With the exception of the wind industry, South Australia’s hapless Labor government will never be accused of economic favouritism: it treats all of its business owners with utter contempt.
Rocketing power prices, routine load shedding and blackouts affect miners, bakers and brewers, alike.
BHP Billiton warns for crisis in power market
3 March 2017
BHP Billiton is facing a more than doubling of east coast power prices because of the dwindling effectiveness of the National Electricity Market and rising gas prices.
The mining giant has called for government subsidies to increase South Australia’s power supply reliability and prevent costly outages like the one that wiped $US105 million off the big miner’s first-half profit.
The call, made in a submission to Chief Scientist Alan Finkel’s review of future security of the NEM, came with the revelation that BHP’s power bill at the Olympic Dam copper and uranium mine in South Australia is expected to rise by $US30m ($39m) this year because of higher gas prices and the cost of contracts that offset the risks of power price spikes.
“It is the combination of underlying gas price increases and the overall mix of generation capacity in South Australia and the intermittency that comes with that,” BHP’s head of Australian mining, Mike Henry, told The Australian.
At BHP’s eastern Australian assets overall, prices are expected to increase by 150 per cent between 2015 and 2017.
This comprises a 42 per cent rise last year to be added to by an expected 78 per cent gain this year.
“Such increases challenge our ability to operate in globally competitive assets, particularly given that Australia is already one of the higher-cost mining jurisdictions in the world,” BHP says in the submission.
In its first-half profit report last month, BHP revealed the 14-day outage at Olympic Dam, sparked by a statewide blackout in September, cost it $US105m.
Business SA now estimates the total cost of the outage was $450m, up from a previous estimate of $367m. This is based on BHP’s estimate and recent conversations with other big industrial users hit by the September 28 outage, such as Nyrstar’s Port Pirie lead smelter, the Whyalla steelworks and OZ Minerals’ Prominent Hill mine.
BHP said supply disruption could have a bigger cost impact than power price increases, meaning it needed to be dealt with swiftly.
“The first priority should be stabilising the market in South Australia to manage the high levels of intermittent generation within the state portion of the National Electricity Market,” BHP says in its submission.
“We believe this can be most effectively achieved in the short to medium term by incentivising one or more generators to provide baseload generation when required, at least until longer-term solutions are in place.”
BHP has not been specific, but the most likely option would be to make sure Engie was compensated for keeping its Pelican Point power station, where one of two units has been mothballed since 2015, up and running. BHP did not say whether this should be something the federal or state government should fund.
In the longer term, BHP has called for an end to state-based renewable targets and for a carbon price to provide a technology-neutral approach to climate change, establishing security requirements in the NEM.
Last month, BHP chief Andrew Mackenzie said the company would not look at a planned expansion of Olympic Dam — which it was now studying — without reliable and affordable power. He also said renewable targets were unlikely to work.
“Let’s talk about affordability, reliability and emissions reduction, as opposed to having some secondary target about just having more renewables, which might deny you all three,” Mr Mackenzie said. BHP is South Australia’s biggest power user but uses more power in its Queensland coking coal mines, chiefly because of its electric “draglines” — the huge loaders that move coal and earth.
Mr Henry said BHP had not yet been experiencing problems in Queensland, despite Rio Tinto’s Boyne smelter in January cutting jobs and production because of high power prices. “You’ve got the Queensland government talking about pretty significant renewable energy targets,” Mr Henry said.
“As those get deployed, you could then find yourself in a similar situation.”
While BHP has been hit to some extent by higher east coast gas prices, it is also a beneficiary, thanks to its 50 per cent interest in the ExxonMobil-run Gippsland Basin joint venture in Bass Strait.
BHP has called for more transparency in domestic gas markets and an end to state-based restrictions on onshore gas exploration and production.
But it says gas reservation is not the answer.
