Political ‘System Black’: South Australia’s Wind Power Debacle Turns Renewable Policy Toxic

***

Politics is a cruel game, at the best of times. But Australia’s renewable energy debacle is testing the wits of even the brightest of our political betters.

The political graveyard is littered with those brave and foolhardy enough to ignore the average voting punter; recent interments include Hillary Clinton, buried in a landslide of hostility toward arrogant, political elites.

In Australia, political corpses will soon mount up in the corridors of power, as Pauline Hanson’s One Nation sets to work in Western Australia and Queensland; annihilating Liberal, National and Labor candidates alike.

One Nation has chosen the easiest part of the battleground on which to destroy their flat-footed and tin-eared opponents: the delivery of secure, reliable and affordable power; something that is quite apparently beyond the grip of either the Liberal/National Coalition or Labor.

In the lead up to the WA election, the Labor opposition leader, Mark McGowan ran a mile from his earlier policy goal of a 50% RET for the West; quite apparently spooked by the mass load shedding that occurred after a 1,000MW wind power output collapse left 90,000 South Australian families boiling in the dark. With One Nation ready to cruel the chances of Labor taking government in its own right, no doubt, a very sensible retreat from the brink.

On the Federal political stage, the ALP have more or less recanted on their ‘aspirational’ 50% RET; and, in doing so, have killed off any remaining hope of further investment in wind power, with dreaded uncertainty acting as the slaughterman, as it has done since 2012.

STT has said it before and will keep saying it: the Large-Scale RET is unsustainable; and any policy which is unsustainable will collapse under its own imponderable weight, or its creators will be ignominiously forced to scrap it. Here’s the Australian Financial Review spelling out precisely why the LRET is doomed.

Politics of energy really heating up
The Australian Financial Review
Jennifer Hewett
14 February 2017

No one was more relieved than Josh Frydenberg and Malcolm Turnbull that NSW didn’t suffer power blackouts during the weekend heatwave. That would have greatly confused the Coalition message that South Australia’s high use of renewables was the reason for its problems in keeping the lights on.

The weather may have since cooled in most parts of Australia but the political temperature on energy is only getting hotter. And no matter how many business groups call for a bipartisan approach on Australia’s national energy policy as a matter of urgency, they may as well be whistling into the South Australian wind.

It’s not just that both Labor and the Coalition see political advantages in sticking to their lines. It’s also that their policies are fundamentally at odds in ways that cannot be neatly reconciled no matter the need for consistency in approach.

That includes federal Labor’s embrace of a much higher renewable energy target of 50 per cent by 2030 and a 45 per cent reduction in emissions as well as the Coalition’s (now) firm policy against any carbon pricing via an emissions intensity scheme in order to meet its own Paris accord commitments on emissions reductions and more modest 2020 renewable energy target.

How to actually implement such commitments remains a work in very early progress – if not outright contradiction. Yet most consumers are not interested in the details of such practical dilemmas beyond looking at the figures on their electricity bills while expressing a general enthusiasm for greater use of renewable energy. The fact that the latter will inevitably come at the overall expense of the former, certainly for at least the next several years, has not been quite so clear. That comfortable mindset is rapidly changing – not only because of the rising level of political hot air.

The South Australian power blackout last September as well as last week’s outage and the prospect of more to come means security of supply, as well as price, is back at the forefront of public consciousness.

The political finger-pointing will continue. The Coalition is belatedly realising what a serious economic issue this is for business as well as for consumers outraged their air conditioners may not always be reliable.

As it was, NSW only narrowly avoided a broader supply catastrophe after AGL insisted its hungry customer Tomago, the giant aluminium smelter at Newcastle, reduce its demand by 30 per cent on last Friday’s sweltering afternoon.

The result was a reminder that no state is without potential problems at peak times coinciding with extreme weather conditions, especially given the shortage of gas in major markets such as NSW which imports 95 per cent of its needs.

But it is also obvious that South Australia is at the forefront of this walk into the energy unknown. Naturally, it’s not just the Weatherill government wanting to argue its issues have nothing to do with Labor’s enthusiasm for renewable energy. But being over 40 per cent reliant on wind and solar power means the state is much more vulnerable to interruption of supply and delays in re-starting after a problem. That is especially tricky if Victoria is also having problems sending power across the border due to the need to supply its own demand first.

With the imminent closure of the coal-fired Hazelwood power station in Victoria, those problems are likely to increase. The decision to subsidise the Portland aluminium smelter to keep it open may help keep aluminium jobs going at a cost but it will do nothing to reduce the demand for power in Victoria. So demand in Victoria too will be regularly running dangerously close to capacity, meaning it’s hardly going to want to share with South Australia at such times.

