Analysis
Updated
Another report, another plan and yet still, we are as far from political consensus over energy and the environment as ever.
After the
Australian Competition and Consumer Commission released the findings of
its long-running review into the electricity sector last week, Canberra once again went to war, duking it out along the very same battlelines it has been for two decades. It follows the Finkel Report, the ongoing fight over the National Energy Guarantee and the bitter war over carbon pricing.
But those despairing Australia will ever solve its energy crisis should take heart.
Canberra appears to be increasingly moving into a parallel universe, fighting ideological battles over coal-fired power generation, while the nation simply moves on.
Like many other countries, Australian business and consumers have left their political leaders behind, opting for renewables backed up by gas, hydro and, to a smaller but growing extent, batteries.
The global rush to renewables
According to the International Energy Agency, renewables last year saw the highest growth of any energy source, meeting around a quarter of global demand growth. China and the US are leading the push.This chart compiled by BP shows the rapid acceleration in renewable uptake across the globe. Like its competitors, the oil company too has joined the renewables race.
Here in Australia, we are on track to wildly overrun our renewable energy targets as households rush to rooftop solar. You can thank Federal Government policy failures for that.
As political battles between and within the two major parties raged for 15 years, power companies refused to invest. As ageing coal fired generators were shut down — reducing supply — electricity prices spiked. And that provided a direct incentive to households to take matters into their own hands.
That has coincided with plummeting costs of solar panels and wind power generation, making the decision for many a no-brainer. In fact, the next big push for rooftop solar is expected from manufacturers and businesses looking to cut electricity bills.
According to industry research group Green Energy Markets, renewable generation large and small made up 17.2 per cent of all Australian electricity generation in the June 2017 financial year and, with the current rush underway, is on track to hit more than 30 per cent within the next two years.
That's way above Labor's 20 per cent target by 2020 which was deemed wildly optimistic when formulated a decade ago.
Banks refuse to finance coal-fired generators and our major energy producers see no future in them. The reasons are simple: They take far longer and are hugely more expensive to build than large-scale renewable plants. Plus, they cost more to run.
Most also view a carbon price as inevitable at some stage, which would make coal-fired generators unviable and their bankers nursing multi-billion-dollar losses.
It is a triumph of economics over ideology. While coal will remain an important part of our electricity industry for another 20 years, its influence rapidly will diminish as the new technology takes over.
It is worth remembering that, unlike renewables and gas plants, none of coal-fired generators have been built with private capital. The only way another will ever be built is with yet another massive government subsidy.
Gas the culprit for higher power bills
Last week's ACCC report into Australia's ongoing energy catastrophe appeared to open the door for government intervention, via long term contract pricing, an idea quickly seized upon as justification for federal financing of a new coal-fired generator.
While the report highlighted ways to improve retail competition to help reduce power bills, it overlooked the key factor behind soaring energy prices: gas.
Renewable energy may be the cheapest way to produce electricity but, because of its intermittent nature, it requires back-up. Gas turbines, which unlike coal generators can be quickly turned off and on, are ideal.
The east coast gas boom transformed Australia into one of the biggest global gas exporters but left us chronically short of gas, sending prices into orbit.
Because it plays such an important role in electricity generation — as the final player to meet peak demand — gas is the swing factor in our power bills.
These two graphs from investment bank Morgan Stanley tell the story:
It is the rise in gas prices rather than the march of renewables that has fed directly into our electricity prices.
Last year, Prime Minister Malcolm Turnbull intervened, threatening gas exporters with harsh export restrictions if they continued to drain the domestic market of supplies.
The threat seems to have worked. Prices have moderated and the big exporters have pumped gas back into the domestic market. But it is not a long-term solution.
In fact, we now find ourselves in the ludicrous situation of contemplating import terminals to shore up supplies with at least two east coast import terminals on the drawing boards.
Eventually, the east coast will need a reliable domestic supply, as West Australia has, by reserving a portion of its gas for locals.
What is base load?
Electricity markets are devilishly complex. That makes the arguments around supply easy to manipulate. Often, we are told we need coal to provide "base load" power. But base load power is not all you would imagine it to be.
Base load power usually is described as the minimum we need to keep things ticking over. But engineers describe it as the lowest amount a coal-fired generator can produce before it has to be shut down. Given they take days or even weeks to fire up, that can spell trouble.
When our grid was powered mostly by coal, we were producing vast amounts of excess electricity for the simple reason our generators could not be turned down far enough at night. Even at base load, they were producing far too much.
That is why gas, pumped hydro and increasingly, batteries, will play an important role into the future. They can be turned on and off easily, making them far more efficient to operate.
Energy demand varies wildly, not just over a 24-hour period, but from season to season, particularly the heights of summer and winter. Supply flexibility is now as important as stability.
Politics, climate and the economy
The political argument over electricity has become mired with the debate on climate.The extent of the infighting and confusion over both is highlighted by the conflicting stances of our former leaders.
John Howard introduced the Renewable Energy Target as Prime Minister, Tony Abbott signed the Paris Climate Accord while, a few years earlier, Malcolm Turnbull was rolled as Coalition leader for advocating the introduction of a carbon price.
It is a similar story on policy. Under Mr Abbott, the carbon tax, which was about to revert to a flexible pricing mechanism, was abolished.
It was replaced by a $2.3 billion subsidy, called the Emissions Reduction Fund, that did little to alleviate emissions.
It was a move that appeared to contradict everything for which conservative governments once stood: small government, lower taxes and market forces.
It is one thing to reject science, that carbon emissions from human activity have altered the earth's climate. It is another to discard economics.
Our financiers, businesses and consumers have shifted to renewables for the simple reason that they are cheaper. Perhaps it is time our leaders followed.
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