senator Canavan said Australia’s metals manufacturing sector would only thrive if it was underpinned by cheap and reliable baseload power.
“If we turn our back on coal, if we are going to go just solar and gas, we won’t have those facilities long-term because they need access to cheap energy or they will go to other parts of the world where they are more sensible about coal energy resources,” he said.
With access to abundant resources and affordable power, Australia would be well-placed to further develop its metals manufacturing sector in regional areas, rather than watch businesses decline and move offshore.
The government has already flagged using the Northern Australia Infrastructure Facility to help build a coal-fired power station, and is also pursuing changes to the mandate of the Clean Energy Finance Corporation to consider investments in “ultra-supercritical” coal power.
“There is still huge potential for future investment in these industries,” Senator Canavan said.
“We have got the raw materials to build a thriving and vibrant metals manufacturing business in Australia, we have got the metals … and we have got cheap energy resources in coal … and gas – together they are like a mum and dad, together they create something – cheap energy and mineral resources create industry.”
Touring a solar farm in Barcaldine in Queensland, Malcolm Turnbull said he was “agnostic” about which technology should provide Australia’s energy security, saying the country should take advantage of “all of our natural advantages”.
“Every form of generating electricity and every technology has great value but of course it is important to get the mix right and you’ve got to be driven by economics and engineering,” the Prime Minister said.
Mr Brumby said the impasse over national energy policy could be helped if responsibility for the COAG agenda was removed from the prime minister’s office and handed to an independent COAG secretariat, so the momentum surrounding consideration of key policy issues like energy would survive changes in government. “This has been a terrible, terrible failure of COAG,” Mr Brumby said in a panel discussion at a governance conference hosted by the Australian Institute of Company Directors.
“We say we’ve got a crisis in energy policy now but the cockatoo in the corner shop saw this coming in 2012 and 2013.”
Mr Greiner applauded Malcolm Turnbull’s attempt when he was opposition leader to try to strike common ground with the Rudd government over climate policy.
“Leave aside the detail, but Malcolm could see the national interest was served by a bipartisan long-term policy,” he said.
“For his trouble he got voted out by his colleagues and has now been put in a headlock by some of his more extreme colleagues.
“It’s very hard but I reckon energy might be easier than tax as an issue where the country could say: ‘Well, the way we’re doing things is not good enough, let’s try a new approach and get some consensus that can exist beyond any one term of government’.”
Calls for consensus were echoed by the Energy Users Association of Australia which represents the country’s largest power users, which told the Finkel review into the national electricity market that major industries were on the verge of collapse because of the price of power. The dramatic and “savage” price rises in recent years were now a key threat to the future viability of Australia’s energy-intensive manufacturing and food processing industries, association head Andrew Richards said.
The only word to properly describe the mood amongst Australia’s business community is ‘panic’. That sense of panic is in no small part due to the ignorance and ineptitude of its political class, such as that displayed by Queensland Senator, Matt Canavan.
Calling for the construction of a coal-fired power plant in northern Queensland sits pretty well with the objective of supporting investment, jobs and growth in activities that actually produce things (rather than merely producing a sense of smug, self-satisfaction amongst inner-city hipsters).
However, that Matt believes it necessary to subsidise such a plant demonstrates that he has little or no understanding of the policies that have destroyed the profitability of existing base-load conventional generators.
Matt, an ambitious young buck with a background in economics (he was a former Director of the Productivity Commission) ought to know better; and he would do well to listen carefully to former PM, Tony Abbott – who drew the ire of Malcolm Turnbull with his observation that:
“The government is talking about using the Clean Energy Finance Corporation to subsidise a coal-fired power station. We subsidise wind to make coal uneconomic so now we are proposing to subsidise coal to keep the lights on. Go figure. Wouldn’t it be better to abolish subsidies for new renewable generation and let ordinary market forces do the rest?”
The concept of subsidising new coal-fired plant to salvage a grid wrecked by subsidies to wind power breaks down like this:
- Take a perfectly functioning, reliable, secure and affordable electricity supply;
- Create a Federally mandated subsidy (under the LRET) and direct it to an intermittent, unreliable and wholly weather dependent power source – with that subsidy to cost all Australian power consumers more than $3 billion a year until 2031 – a total of $42 billion from now until then;
- Watch subsidised wind power destroy the viability of the cheapest base-load generators, thereby leading to routine load-shedding, blackouts and spot price spikes to $2,000-$4,000 per MWh – often hitting the regulated cap of $14,000 per MWh – whenever wind power output collapses;
- Having destroyed the viability of the cheapest and most reliable base-load generators, then turn around and use taxpayer underwritten soft loans from the CEFC to fund the construction of new coal-fired generators and, thereafter, use further subsidies (aka “capacity payments”) to keep them in business and online, in order to prevent the obvious and inevitable consequences that flow from items 1-3 above.
Matt’s call to direct subsidies to the construction of a coal-fired plant – to help his electoral prospects in coal-rich Queensland – involves its power consumers paying three times to keep the lights on: once for a system that works; once to wreck it; and once more to rectify the damage.
Matt, if you really are keen on improving the prospects for investment, jobs and growth in Queensland (and the rest of the country, for that matter), start talking about scrapping the biggest single industry subsidy scheme and the largest government directed wealth transfer in the history of the Commonwealth.
Coal-fired and gas-fired power plants do not need subsidies; all they need is unobstructed access to the power market. The Large-Scale Renewable Energy Target is the only obstruction.
Kill the LRET and the electricity market will look after itself.
Thereafter, Australian businesses can get on with doing what they do best: mining, mineral processing, manufacturing, growing food and fibre and processing it to feed and clothe the world.
Matt, economics is a simple game. Why not dust off your textbooks and remind yourself of the natural power of markets to efficiently match the demand for goods and services with an affordable, sustainable supply? You know, Adam Smith’s ‘invisible hand’?
Before Australian power policy was hijacked by lunatics from the green-left, that’s precisely how our power market worked. Kill the LRET and it will start working just like clockwork, all over again. Over to you Matt.