Australia’s Massive Power Price Hike Caused by Intermittent Wind & Solar

The Australian Labor Party is funded by the Union Super funds that its faithful band of apparatchiks control. The likes of Bill Shorten, Greg Combet and Garry Weaven are all heavily invested in maintaining Australia’s Renewable Energy Target, because Union Super money, under their control, has been thrown into wind and solar power outfits like Pacific Hydro. Labour Unions provide the financial backing to the ALP and Union Super funds are the cash cows that make their largess possible.

There aren’t many businesses where the management gets to control investment and guarantee the returns, at the same time.

Back in 2010, Greg Combet (as Environment Minister) increased what was a fairly modest 2% RET (or 5,000 GWh by 2010) – introduced by Liberal PM, John Howard in 2001 – to a 45,000 GWh monster by 2020: 41,000 of which was to come from large-scale generators (the LRET) and the balance from small-scale generators, primarily rooftop solar (the SRES). The history of Australia’s Federal RET is detailed by Ray Evans and Tom Quirk here: The Ruinous Privileges of Renewable Energy

Combet and his mate Weaven set up IFM Investors and it threw hundreds of $millions of workers’ saving retirement funds into wind power outfit, Pac Hydro.

By setting a mammoth Federal target for the LRET, including underwritten subsidies worth over $60 billion during the life of the scheme, Combet and his ALP/Union mates had literally written their own meal ticket (see our post here).

So, it’s little wonder that Opposition Leader, Bill Shorten is prepared to lie through his back teeth about the causes of Australia’s self-inflicted power supply and pricing calamity.

The line about the privatisation of State electricity generators causing Australia’s rocketing power prices started with South Australia’s vapid Premier, Jay Weatherill (his beleaguered State, notionally powered by the wind, now enjoys the ignominious honour of having the highest power prices in the world).

Shorten, working on the same, ‘hey, quick look over there’, theme is deluding himself if he believes that he can fob off recent price hikes on events that took place 20 years ago; and which actually reduced wholesale power prices, across the country. He also ignores the fact that Queensland, which has also seen its power prices rise at the same rate over the same period, still owns and controls the bulk of its generating assets.

In truth, the recent power price surge has nothing to do with privatisations and everything to do with the introduction of wholly weather dependent wind and solar power generators across the Eastern Grid. Here’s Judith Sloan, belting another energy market myth.

Energy price rises are not powered by privatisations
The Australian
Judith Sloan
8 September 2017

There is no doubt focus groups are telling Labor and Bill Shorten that people don’t like privatisation.

With it seemingly seen as equivalent to selling off the family farm, there is a widespread tendency to attribute all sorts of bad outcomes to privatisation.

You see it in banking, you see it in telecommunications, you see it in electricity.

But here’s a tip: the escalation of electricity prices doesn’t have anything to do with privatisation.

Most government-owned electricity assets that have been sold changed hands decades ago — in Victoria and South Australia in the 1990s. Here’s another important point: Queensland’s electricity ­assets stay in government hands.

The privatisations that took place also had the advantage of removing the massive featherbedding that had existed in those states, permanently taking out costs and benefiting consumers.

If we look at when electricity prices began to rise, it was after 2007 when the federal government seriously began to interfere in the workings of the electricity market with various “green” schemes.

To be sure, there has been an acceleration of electricity prices in the past several years but one of the principal reasons for this has been the increasing penetration of intermittent renewable energy in the system coupled with the retirement of synchronous coal-fired power stations.

Almost 6000 megawatts of coal-fired capacity has been withdrawn from the market since 2011. If we add the mooted closure of Liddell, that’s another 2000MW from 2022.

The loss of Hazelwood this year was a biggie, accounting for the removal of 1600MW or about 20 to 25 per cent from baseload power in Victoria. In trying to justify its decision to lamely sit by and watch the plant shut down, the Andrews state government dishonestly predicted the price effect of the plant’s closure would be minimal — 4 per cent or 28c a week.

As Victorians open their most recent power bills, what they are experiencing are increases of between 15 per cent and 20 per cent. So much for the 28c.

But, you say, surely this current mess is because of privatisation? Didn’t the NSW government recently flog its electricity assets?

