Australia’s Renewables Debacle Killing Business, Jobs & Whole Energy Hungry Industries

Australia’s suicidal renewable energy policies have driven power prices through the roof and are driving energy hungry businesses and whole industries to the wall.

Those with their hands on the tiller, keep telling us that this is all part of an ‘inevitable transition’ to a world that runs entirely on nature’s wonder fuels: the sun and the wind.

Try telling that to businesses that exist, and that can only exist, by reason of affordable power, reliably delivered, whatever the weather.

Manufacturers push for price target on power
The Australian
Matt Chambers
11 December 2017

The nation’s biggest manufacturers have called for an electricity price target after energy giant AGL said replacing the Liddell coal-fired plant with a green energy mix would need power prices to be higher than they have been recently in NSW for a new plant to be profitable.

AGL at the weekend formally rejected Malcolm Turnbull’s request for the company to extend the life of the 45-year-old Hunter Valley plant beyond its planned 2022 closure, instead delivering a plan that could be committed to in stages over the next five years at a cost of $1.36 billion — if it was economical to do at the time.

Labor energy spokesman Mark Butler described the Liddell plan as a “stunning rejection of Malcolm Turnbull’s energy ­policy”.

AGL says the plan is cheaper per megawatt hour than a five-year extension of the ageing Liddell, but the cost will be higher than average NSW power prices at any time before last financial year. The cost of generation under the new plan will also be greater than many estimates, including from the Finkel review, of building new coal-fired power.

“For customers, the only test that really matters is whether this plan actually lowers electricity prices, because anything less would be failing customers,” Manufacturing Australia chief Ben Eade told The Australian.

“It’s obvious our energy sector is transitioning to a different generation mix, but regulators should ask themselves whether we need a target on prices during that transition, just like we have for emissions and energy ­security.”

AGL said the plan to replace Liddell with a mix of renewable energy, gas-fired power, batteries and demand management would have a lifetime break-even cost (known as levelised cost of ­energy) of $83 a megawatt hour.

“That price ($83) would categorically be too high for a number of sectors in manufacturing,” Mr Eade said. “It would still see us on the high side internationally, and in a country where our natural resources endowment is our competitive advantage, we ought to be able solve clean, reliable and affordable all together.”

This compares with a $106 per MWh LCOE for a five-year extension of Liddell, which would have a $920 million upfront cost.

So while replacing Liddell is cheaper than extending it, payback will require prices around last financial year’s record average NSW price of $88 a MWh and well above average annual prices of $36 to $56 experienced in the 10 previous years.

In Chief Scientist Alan Finkel’s review of the security of National Electricity Market earlier this year, he said the average LCOE of the most efficient coal plants was $76 a MWh.

On a note on its website at the weekend, AGL said the long-run marginal cost of wind power (without associated storage) was $60 a MWh and that of black coal was about $68.

This cheaper coal estimate apparently referred to a power plant that would have its own mine, not Hunter Valley ones.

So costs of about $100/MWh which have been listed in other AGL presentations, are more in line with the company’s expectations for NSW.

The Prime Minister on Saturday denied AGL had delivered a rebuke. Instead, he claimed Canberra had simply demanded the company prove shutting Liddell wouldn’t result in a gap in baseload power on the east coast.

“One way to do that is obviously to keep the plant going for a few more years,” he said. “(But now) AGL has got a plan which they have produced for the first time which they say will meet that gap. It is being examined by (market operator) AEMO.”

The suite of new AGL projects would require financial investment decisions between 2019 and 2022 to be ready to supply the 1000MW of reliable power that AEMO has said will be needed to replace it. The gap may be filled by other big power providers, with Energy­Australia last year saying the ­energy policy certainty that has so far been unachievable could see it invest $1 billion in NSW gas plants to replace Liddell.

Mr Meade said Manufacturing Australia was not saying a binding target was needed. “At the moment we don’t have anything we’re shooting for, price is just left to free float and, surprise surprise, it floats up,” he said.
The Australian

Matt Chambers professes to be a business journalist, but we suggest not letting him anywhere near your cheque-book when it comes to doing business.

Matt, citing AGL, reckons that “the long-run marginal cost of wind power (without associated storage) was $60 a MWh and that of black coal about $68.”

