Arrium Steel’s Gerard Mahoney: SA’s power play the last roll of the dice.
South Australia’s unfolding energy calamity, has drawn all sorts of self-professed experts out of the woodwork; desk-bound boffins, who all seem to have ready-made answers to SA’s self-inflicted power supply and pricing disaster.
However, most of their “solutions” involve spending hundreds of $millions more of other people’s money. We’ll hand over to The Australian, as another power market dilettante, Tony Wood from the Grattan Institute (a Labor-left think tank) struts his stuff.
Green push risks power price surge, distorts national market
Rick Wallace & Michael Owen
21 July 2016
Energy crises in South Australia and Tasmania have shown that unilateral state-based renewable energy measures were distorting the national market and could trigger damaging price surges in eastern states, one of Australia’s leading energy specialists has warned.
The head of energy policy at the Grattan Institute public policy think tank, Tony Wood, said governments might have to consider paying subsidies to keep back-up power sources such as gas-fired electricity available, even if they were only used occasionally.
Mr Wood also said moves from Victoria and Queensland to shift to 40 and 50 per cent renewable generation would increase power prices and volatility in the network on the eastern seaboard.
It comes as energy industry insiders agree a South Australian-style scenario, where prices have surged regularly from under $100 per MWh to over $1000, was possible in eastern states without reforms to the national market.
“We see it as a risk,” an executive from one electricity generator told The Australian.
The alarming comments came as the part-owner of South Australia’s electricity distribution network said governments needed to focus on developing more reliable back-up power sources to avoid price spikes.
Spark Infrastructure’s new chairman Doug McTaggart said the decline of coal generation and increased reliance on renewable energy meant other governments could face similar problems to those of South Australia, where power prices spiked to $14,000 per megawatt hour at times this month.
“You would expect they are learning the lessons of South Australia before they actually hit,’’ Mr McTaggart, the former head of the $70 billion Queensland Investment Corp, said yesterday.
Mr Wood, who is calling for a clear national policy on carbon emissions and energy supply, urged Environment and Energy Minister Josh Frydenberg to push for a national solution through the next Council of Australian Governments energy council meeting. “Each of the states is just doing its own individual thing. However you look at it, it is a bad idea when you end up with individual policies when it is supposed to be a national market,’’ he said.
“If we move to 40 per cent wind and solar in Victoria, it will cost more. You have existing brown-coal power stations that can produce electricity far cheaper than wind or solar.
“I am hopeful the Victorian government considers what’s happened in South Australia and Tasmania and what it would mean to achieve that target.”
Affordable energy is set to become a political issue, with the Coalition setting a renewable energy target of 23 per cent by 2020, while Labor is promising to deliver 50 per cent of Australia’s energy demands from renewable sources by 2030.
The debate was stirred up yesterday after The Australian revealed wind turbines in South Australia were using more power than they generated at the height of the state’s electricity crisis this month.
Mr Frydenberg said last night the COAG energy council meeting was a top priority and would be convened “as soon as practicable”. He said the South Australian situation was caused by a combination of weather, a maintenance issue and a “higher reliance on intermittent energy supply”. He said investment in electricity generation and technology were the best way to take pressure off prices long term.
Mr Wood warned that state-based schemes meant unintended consequences as well as increased costs and uncertainty that deterred investment.
“For Germany to get more renewable energy it has meant Poland burns more coal. You could get Victoria doing more renewable energy but that resulting in NSW burning more black coal,’’ he said.
Australian Industry Group chief executive Innes Willox said what was happening in South Australia was a “huge warning sign that we have a lot of problems in our energy markets”. “Being bold on renewables without also being brave on market reform is a recipe for disaster. We need a more dynamic, flexible, open energy market,’’ he said.
South Australia’s Treasurer and Energy Minister, Tom Koutsantonis, warned that his state’s problems would be repeated in other states without reform.
Call for new power back-up to avoid steep price hikes
Andrew White & Rick Wallace
21 July 2016
Governments need to focus on developing more reliable back-up power sources to avoid the damaging price rises such as those seen in South Australia, according to the part-owner of the state’s electricity distribution network.
