Extract from The Guardian
The federal government’s increasingly desperate and ideological energy market interventions are costing us all
Last modified on Thu 17 Sep 2020 13.57 AEST
On Tuesday evening as I was streaming BP’s annual energy outlook statement – wherein the oil “supermajor” explained that fossil fuels have likely peaked and energy growth from here on in will be renewables, renewables and more renewables – a news notification popped up on my screen: Australian minister for energy and emissions reduction Angus Taylor demands electricity sector builds new 1,000 MW gas fired power station.
An astoundingly bad idea, on so many levels.
It’s not needed
With the closure of the Liddell coal fired power station in the Hunter Valley, the federal government doesn’t want a repeat of Hazelwood.
In March 2017 Hazelwood was the 12th Australian coal power station to close over five years, but what made the closure different was the scale and speed. After having supplied a quarter of the state’s electricity for more than 50 years, Hazelwood shut with just five months’ notice.
With insufficient time for a market response, Victoria’s supply tightened and competition reduced. At the same time, the startup of the east coast LNG sector pushed up gas prices, in turn driving up electricity prices. In no time, wholesale electricity prices in Victoria effectively doubled. It’s taken three years for prices to fall back.
Taylor can relax about Liddell’s closure. Apart from ages and safety concerns, there are few similarities between Hazelwood and Liddell. The New South Wales generator produces only 13% of the state’s power and with AGL having given seven years’ notice, NSW is ready.
As a powerful signal to our deregulated energy markets, Aemo, the market operator, produces an annual report detailing the size, location and timing of future supply shortages. This year’s report made clear that even without any new generation NSW has adequate supply to meet the 99.998% reliability standard all the way through to the closure of Vales Point power station at the end of the decade.
The elephant in the room is the Tomago aluminium smelter near Newcastle. The smelter is losing money and you’d be hard pressed to find anyone offering good odds it will still be open in five years. New technology offers hope that it can be saved, but if the smelter does close, electricity demand will drop by an amount almost equivalent to the production of Liddell, and NSW will find itself with a large surplus of energy.
If and when new generation is needed, the market is ready. AGL has already added 100MW to its Bayswater coal power station, has a 250MW gas power project pending approvals and last month announced its intention to install 500MW of batteries at Liddell itself. Energy Australia has plans to build 300–400MW of new gas generation in the Illawarra. (Origin Energy recently shelved a planned 235MW expansion of its Shoalhaven pumped hydro station on the NSW south coast, noting that the business case has been eroded by Snowy 2.0.)
Many smaller companies have projects on the drawing board. A bevy of pumped hydro projects and battery farms sit waiting for the right market conditions to proceed.
It’s expensive energy
Since gas, as a fuel, costs around three times as much as the equivalent amount of coal, power from gas costs a lot more than from coal. If a new gas power station were to run around the clock, it might be able to produce electricity for as low as $90 per megawatt hour, almost twice as much as current long term power contracts. A “like for like” gas replacement of Liddell would make a multi-billion dollar loss over its lifetime. Won’t happen.
In general, gas power stations are run much more sporadically, only during peak demand events. If the mooted gas power station were to run only as a peaking plant, the cost of energy produced could easily be twice as high again.
The only way a massive new gas power station could reduce energy costs is if it introduces more competition into the market, helping to prevent exceptional pricing on those few exceptionally hot days a year when wholesale prices can jump into the thousands of dollars.
It kills competition
Snowy Hydro already owns the largest gas-fired generator in NSW, the vast majority of the hydroelectric capacity in the state and will soon add the massive Snowy 2.0 to its portfolio. As Dylan McConnell of Melbourne University’s Climate and Energy College has pointed out, if Snowy Hydro were to build 1,000MW of new gas power generation in NSW, the federal government would control around 85% of NSW’s peaking market.
As Rod Sims found in the ACCC’s 2018 review of the electricity sector, if we want lower prices, we need to introduce more competition. This plan does the opposite.
In 2014 NSW sold all of its generating assets (for peanuts) as part of then prime minister Tony Abbott’s asset recycling program. It’s ironic that Taylor, Abbott’s informal energy advisor at the time, is effectively renationalising NSW’s generators.
It’s bad politics
The government’s obsession with Liddell is not new. Three years ago this month, the Turnbull government tried to strong-arm AGL to keep the power station open. AGL dutifully prepared a plan explaining how it would ensure there was no shortfall. Aemo wrote to then energy minister Josh Frydenberg, giving the plan the tick of approval, noting that even with no new investment, the state would continue to meet the reliability standard.
Disregarding the advice, Frydenberg took the extraordinary step of calling the directors of AGL, trying to force a life extension or sale of the power station. (I wrote at the time why Frydenberg would likely fail. He was not amused. Within 24 hours he’d had me kicked out of his Kooyong 200 Club.)
Why was it so important to take on AGL? In the midst of a culture war on energy, the country’s largest coal consumer had called the end of coal. Turnbull and Frydenberg needed to put on a good shirtfronting in order to placate the party’s recalcitrant rump who had recently killed off Alan Finkel’s proposed clean energy target and would go on to kill the national energy guarantee before ending Turnbull’s prime ministership.
With this latest move, Taylor has effectively conceded that the end of coal power is on the horizon. His strongman performance is no doubt necessary to keep the confidence of the carbon-loving backbench, but leaves him exposed. If the power station is not built he’ll look as impotent as Frydenberg in the fight with AGL. If it is built, Taylor’s many opponents will ensure he wears it like an albatross around his neck.
It’d be fair, though admittedly unkind, to say that Frydenberg was a failure of an energy minister. But at least he tried to move his party forward. Taylor is also trying, but in the other direction. To date he’s achieved nothing except to kick the climate policy ball into the long grass, which I suppose he sees as some kind of success.
The opportunity cost is huge
The saddest thing about this “gas-led recovery” nonsense is the immense opportunity cost.
A steady stream of “build back better” stimulus plans have been presented to government, plans that could create a million jobs and reposition Australia as a clean energy superpower in the carbon-constrained 21st century.
But prime minister, Scott Morrison, has nailed his colours to the mast. Countries from Europe to South Korea, and maybe soon the US, are choosing a green recovery, yet Morrison prefers a browner hue.
When we run up government debt we are borrowing from our children. It’s incumbent upon us to invest in their future. At the confluence of the global health, economic and climate crises there are plenty of opportunities but we’re failing to grasp them.
The great shame is not so much that the government plans to invest in fossil fuels, against economic, technical, political and environmental headwinds. The real shame is that we’re wasting this opportunity on culture wars and vested interests.
The men running this show have so much ambition for themselves, and yet so little for our country.
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