Snowy Pumped Hydro Scheme Set to Drain ‘Green’ Slush Funds & Starve the Wind Industry of Finance
Malcolm Turnbull’s Snowy 2.0 pumped hydro plan has set nerves on edge among the wind industry, its parasites and spruikers and ruffled feathers among Labor politicians and their mates who have wedded their own financial futures to wind.
Likely to cost in the order of $7-8 billion, Snowy 2.0 is set to starve the wind industry of its last line of available finance.
The Clean Energy Finance Corporation is a $10 billion slush fund set up by the Green/Labor Alliance which has thrown millions of dollars in taxpayer underwritten subsidised loans at otherwise un-bankable wind power projects. ARENA is another Federal government slush fund which has attracted plenty of renewable-rent seekers, too.
With the likely cost of Turnbull’s Snowy pumped hydro scheme to be multiples greater than the $2 billion suggested, and with the CEFC and ARENA being directed to finance it, the wind industry will have to work a whole lot harder to find funds for new projects. In short, Turnbull’s Snowy 2.0 is about to drain the swamp.
The Australian’s Paul Kelly only began criticising Australia’s renewable energy fiasco a few weeks ago (see our post here), but it appears that he is a fast learner. Here’s Kelly once again detailing Australia’s self-inflicted energy disaster.
Snowy scheme 2.0 gives Turnbull energy for nation-building
18 March 2017
Massive disruption has hit our politics with Malcolm Turnbull, having declared an energy “crisis”, now casting himself as an electricity industry nation-builder through re-energising the Snowy Mountains Scheme and waving constitutional threats at gas companies to underpin their urgent action to expand domestic gas supplies.
It is the Prime Minister’s long-awaited breakout into bold policy action that his backers have craved. Significantly, it comes on energy, not the economy, where bold policy options are sparse. This is improvisation on the run, driven by urgency, a blazing blend of naked politics, new energy investment and response to chronic energy policy failures.
It reveals the new turbocharged Australian political climate where the imperative is “action, action, action”, with the rule book between markets and government intervention increasingly being abandoned. The unifying message is government-inspired action — a long way from the days of a carbon price and an emissions trading scheme.
The new mood is mirrored in the bizarre competition and political brawling this week between the Weatherill South Australian government and the Turnbull government as they rolled out startling new energy initiatives and plans. Despite the improvisation, Turnbull won on every count in the short term — his Snowy initiative seems feasible and his strongarming of the gas companies should address short-term supply. As for the long run, it remains shrouded in uncertainty.
The desperation of the SA government was naked in the sunlight as it featured the absurd chant of energy sovereignty and a $360 million taxpayer-funded gas-fired plant with its inevitable consequence of killing off private investment. With the state facing a $6 billion-plus debt its ability to drive this venture is dubious.
What really invites contempt is the ideology of the Labor-Greens-progressives camp that for years has insisted fossil fuels be replaced by renewables cutting gas from the equation, a stance now exposed as total folly.
Not that Turnbull should boast: his rejection late last year of an emissions intensity scheme as the centrepiece of a national energy plan leaves a major vacuum at the heart of policy. This week the Business Council of Australia formally backed such an EIS down the track as “the lowest-cost way for the electricity sector to meet its abatement objectives”.
“I am a nation-building Prime Minister and this is a nation-building project,” Turnbull declared of what he branded the Snowy Mountains Scheme 2.0. The oversell was heavy but understandable given the announced “crisis” that compelled dramatic action. His message this week reflected “all options” and “all sources”.
“Everything can play a role,” he said, referring to coal, gas, wind, solar, hydro, biomass. “But it has got to be integrated in a way that delivers secure and affordable power.” It is a rational stance with political utility. Yet feasibility will vary — the Snowy initiative will surely be more feasible than the PM’s proposed hi-tech coal-fired plant.
There is one certainty — Turnbull still looks better playing as energy policy “fixer” than orchestrator of budget savings and corporate tax cuts. But there’s a catch: having taken much responsibility for energy policy, he now assumes partial culpability if the lights go out.
There are significant short-run risks with the closure of Hazelwood and the guarantee is a mounting blame game between Turnbull and Labor. The spiteful energy policy rivalry between Turnbull and the two ALP governments in Victoria and SA won’t end any time soon.
Yet the backdrop to the energy policy initiatives this week betrays something deeper: the further smashing of the established policy framework. The government flirts with tapping into super to address housing affordability; Labor is pledged to new laws to repudiate Fair Work Commission decisions; senior ALP figures now speculate on breaking up the banks; the new ACTU secretary authorises trade union breaking of laws the unions dislike. There is a sense in which the norms are falling apart.
Energy policy is now a strange contradiction of intervention to procure gas, building up storage to make renewable energy work better, the dream of new coal plants, and reforms to buttress defects in the National Electricity Market. Turnbull can turn on his mobile phone any hour of the day — and frequently does — to check what is happening in the distribution system across the country. The PM is now a real-time compulsive student of the system.