Spark Infrastructure’s new chairman, Doug McTaggart, said the decline of coal generation and increased reliance on renewable energy meant other governments could face problems similar to those of South Australia, where power prices had spiked to $14,000 per megawatt hour at times this month.
“You would expect they are learning the lessons of South Australia before they actually hit,’’ said Mr McTaggart, the former head of the Queensland Investment Corporation.
“I think it’s fair to say there is a growing awareness of the need for stable back-up.’’
The head of energy policy at the Grattan Institute public policy think tank, Tony Wood, said governments should consider paying subsidies to keep back-up power sources such as gas-fired electricity available, even if they were used only occasionally.
“It is like an insurance policy: you may not need it but if you have paid out the money, you are pretty glad you had it there just in case you did,’’ Mr Wood told ABC radio. “The physical plants are there, it’s a matter of giving them the financial incentive to be there when we need them.
“In the short term, that will almost certainly mean some new form of payment to ensure — if that is Pelican Point (power station, 20km from Adelaide) or some other plant — that plant is there for these sort of circumstances. It may also mean that we won’t see some of those coal-fired power stations closing down as quickly as some people wish because they will have to stay there for some time yet.’’
So-called availability charges have become increasingly popular to improve electricity reliability in other countries, including the US, and were used by the NSW government to sell its unused desalination plant at Kurnell.
The prospect of payments to keep baseload power generators on standby came as Mr Wood warned that energy crises in South Australia and Tasmania have shown that unilateral state-based renewable energy measures were distorting the national market and could trigger future price surges in eastern states.
He has also warned that moves from Victoria and Queensland to shift to 40 and 50 per cent renewable generation would increase power prices and volatility in the network on the eastern seaboard.
South Australian Treasurer Tom Koutsantonis said the state has been hit by a perfect storm of poor conditions for renewable energy, and restricted supply from Victoria due to upgrade work on a so-called interconnector. It was forced to bring a mothballed gas-power plant at Pelican Point back on line to increase supply and reduce prices in the face of alarm from business users hit by the conditions.
Spark chief executive Rick Francis said the company was considering a proposal to build another interconnector from NSW to South Australia to improve its links into the National Electricity Market that includes all of the eastern seaboard states, Tasmania and South Australia.
“There is certainly good appetite coming from the SA government, which is looking for solutions, and that is one solution and we would be very keen to see developed,’’ he said.
The $4.3bn company owns 49 per cent of the SA Power Networks, Victoria Power Networks and CitiPower, and is part of a consortium that paid $10.3bn for NSW’s TransGrid Network.
Mr Spark estimates that linking South Australia into TransGrid — most likely via Broken Hill — would cost about $500m but could take several years to build. He said once built, the link would provide a better connection into the national market and allow the two-way transfer of power depending on where demand and prices were highest.
South Australia has just two interconnectors to Victoria, but Victoria also links into Tasmania and NSW.
Tony Wood’s “solution” to South Australia’s wind power debacle reduces to 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 $45 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 $14,000 per MWh – whenever wind power output collapses;
- Having destroyed the viability of the cheapest and most reliable base-load generators, legislate to force power consumers and/or taxpayers to stump up massive subsidies (aka “capacity payments”) to keep generators of dispatchable supply in business and online, in order to prevent the obvious and inevitable consequences that flow from items 1-3 above.
In short, Tony Wood wants power consumers to pay three times: once for a system that works; once to wreck it; and once more to rectify the damage. Capacity payments are an inevitable consequence of allowing people like Wood near power generation systems: Power Punters to Pay Double for Wind Power “FAILS” – REAL Power Generators Paid to Cover Wind Power Fraud
The Australian’s reporters, Rick Wallace, Michael Owen and Andrew White are fairly new to the game; and can be forgiven for letting (without challenge) Tony Wood trot out a “solution” that sounds a lot like a pyromaniac fireman who – having started the blaze, wants to be seen with hose in hand – “rescuing” those his actions placed in peril in the first place.
Fortunately, The Australian’s editor was not so forgiving.