Here’s the conundrum: the rate of increase in electricity prices has actually been highest in Queensland where the electricity assets are still held in government hands. And there have been many times in the past year when the wholesale price of electricity has been highest in Queensland of all the eastern states. Go figure.

The explanation for (wholesale) electricity prices is complicated but boils down to the marginal price bid by the generator that can ensure that demand is fulfilled in half-hourly intervals. Increasingly, this marginal player has been a gas generator (up from 9 per cent of the time in 2014 to 25 per cent now) and with rising gas prices, this has escalated the rate of increase of wholesale electricity prices.

Here’s the important point: there’s less and less coal-fired electricity to be that marginal bidder.

To be sure, wholesale prices make up only a portion of the final prices paid by households and businesses, but it has been the change in the wholesale price rather than the transmission/­distribution charges or retail margins that accounts for the recent surge in the prices paid.

Don’t get me wrong. I’m no fan of the big energy companies: AGL, Origin or Energy Australia. I don’t believe they should have been allowed to integrate vertically to be generators and retailers.

There has also been some serious overpricing of the poles and wires because of regulatory errors made as a result of government decisions, including in relation to accounting standards. But to think privatisation is the source of the problem is to be mistaken.

The pressing challenge is to ensure there is more dispatchable electricity, coal or gas, in the system. This means retaining these assets for as long as feasible as well as building new ones.
The Australian

HELE coal-plant: a natural power price suppressant.

About stopthesethings

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

Comments

  1. Peter Pronczak says:

    Greg Combet is deputy chairman of IFM Investors & with AustralianSuper are joint owners of privatised NSW electricity company Ausgrid, which is outsourcing union jobs to India. The Fair Work Commission, which forced the United Services Union and Electrical Trades Union to lift a ban on training the Indian sub-contractors. How’s that for a kick in the head, or perhaps lower?
    Of course the banks are getting their fat fees immediately in this international swap market, while workers have to wait for their deferred pay rise or die before they get it.

    The other price rise rort is the National Competition Policy making a mockery of laissez faire policy and Adam Smith’s free market force with its invisible hand picking you pocket.

    As to ‘control & manage’ look no further than the creator and director of the Future Fund. Guaranteed pension of nearly $200,000/yr, consultant with Goldman Sucks & chairman of Channel 9, “retirement is a word for another age” said the fat cat.

    Governments sure aint governing for people or we’d have Glass-Steagall, a nationally owned bank providing credit for much needed infrastructure to control droughts & flooding rains, with not a dearth of high speed trains.

  2. Reblogged this on Climatism and commented:
    “To be sure, there has been an acceleration of electricity prices in the past several years but one of the principal reasons for this has been the increasing penetration of intermittent renewable energy in the system coupled with the retirement of synchronous coal-fired power stations.”

    Australia “blows” up its last remaining coal-fired power stations in reverence to Gaia and the green gods, whilst it sells its own demomised coal to the rest of the sane world.

    Welcome to insanity, Australia.

  3. Jackie Rovensky says:

    It is not mentioned here that SA’s power was privatised by a Liberal Government to pay an extraordinarily huge (at the time) debt created by the previous Labor Government.
    If it wasn’t for that debt that needed to be paid SA would be in a far better position today – except that Labor has done it again and had to hock the State to shore up its failing Government and its Bank balance.
    Weatherill has sold off just about everything but the kitchen sink and don’t worry that will be sold shortly as our debt continues to rise.
    There maybe a myriad of reasons for rising power prices, but the main one is the way a move to Renewables has been handled and that is because no one thought to think first about how such a process could be undertaken in an manner which did not create what we have now – mayhem.
    No one even considered there may be a better way than to push Australia and other Nations into black holes, to bring about a reduction of contaminates in the atmosphere if that what they were looking to do.
    Everything was rushed because of a malaise named by someone we all know, a malaise beginning with the letter “N”, a term well attributed to the rush through fear into wholesale Renewable energy production.
    Its such a pity those who pressured and championed for renewable energy were too blind to look beyond their navels and assess the damage it could do.
    The thing now is to get Politicians to accept this disaster and stop all the prancing around serving their personal dreams and work together to get the Nation out of this Nightmare.
    To see these people drifting in the manner they are, blaming each other instead of getting down to business is going to do nothing but put us in an even worse situation – one which we may never be able to recover from.
    NO MORE REPORTS, NO MORE FLAYING AROUND GET DOWN TO BUSINESS set aside personal desires for power and work to sort the mess out, we the general public know what the result has been. We know what we want and that is this mess to be quickly sorted out to bring this Nation back to being truly ‘The Lucky Country’ for all not just a few.