True, the limited blackout – due to mandated “load shedding” – in South Australia last week may have been avoided had a second gas turbine been turned on at Pelican Point. The Australian Energy Market Operator could have ordered the owner, Engie, to do so. But by the time the regulator (also belatedly) realised the likely impact of a halving of the wind power available that day, it came too late to have much effect given the hours necessary to get the turbine operating.

Engie, too, could have made its own decision earlier – just in case it was needed. But this would have been against its own commercial interest given the enormous spike in wholesale gas prices due to the shortage. With only one turbine working, the spot price briefly went up to over $13,000 a megawatt hour. This would have fallen dramatically had Pelican Point been operating at full capacity.

As it was, Pelican Point had largely been mothballed prior to expected closure because South Australia’s reliance on renewable power made it uneconomic to keep gas turbines running for those times when wind and solar were not producing enough power. That was the same commercial reasoning behind the closure of the state’s last coal-fired power station.

That commercial logic too is now proving faulty in terms of systemic reliability and cost.

The Coalition is determined to keep the pressure on federal Labor as well as the Labor states. But its appeal has not been helped by Malcolm Turnbull’s burst of enthusiasm for announcing the possibilities of using more “clean coal” without acknowledging the depth of financial and industry scepticism about new coal-fired power.

It’s now likely cheap money from the Clean Energy Finance Corporation or the Northern Australia Fund will be used to attract any such investment in more efficient coal-fired power stations. Even so, a long-term private sector investment in coal seems unlikely to get much traction given that same lack of bi-partisanship on energy policy. Keep whistling.
The Australian Financial Review

***

Why can’t we keep the lights on?
The Australian Financial Review
Editorial
14 February 2017

Australia is rich in gas, coal, sunshine and wind. It is one of the world’s top energy exporters. So it must be the mother of all policy shambles when the country struggles to keep the lights on and the air-conditioners humming at home. Last week parts of South Australia were once again left without power, and the most populous state of NSW was put on alert to expect the same.

The details of Wednesday’s outage in SA are still murky. Did the Australian Energy Market Operator order the French owner of the Pelican Point gas-fired power station to start providing backup power into the grid? Did Engie refuse, and even then, was it even technically capable of doing so? For SA, which has suffered four substantial power outages since September, the issue is pretty basic: its own energy grid has been overloaded with unreliable renewables and most of its fossil-fuelled generation capacity has shut down, leaving the grid literally to the mercy of the wind.

But this is not exclusively SA’s fault. The national Renewable Energy Target (26 per cent by 2023) has located wind turbines where they will get the best return: in breezy SA. Yet the state’s Labor government has encouraged this wind rush with its own ambitious target of 50 per cent renewable energy by 2025, a political indulgence driven by favourable polling rather than any rational energy policy. SA Premier Jay Weatherill now calls the lack of investment in existing or new coal-fired power generation a “national crisis” and worries about what will happen to his state next summer after Victoria’s Hazelwood plant closes.

For years The Australian Financial Review has warned that the contradictory mess of Australian energy and climate change policy would eventually would extract a heavy cost. The National Energy Market (NEM), which began in 1998, was meant to connect the nation’s eastern seaboard to a common wholesale energy market through cross-border interconnectors. It was designed to deliver the lowest cost-electricity, but in an era prior to ambitious renewable energy targets. Since then uneconomic and – in the absence of effective storage – unreliable, renewable energy has been force-fed via subsidy into the system.

When the wind blows or the sun shines, the extra bit of renewable power is cheap. But that has squeezed out the transition fuel of gas generation and the traditional baseload provided by coal. When wind or solar aren’t working, wholesale prices can soar. But backup generation that has been made uneconomic often can’t be easily fired up again – and is costly to keep on standby. Yet some power suppliers are paying fines instead of selling their mandated quota of renewable energy.

A collection of business groups has called on both sides of politics to make energy policy non-political. Yet the highly contested politics of reducing carbon emissions in a fossil fuel-intensive economy are likely to be hard fought until the next federal election. Malcolm Turnbull rightly figures that Bill Shorten has painted himself into a corner with his own indulgent policy proposal for a 50 per cent RET by 2030, which would likely further increase energy costs and blackouts.

While Mr Shorten has erred in protecting his left flank from the Greens, Mr Turnbull has appealed to his own conservative wing by backing new cleaner coal-fired power plants to provide more reliable power supply. That’s an unlikely prospect given the inherent political risk involved for investors. And Mr Turnbull has unwisely ruled out a so-called emissions intensity scheme for power generators because it smacks too much of Julia Gillard’s carbon tax.

The ironies abound. Labor has championed a price on carbon, which should make its renewable energy quotas redundant. Yet a Liberal prime minister has dismissed putting an explicit price on carbon when he knows that renewables quotas impose a higher hidden price. In the end, neither side of politics has a credible energy policy.
The Australian Financial Review