The Snowy project, estimated to cost $2bn, is essentially an exercise in grid stabilisation. It is only one step in a bigger approach to meet the energy supply crisis. Turnbull sees it as a system “game changer”. He sells it as “preventing blackouts” and “putting the brake on energy prices” — but that’s down the track. The figure of four years is mentioned as the time span for the Snowy initiative.
As the Snowy authority’s head Paul Broad explains, once you begin to rely on renewables “you need power that can come on quickly to fill in the gaps when the sun is not shining and when the system is out of balance”. Turnbull says the purpose is to “help make renewables reliable”. He boasts the priorities in energy policy now are sound engineering and sensible economics — not ideology. In truth, energy policy will remain mired in ideology for years.
While there will be an initial feasibility study, Turnbull has pre-empted the outcome. He insists the project will be commercial, that the expansion is “very bankable” and that the other shareholders — the NSW and Victorian governments along with the federal government — can make their own decisions on whether to pledge equity. Broad says he runs “a very profitable company” that will use both debt and equity in this expansion.
Labor’s energy spokesman Mark Butler has attacked the idea as a damp squib, saying “it won’t create any new generation capacity, won’t resolve the investment uncertainty that is crippling new electricity sector investment and won’t deliver a solution to the energy crisis gripping Australia”.
The earlier stage in Turnbull’s strategy was the meeting with gas companies that produced their pledge that gas “will be available to meet peak demand periods”, operative from next summer. This was triggered by a public warning from the regulator of gas shortfalls and electricity supply shortfalls threatening NSW, Victoria and SA from the summer of 2018-19 onwards.
After meeting the gas companies Turnbull was rattling his sabre — he said state governments must lift their “reckless” moratoriums on gas exploration and development and that it was “utterly untenable” for domestic consumers not to have access to affordable gas; he also raised the threat of using the commonwealth’s constitutional powers over exports against the companies.
The latter was pure political melodrama. Every sign is that the gas companies came bearing concessions. They would be fools otherwise. Turnbull wants the companies to sort this out short of any specific government intervention or gas reservation policy — and that’s a big incentive. In reality, he doesn’t know much about what the price benefits might be, but his explicit reference to the gas companies operating on a “social licence” should send a chill up their collective spine.
The extent of the pent-up gas fiasco was captured in the lethal and clinical speech at the start of the week by Australian Competition & Consumer Commission chairman Rod Sims, who a year ago warned of “an urgent need for both new and, importantly, more diverse sources of gas supply into the domestic market”.
“Our worst fears are being realised,” Sims said this week. “Australia often makes it hard to be involved in manufacturing. We are now making it extremely difficult if not impossible for some.” He said the trends had been obvious for some time, with the portion of gas-fired generation in the national electricity falling steeply.
He demolished the nonsense argument — peddled by populists of the right and left — that the blame lies with the three big Queensland liquefied natural gas gas project developers and exporters. Sims said Australia will benefit “enormously” from these projects. “The three LNG producers, however, could not have foreseen that after their initial investment decisions were made that east coast onshore gas exploration and development would be largely prevented,” he said.
“I doubt anyone in the industry expected Victoria to ban all onshore gas exploration and production, which has stopped even conventional gas projects; nor could they have foreseen the delays and uncertainty over projects in NSW and the NT.
“It is, of course, up to governments to make such decisions. Having made them, however, it is difficult to see how people can then criticise the commercial contracts that were freely entered into by the LNG producers at a time when the likely supply outlook was different.”
In short, having embarked on a mad ideological policy, the Victorian government, instead of confronting its own responsibilities, wants to complain about the operations of the LNG exports contracts.
This week the Labor Party rightly pointed to the absence of any centrepiece for Turnbull’s national energy policy. This critique was apparent in the BCA submission to the Finkel review into the National Electricity Market.
The BCA calls for retention of the current market framework, a three-year notice period for the withdrawal of large generators to provide a better adjustment time, no further changes to the renewable energy target — while recognising its deep historical defects — increasing gas supply as an “urgent priority”, and a vital market signal such as an EIS to help meet Australia’s future emissions reduction targets under global agreements.
Like Turnbull, however, the BCA says “Australia can’t afford to put all its eggs in one basket” and rejects policies “that favour particular technologies or operate outside the market” — we have made these mistakes too many times before.
Claims that Snowy 2.0 offers salvation to the wind industry ignore both time and money.
At the very earliest, the additional capacity offered by the expansion of the Snowy Hydro scheme is 5 or 6 years away, a veritable aeon in politics.
The fundamentals haven’t changed; there will still be a shortfall of the renewable energy certificates needed to satisfy the Large-Scale RET; that shortfall will still result in power consumers suffering $1.5 billion a year in shortfall penalty charges (ie fines); with the total of those fines to exceed $20 billion over the life of the LRET, from now until 2031 (see our post here).
Anyone with an inkling of political sense understands that once power consumers (read ‘voters’) realise that they are paying a $20 billion Federal power tax – because retailers have determined not to pay 3-4 times the cost of conventional power for a power source that is only occasionally delivered and at crazy, random intervals – the LRET will be slashed, capped or scrapped.
It’s a matter of when, not if.