  4. Michael Crawford says:

    It is true that intermittent generators are the proximate cause of the explosion in electricity prices. However, that does not mean privatisation has been irrelevant. On the contrary, privatisation was a necessary pre-condition for the introduction of the RET.

    The Federal government has no constitutional authority over electricity. It has used the corporations power in the constitution to force corporations selling electricity to buy RECs and pass those costs onto consumers.

    In addition, privatisation allowed the formation of a national electricity market whose rules allow intermittent generators, benefiting from RECs, to force other generators to operate inefficiently and thus to require higher prices in order to be viable.

    None of this was possible as long as control of electricity remained in the hands of state governments (though individual state governments could have engineered their own disasters and SA probably would have), since the corporations power can’t be used against state governments and their instrumentalities.

    I note that the graph in the article appears to be a prettier version of the one I researched and published (incidentally with no attribution to me), but the above version excludes the period from 1955 to 1975 during which real electricity prices fell by 45% while wholly controlled by state governments.

    Despite Judith’s comments, as the data shows, there was no great benefit for electricity consumers after privatisation, though equally no significant worsening at the time.

    While privatisation may have shed excess blue collar staff from what had been state government systems, they were replaced by a plague of white collar public servants in the various bodies established to control and exploit the NEM. Plus we had things like electricity-based financial instruments which were wholly unnecessary in the previous regime since hedging was irrelevant. Those instruments have costs to produce and provide and that cost ultimately has to be borne by electricity consumers.

    Privatisation of state electricity services was the precondition for the calamity being inflicted nationally on Australia by government. The calamity did not automatically follow from privatisation. If we had somewhat less lunatic federal politicians, privatisation would have caused no great harm, but as it happened that action allowed the lunatics to run amok.

    • The graph has appeared in a number of places on the internet, but if our use of it runs contrary to your particular objectives, whatever they might be, we will remove it from this post and any other post where it appears and not ever use it again.

      • Michael Crawford says:

        Sorry, I wasn’t complaining about you (and it was a pretty weak complaint). The graph as shown came from the Australian, so it is they who have picked it up without attribution, which amuses me a bit. It is certainly more important that the information has wide currency than whether I end up with any credit.

        Their version is certainly prettier than mine, though leaving out the real price decline in the period 55-75 does seem to be cheating a bit.

  5. No, Judith Sloan I usually agree with you but you are totally wrong this time. It was the privatization of the electricity industry that has brought about this mess. There hasn’t been a major base load power station built in Australia by a private company and there never will be. This is the very reason why state governments took over power generation in the first place from private companies. The private generators could not get the finance to build the large power stations that were built after the 1970’s that are now starting to come to the end of their useful life. What has happened is that the expensive large power stations were sold/ given away to the carpet baggers under a false and stupid privatization doctrine of the hawke and keating governments. Now Australia is going to pay a very high price for those ridiculous and stupid policies of keating. Governments will now have to return to the pre Hawke Keating years and take control of the power industry again and re regulating it and start to do the future planning that is needed to make the industry efficient and producing cheap and reliable electricity.

    • Michael Crawford says:

      Aside from the history, the private sector will now never build a large power station unless funded with a long-term government contract. Even if all the Fed Parliament now said “we love coal”, no investor could take the risk that in a few years time Parliament would not be controlled by a group who hated coal.

      Australian governments took a business that is a natural monopoly, and was being run by states for the benefit of their people, and broke it up into lots of subscale components. They are now being reassembled into a nationwide oligopoly, run to maximise profit not customer value, owned in large part by foreigners, and operating through a massive bureaucratic maze and quasi-market which has been both grossly distorted by the RET and gamed by participants to maximise their profits.

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