“Australian governments should ensure that policy and regulatory settings support open and transparent gas markets, and avoid interventions that impeded access to supply (such as moratoria and prohibitions on onshore gas development) and dull incentives for innovation and investment (for example, gas reservation policies),” BHP says in its submission.
Exasperated and desperate, it is perfectly understandable that BHP’s management want governments to do something, but throwing yet more subsidies at the problem is hardly the solution when subsidies to wind power are at the very root of the problem. As Tony Abbott recently put it:
“We subsidise wind to make coal uneconomic so now we are proposing to subsidise coal to keep the lights on. Go figure.” “Wouldn’t it be better to abolish subsidies for new renewable generation and let ordinary market forces do the rest?”
Spot on Tony, but common sense rarely needs an advocate. Subsidising power sources that can be profitably delivered, for a fraction of the cost of subsidised wind power, makes absolutely no sense. And the victims of that kind of economic insanity are not limited to companies like BHP Billiton.
Business blacked out and going broke
3 March 2017
More businesses in South Australia, struggling with higher power costs because of the Weatherill government’s rush to a 50 per cent renewable energy target, are becoming insolvent, forensic accountants and industry say.
The South Australian parliament spent much of yesterday heatedly debating the state’s power woes, with the government and opposition trading blame.
Opposition Leader Steven Marshall called for taxpayer spending on battery storage, while Premier Jay Weatherill quoted a 10-year-old opinion column written by Malcolm Turnbull in which the Prime Minister described as “bullshit” suggestions that it was possible to cut carbon emissions without increasing the price of power.
Mr Weatherill failed to directly support a claim, made by his Energy Minister Tom Koutsantonis on ABC radio, that the government’s planned “dramatic intervention” in the national electricity market would result in no more load-shedding blackouts.
Mr Weatherill said he was proud of South Australia’s “leadership role” in renewable energy generation as it was the “future for our nation”.
But leading national solvency and forensic accountancy firm Worrells warned many struggling business owners in South Australia were being forced to choose between keeping their lights on and paying the Australian Taxation Office. Worrells Adelaide partner Nick Cooper told The Australian that more than 50 per cent of clients fell into this category.
“While rising electricity prices usually are not the sole reason the businesses are struggling, the higher bills are certainly causing cash flow pressure,” he said.
“We have seen a number of occasions where businesses have chosen to pay their power bill rather than the Tax Office. The owners say they cannot operate without electricity and believe they can always buy some time by delaying tax payments. Unfortunately, failure to pay tax debts has a snowball effect with increasing interest and penalties. These businesses then find themselves being pursued by the Tax Office for tax debts they cannot meet.”
Mr Cooper said a number of businesses, particularly hoteliers, had told him they were facing a doubling of power costs in the next 12 months, a situation that would threaten their survival.
“Electricity is an essential service for these sorts of businesses and without it they cannot generate income,” he said. “As a result, they will give priority to paying their power bills and defer payments to other creditors.”
Restaurateur Sue Underwood was forced into liquidation in December when weekly power bills topped $1000 for her Stumps Bar and Kitchen in Adelaide’s affluent Hyde Park. “Power costs were ridiculous … it was a major factor in going into liquidation. I needed to pay those power bills first, to keep going, and then the tax debt became a bigger issue,” she said.
Business SA chief executive Nigel McBride said the “sheer size of the increases in power costs goes beyond anything that most businesses have faced”.
“When that business is already vulnerable because of other cost increases across the board, a strangled cash flow and hardening markets, it could certainly create a domino effect leading to failure,” Mr McBride said.
Australian Hotels Association state general manager Ian Horne said power costs were the biggest challenge facing hoteliers. “Power has become a debilitating burden on business, an investment barrier and a jobs killer,” he said.
The Essential Services Commission and SA Power Networks will today face a parliamentary inquiry which has been broadened to investigate last month’s load shedding blackout which affected 90,000 properties.
The usual run of buck-passing, blame shifting, political fluff and obfuscation from Premier Jay Weatherill and his Energy Minister Tom Koutsantonis, as we’ve come to expect.