Business and consumers lose from power games
21 July 2016
The drawn-out election campaign was a low-energy contest in more ways than one. Just three years after the carbon tax provided a sharp political choice, the climate and energy debate hardly made a stir this time.
Despite Labor’s pledge to reinstate a carbon price and lift the renewable energy target to 50 per cent of the nation’s electricity by 2030, the Coalition barely raised the issue. “A strong economy means we can meet and beat our international obligations to address climate change,” Malcolm Turnbull said at his major campaign rally, “and do so without massive hikes in electricity prices as Labor would do.” This was a powerful point yet was never a central part of his media arguments or the Coalition’s campaign advertising.
Yet climate policy and its impact on electricity prices have reached crisis point in South Australia. This ill-considered economic self-harm now could stretch across state borders. The immature National Electricity Market can’t adequately share cheap electricity among the states. But government interventions are driving up prices, reducing the reliability of supply and forcing baseload electricity generators to close down.
Earlier this month when a lack of wind becalmed the wind turbines that provide upwards of 40 per cent of its electricity, South Australia was hit by high gas prices and a shortage of supply because its main coal-fired power station closed earlier this year and its interconnector with Victoria was being upgraded. Spot electricity prices in South Australia reached as much as $14,000 per megawatt hour while power traded for as little as $40/MWh in the eastern states. This was extreme, but even this week spot prices in South Australia have been five times those in other states. This places financial pressure on the state’s industries, including the Olympic Dam copper, uranium and gold operation, not to mention domestic consumers who struggle against some of the highest electricity prices in the world.
South Australian Treasurer Tom Koutsantonis is playing the victim, claiming his state has been caught out by a failed market. He says the Port Augusta coal-fired station closed only because it couldn’t compete in “the market”. Yet South Australia boasts about a wind energy share that is built on government subsidies that help to drive coal out of business. This, by the way, is exactly what climate policy and its renewable energy push is supposed to do. Yet when the turbines stalled, Mr Koutsantonis seemed surprised there was no coal-fired power to provide backup.
Grattan Institute energy expert Tony Wood suggests governments may have to provide “some new form of payment” to prop up the coal and gas generators — “a financial incentive to be there when we need them”. If this went ahead taxpayers would be paying subsidies to drive fossil fuel generators out of business at the same time they paid more to keep them on standby. It is difficult to comprehend that we could do this to our economy, taxpayers and consumers when our nation produces only about 1.3 per cent of global carbon emissions. Almost comically, Mr Koutsantonis tried to downplay the challenge by saying demand in South Australia was dropping because high-energy users were moving offshore. We wonder why!
With Victoria now looking to match the South Australia wind push, the challenges will only increase. Canberra’s new Energy and Environment Minister, Josh Frydenberg, steps directly into this conundrum. Wearing his climate hat, he will favour expensive power to help reduce emissions, and when he dons his energy hat he will push for the cheapest possible electricity prices to boost our competitiveness. Something has to give.
The irony of Tony Wood’s ‘Magic Pudding‘ payments to base-load generators was not lost on The Australian’s editor:
Grattan Institute energy expert Tony Wood suggests governments may have to provide “some new form of payment” to prop up the coal and gas generators — “a financial incentive to be there when we need them”. If this went ahead taxpayers would be paying subsidies to drive fossil fuel generators out of business at the same time they paid more to keep them on standby.
When people like Tony Wood talk about governments paying for something, they skip over the obvious: governments don’t have money, they raise taxes.
Whether it’s hundreds of $millions in annual capacity payments to base-load generators; or $billions to build the interconnectors that energy lightweights like Tom Koutsantonis think will save the day in SA, the insane cost of policy fiascos, like the LRET, always gets sheeted home to taxpayers and/or power consumers.
While academics, like Tony Wood, ponder ‘academic’ fixes to SA’s energy calamity, its few remaining energy hungry business – like BHP Billiton – are planning to cut their losses, drop their investment plans or, like brick maker, Brickworks to escape to NSW where power is, for now, reliably delivered at affordable rates.
Welcome to your wind powered future.