Power Prices Rocket & Dunces Dither as Australia’s Energy Crisis Deepens

Yesterday (Friday, 9 June), Alan Finkel released his long awaited report on Australia’s calamitous renewable energy policies, to sighs of despair and disappointment amongst those who actually understand how Australia’s electricity market works; or, rather, has been knowingly destroyed by massive subsidies to intermittent, unreliable, chaotic and expensive wind and solar power.

Finkel’s report – which will be the focus of our next few posts – is a mixture of Lewis Carroll’s ‘Through the Looking-Glass’ – residing in a place where the fundamentals of physics and economics, logic and reason are playfully and permanently suspended – and Goldilocks – the story about an infantile quest to make sure everything the heart desires is ‘just right’ – another lovable, childish fantasy.

But before we deal with the thrust of Finkel’s fantasyland wish list, we’ll hand over to The Australian’s Judith Sloan, who is one of the few writing in the mainstream press with any kind of grip on the causes and consequences of Australia’s electricity market debacle. This prescient piece came out on the Tuesday before Finkel released his report, but manages to target its inevitable failings with pin-point accuracy.

Which dunce led us to this power impasse?
The Australian
Judith Sloan
6 June 2017

Even before Donald Trump’s decision to withdraw the US from the Paris climate agreement, energy policy in this country was a train wreck.

It has become the classic wicked problem: inconsistent objectives, disputed information and powerful vested interests, with no obvious solution.

It’s all very well saying that energy must be reliable, affordable and sustainable (meeting government-set emissions reduction targets), but these objectives are not mutually consistent. A solution that may meet two of the aims doesn’t meet the other. The government and Environment and Energy Minister Josh Frydenberg are in a serious jam.

While the Turnbull government’s decision for Australia to remain committed to the Paris Agreement was entirely predictable, it at least has effectively killed off any move to more ambi­tious emissions targets.

For the time being we are stuck with the objective of achieving a 26 per cent to 28 per cent reduction in emissions by 2030 relative to 2005. Note that this represents between a 50 per cent and 52 per cent cut in emissions per capita — another downside of having such rapid population growth — and Australia accounts for just 1.3 per cent of total world emissions. The Abbott government should never have agreed to this way too high target. The figure should have been 20 per cent, maximum. The fact is we had a very weak environment minister, Greg Hunt, a weak bureaucracy and vested interests that influenced the minister.

Other countries happily sign up to high emissions reduction targets knowing full well they will never meet them. Australia takes its Paris commitment seriously. Recall also that many developing countries, including China, need not reduce their emissions until after 2030.

Hunt was also responsible for what may have been one of the worst examples of economic self-destruction, the continuation of the renewable energy target. He lists as one of his finest achievements the renegotiation of the RET, refusing to take the sound advice of the Warburton review, commissioned by the Abbott government, to pause or ditch it.

Let’s be clear: the RET spins off a carbon tax. Anyone who says we don’t have a carbon tax doesn’t understand economics. It is an outright subsidy of a huge magnitude to renewable energy.

It sidelines other much more efficient forms of power generation, such as gas and new coal-fired plants, both of which have much lower emissions than our ageing coal-fired power stations. It accelerates the closure of existing coal-fired power stations.

And if that isn’t bad enough, there is no charge on renewable energy for the negative costs it imposes on the grid, both in terms of stability and reliability.

If Hunt had understood these things, he would have realised that the higher the proportion of electricity generated by renewable energy, the greater are these risks.

Most countries with substantial renewable electricity generation have limited its penetration to well below our target of 23 per cent. And these are countries — think Denmark and Germany — that can import cheap electricity from neighbours when it’s needed. Australia cannot.

It was dumb of us to concentrate our emissions reduction ambitions on transforming the electricity grid. Sure, it accounts for between 30 per cent and 35 per cent of all emissions, but that leaves between 65 per cent and 70 per cent elsewhere. In the context of available cheap coal reserves, the cost of abatement associated with transforming electricity generation here is very high — much higher than for other countries.

So where does this leave Frydenberg, who at least appreciates the substance and scale of the energy problem as his predecessor did not? The background is indeed bleak, notwithstanding all the renewable energy boosters who brag about the (subsidised) boom in renewable energy investment and expensive, economy-sapping demand management measures.

