Déjà vu: ‘New’ Coalition Power Policy Means Australia’s Energy Crisis Continues Unabated

 

Throttled by Draconian lockdowns, the Australian economy is on life support, the only hope of resuscitating it is by restoring reliable and affordable power, to all and sundry.

Last week the Federal Liberal/National Coalition announced what purported to be a cure, but, in reality, it’s more like palliative care.

PM, Scott Morrison and his Energy Minister, Angus Taylor announced a remodelling of the agencies that dole out the soft loans and subsidies to renewable energy rent seekers, against a backdrop of suggesting that the solution to the current debacle is to be found by unlocking Australia’s abundant gas reserves.

The ‘gas will save us’ meme involves trying to power Australia with gas-fired power plants it has yet to build, with gas supplies it does not have.

Sure, Australia’s untapped gas reserves are plentiful, but several States have done their best to make sure those reserves remain untapped, forever. How the Feds can overcome that little obstacle is yet to be seen.

Remember, this is a Country where the Federal PM can huff and puff all he likes about reopening state borders, but the State premiers in Queensland, Victoria and WA plan to keep them shut until 2021 on the premise of keeping their people “safe” from the coronavirus, and there’s nothing the PM can do about it. [Note to Ed: he could go to the High Court and mention section 92 of the Constitution, if he was serious about getting the economy up and running again]

The positive side of the ‘new’ energy plan is that there will be no expansion and/or extension of the Large-Scale Renewable Energy Target, a fact which has renewable energy rent seekers and wind and solar acolytes apoplectic.

While it won’t be extended, the LRET will still provide around $3.5 billion worth of subsidies to wind and large-scale solar each year until 2031. The cost of which will continue to be added to retail power bills (already among the highest in the world).

There’s also plenty of waffle in the Coalition’s policy about using surplus wind and solar to create hydrogen gas; notwithstanding the astronomical cost of doing so, and the fact that the cheapest and most efficient method of producing hydrogen gas starts with natural gas (which is in short supply).

And then – thanks to their childish fear of being caught using the ‘N’ word in public – there’s the conspicuous absence of any mention of nuclear power.

Over the next few posts STT will take a look at yet another opportunity lost, as the Morrison government races to the periphery, fixated on wacky, pie-in-the sky technology, instead of ensuring the future of existing coal-fired power plants and creating a future for nuclear power plants.

We’ll hand over to Alan Moran for a couple of insightful pieces on why Australia’s self-inflicted energy crisis will simply continue, unabated.

This week’s big energy announcements? Just another nail in the coffin of low-cost power
Spectator Australia
Alan Moran
17 September 2020

The government’s energy policy announced this week is another milestone in the demise of what was once the world’s lowest-cost energy market. The slow fuse priming the bomb 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.

At that time renewables were confidently forecast to be fully competitive within a few years. Twenty years later wind and solar still require assistance to compete with fossil fuels and their further shortcomings of variable power supply have become more evident.

But policy augmentations from John Howard’s modest interventions mean wind and solar are now are responsible for over a fifth of demand. And the MRET subsidies remain in place, compounded by additional support in the form of assistance for transmission, grants and soft loans –- in all, the equivalent to $13 billion a year. Aside from this cost, these measures bring about highly volatile prices –- especially in the current COVID-abnormal era.

Moreover, by forcing coal generators to operate uneconomically with stop-start operations both increasing overhead expenses and adding to wear and tear, government interventions have raised costs for those generators, which remain the dominant sources of supply. This is making them unprofitable but, in addition to their cost advantage, they are essential to complement the variable and uncontrollable nature of wind and solar in the electricity system’s operations.

Prices suppressed by subsidies to renewables (and government commands) cannot continue indefinitely. They inevitably result in the withdrawal of a major power station and a consequent abrupt jump in prices.

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.

Hence the attempts to keep the NSW Liddell power station open, in spite of renewables subsidies undermining its viability. Replacing that policy with one that requires a new gas-powered station is the next step, one that is especially problematic in view of state governments adopting woke policies that prevent the discovery of new sources of gas. Added to the confusion, the government has placed a subsidised cross-continental pipeline on the table. Moreover, citing doubtful ACCC evidence that gas producers are favouring exports over domestic supplies, it is also signalling a requirement for gas developers to subsidise local customers.

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. But none of this renewable energy would have been installed without subsidies and, rather than augmenting supply, it poisons the entire system. Continuing its wasteful energy spending, yesterday the Prime Minister announced that he will extend the investment scope of the government finance agencies to cover carbon capture and storage, which is worthless, and hydrogen, a highly speculative technology.

Energy Minister Angus Taylor claims he has solved one problem with heavy-handed intervention that has brought a 46 per cent price reduction. And, in forlorn attempts to pander to green fetishism, both he and the PM trumpet the emission reductions their disastrous policies have brought. Low prices can only persist in COVID conditions or with continuing deindustrialisation taking out major electricity loads like smelters. Sadly, that is an inescapable consequence of present policies.

The one consolation for the government is that Labor is also totally at sea with energy policy and, facing a revolt from MPs in coal mining areas, is softening its emission reduction goals. But that is scant comfort for the nation requiring guidance to restore the low-cost reliable energy supply system that politics has unpicked over the past two decades.

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. The market is now destroyed and only a handful of politicians, none of whom are in senior ministerial positions, understand how this might be redressed.

The optimal solution is to immediately close down all subsidies and interventions to allow a disaggregated market system to mend itself. But ministerial hubris and denialism are unlikely to allow this. Hence, we will see increased centralisation, political fixes and perhaps re-nationalisations, giving us excessive costs and unnecessary unreliability. Hopefully, eventually a new generation of leaders will emerge, one that recognises the benefits of market systems operating within a stable institutional framework not subject to political activism.
Spectator Australia

 

Government spins to disguise its energy policy failures
Catallaxy Files
Alan Moran
17 September 2020

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 and destroy 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.
Catallaxy Files