However, the Opposition Leader Steven Marshall’s call “for taxpayer spending on battery storage” scoops STT’s ‘Electricity Dunce of the Week Award’.
There is no grid-scale battery storage system operating anywhere in the world and those few which are being planned are little more than costly prototypes, which will never approach an economic cost for the grid-scale storage and re-delivery of power from wind or solar (see our post here).
And how comforting it is to see the leader of a purportedly business friendly party, the Liberals, so keen to squander more taxpayers’ money trying to salvage South Australia’s failed wind power experiment.
With Labor’s lunatics in charge, and Steven ‘Holler for a Marshall’ as the only alternative, South Australians can look forward to a very bleak future, indeed.
Brewer lashes power ‘fools killing off jobs’
2 March 2017
Coopers Brewery chairman Glenn Cooper has lashed the Weatherill government as “fools” who have rushed into renewable power generation and are scaring off investors and “killing jobs”.
The national chairman of Australian Made Campaign yesterday give a withering assessment of Labor’s handling of South Australia’s power crisis, which Energy Minister Tom Koutsantonis told parliament was “fake news”. Mr Cooper said although the brewery’s power costs had “gone up substantially”, the company had a gas-fired co-generator “which helps us enormously”.
Yesterday he said he “nearly fell off my chair” when he heard Mr Koutsantonis on Adelaide’s FIVEaa radio station defending the government’s rush to renewables and its 50 per cent target, which has left the state with the most expensive and unreliable power supply in the nation.
“I’m not against looking at renewable power, but let’s balance it properly so it doesn’t kill off our industry,” he said. “There’s an old saying — fools rush in. I believe this government rushed in to renewables … and industry will now not come to this state.”
Last night the Australian Energy Market Operator ordered a second unit at the Pelican Point gas-fired power plant to be switched on as a hot spell in Adelaide pushed up power use.
Yesterday Mr Koutsantonis told parliament he had met major companies, including Arrium, Nyrstar, BHP Billiton and Adelaide Brighton Cement, about their intentions to buy generators to guard against blackouts.
“I meet with them regularly and a number of others that are talking about a whole series of measures they want to put in place to lower prices. A lot of them are very concerned about the continuation of supply,” he said. “I think a lot of them are very concerned about the heavy subsidies the commonwealth government is giving to renewable energy in South Australia.”
In response to opposition questions about the power crisis, he said: “What we have here is fake news.”
Opposition energy spokesman Dan van Holst Pellekaan said the state government had blamed privatisation, retailers, generators, market operators, the weather and the Victorian and federal governments for its problems. “Now it’s ‘fake news’ — there’s nothing ‘fake’ about the impact of the blackouts and high prices,” he said.
Mr Weatherill yesterday was still unable to give details of his month-old promise of “dramatic intervention” in the national electricity market.
Mr Koutsantonis told parliament that when Victoria’s Hazelwood coal-fired station closed this month, “the Victorian market will be the one that is impacted the most”, despite South Australia’s reliance on an interconnector with Victoria.
“The idea that somehow when Hazelwood closes the world will stop spinning on its axis is ridiculous,” he said.
A survey by the Canada-based Fraser Institute, which collates views from mining executives worldwide, showed Australian states slipping behind competitors in terms of investment attractiveness and policy perceptions, with South Australia falling three places to 13th.
Tom Koutsantonis reckons that the “idea that somehow when Hazelwood closes the world will stop spinning on its axis is ridiculous”.
If Tom means that the entire world is about to grind to a halt, he’s probably got a point. However, if Hazelwood closes in the next few weeks, as planned, the number of occasions when South Australia literally grinds to a halt, when wind power output collapses, can only increase.
Tom, hubris and arrogance are not virtues. For the brash and brave in political life, it’s best to make your words soft and digestible, because sooner or later you will be forced to eat them.