Australia has gone from having some of the cheapest electricity in the world to being one of the most expensive. And while the forward wholesale electricity price curve is falling somewhat, having peaked with the closure of the Hazelwood power station in Victoria, it looks as though prices will settle about $60 to $80 per megawatt hour at the turn of the next decade — more than three times the level at the beginning of the century.

It is now freely admitted by renewable energy supporters that minerals processing has no future in this country — economics professors Ross Garnaut and Richard Holden are in this camp. So bad luck to those workers at aluminium and other mineral smelters dotted around the country — they are being told they have no future.

We also could add in many coalminers if the environmental activist crowd has its way. That there are more than 100 coal-fired stations being built in Africa at this moment, and many others in Asia, is clearly something that needs to be ignored when pushing the line that coal has no future.

This week sees the release of the Finkel report which is concerned primarily with the stability of the grid. It will recommend that the RET be replaced with a low emissions target (something I raised last year) that will be technology neutral compared with the picking-winners RET.

There will be a lot of criticism from the usual suspects of the failure to endorse an emissions intensity trading scheme even though the experience of carbon trading schemes overseas has been close to disastrous, including those schemes covering EU countries and California.

Not that we should think that the LET will be the answer to our prayers — it will depend crucially on the parameters set for the scheme, particularly in terms of benchmark emissions intensity.

There will be other recommendations, including that new renewable energy investment must provide for its inherent unreliability; for example, by including storage as part of the package. There also will be some rule changes to the operation of the market.

But the big challenge is this: how can we generate substantial new investment in synchronous electricity generation as well as potentially slow the closure of the remaining coal-fired plants? Unless there is an answer to this question, we will still be at first base.
The Australian

Through the Looking Glass: Tweedledee &
Tweedledum, still scratching their heads…

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Getting a scientist with no knowledge of how the electricity system works like Finkel to set out the design of a system that supplies cheap electricity as the price trebles and doubles yearly (which we hear Ad nauseam) is paramount to getting a taxi driver to pilot the space shuttle. Being Australia who would think any different when the country is run by a bunch of failed lawyers and union researchers.

  2. alfredmelbourne says:

    No wind or large solar power in Victoria on Saturday at around midday. No wonder they keep saying that wind it is the “cheapest” electricity.

    http://qbusters.com.au/ida/e28.htm

    It is a bit like claiming that a becalmed ship in the doldrums is cost-free.

  3. It appears virtue signalling to the AGW belivers is the national priority above all else. Nothing else makes sense, but if you put that as No 1 priority then its clear. Any amount of money, any amount of chaos, as long as we look “good”

  4. Jackie Rovensky says:

    Any ‘solution’; that does not take into account the human cost ie people suffering from industrial activity such as Wind Turbines is bound to cause more harm than good.
    The cost and security of energy supply is of course important but so to are the lives of those who will bare the brunt of wind turbines with an increasing number being forced to suffer for the sake of MONEY in the pockets of Wind Industry grubs.
    So to the environment/ecosystems which are now being damaged/destroyed by actions of lazy people who accept backhanders instead of ensuring the safety of our environment and ecosystems.
    The race to the bottom that Australia has decided to join will see this wonderful country suffer devastation faster than any other in the world. We have been informed for many years we have a delicate ecosystem that needs great care taken of it.
    Our politicians, so called ‘think tanks’ and advisors need to look at the problem of energy supply in a more encompassing way and stop looking for the easy way out and look at the total consequences of their actions.
    This may mean that our Federal and State governments need to stand tall and work for the people of THIS NATION not some agreement signed overseas and designed by and for an industry which has them mesmerized and therefore ineffectual to look after their own citizens.
    Wake up Australia and tell them to start working for Australia’s interests not those of some mega industrial money and life sapping Juggernaut.

  5. D. Jerome Hauk says:

    That”Australia takes it’s Paris commtments seriously” is in itself severely delusional; while AGW may be real, it is insignificant on the global stage. To admit to that precipitates the total collapse of this house of cards and all that follows including carbon taxes. As our Climate Barbie loves to parrot, ” it’s a tax on carbon pollution!”, not understanding what the word ” pollution ” actually means. I have been following the Australia Experince closely, thinking that it was an illustration what was in store for Canada, and my home Province, Alberta now under the yoke of a socialist government. It seems that while the peolpe of Australia suffer, your various levels of government fiddle, ala Nero. I wish it weren’t so! But if wishes were horses…

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