The first point to note is that, whatever the generation cost of wind power is, the generator receives a Renewable Energy Certificate for every MWh delivered to the grid – currently worth around $85 – on top of whatever price the generator receives for the power itself. Under Power Purchase Agreements, the likes of AGL get a guaranteed $110 per MWh for wind power, irrespective of the spot price for power.

To the uninitiated, the numbers Matt puts forward suggest that an intending power purchaser would plump for wind, every time, saving a neat $8 per MWh.

That would, of course, be to ignore the vagaries of the weather.

Where a power purchaser could sensibly ask a coal-fired power generator to deliver a fixed quantity of power to them on 26 May 2018, 26 May 2019 and so on, good luck trying to get a wind power outfit to guarantee delivery of their wonder product on any given day, at any given time, during any given future.

The graph above comes from the boys over at Aneroid Energy and depicts the output during May this year from every wind turbine connected to Australia’s Eastern Grid (with a total capacity of 4,395 MW).

When breezes turn to zephyrs – as they did more than a dozen times during May – hopeful wind power purchasers are going to be left with nothing but disappointment: a little calm weather, and a MW of wind power simply can’t be bought at any price. Whereas coal-fired power can be delivered all day, every day, without fail – and all for a measly $68 per MWh.

Break down the terms on which wind power is “supplied”, and the “deal” reduces to this:

• we (“the wind power generator”) will supply and you (“the hopeful punter at the end of the line”) will take every single watt we produce, whenever that might be;
• except that this will occur less than 30% of the time; and, no, we can’t tell you when that might be – although it will probably be in the middle of the night when you don’t need it;
• around 70% of the time – when the wind stops blowing altogether – we won’t be supplying anything at all;
• in which event, it’s a case of “tough luck” sucker, you’re on your own, but you can try your luck with dreaded coal or gas-fired generators, they’re burning mountains of coal and gas anyway to cover our little daily output “hiccups” – so they’ll probably help you keep your home and business running; and
• the price for the pleasure of our chaotic, unpredictable power “supply” will be fixed for 25 years at 4 times the price charged by those “evil” fossil fuel generators.

It’s little wonder that – in the absence of fines and penalties that force retailers to sign up to take wind power (see our post here) and/or massive subsidies (see our post here) – no retailer would ever bother to purchase wind power on the standard “irresistible” terms above.

And that’s a fact that real business people are starting to come to grips with.

Industry leaders fear repeat of last summer’s blackouts
The Australian
Andrew Clennell
14 December 2017

The mining sector and the boss of the Tomago Aluminium smelter, which together use more than 20 per cent of the NSW power supply, say a failure by electricity generators to invest enough in maintenance could cause serious problems this summer.

The industry leaders warn that given the power supply issues of last summer, together with the closure of Hazlewood power station in Victoria, and in the absence of replacement baseload capacity, NSW electricity capacity could be severely stretched.

NSW Deputy Premier John Barilaro has suggested that the government should build, as part of a public-private partnership, a coal-fired station on the site of the Liddell power plant, which AGL will soon close.

NSW Energy Minister Don Harwin is understood to oppose spending public money on a new power station but would support private investment.

Matt Howell, chief executive of Tomago Aluminium, which uses 10 per cent of the state’s electricity supply, said: “Our facility is the largest electricity user in NSW, employing over 1800 people ­directly and indirectly. We depend on a continuous supply of energy 24-7, independent of weather and other variables.

“Last summer we were forced to temporarily curtail each of our three potlines, which puts our people and our business at risk; we do not want to see a repeat of this again. The loss of baseload generation capacity is a serious risk to manufacturing and heavy industrial operations like ours.

“It’s not commercially viable to replace baseload capacity with ­renewables, as the variable nature of wind and solar requires prohibitively expensive storage.

“By way of example, when the wind isn’t blowing and the sun isn’t shining, the battery recently ­installed in SA would power our smelter for less than eight minutes.

“Until commercially viable utility scale storage is available, energy intensive manufacturing depends on thermal generation.”

He was backed by NSW Minerals Council chief executive Stephen Galilee, who said: “Last summer, NSW households and businesses only barely avoided blackouts. Since then, Hazlewood has closed, taking more capacity out of the (national) grid, and placing further strain on NSW coal generators.

“We hope the owners of the coal generators have learned the lessons of last summer and have made the necessary investment in maintaining their assets. We don’t want a repeat of last summer when high demand exposed apparent maintenance shortfalls.

“In particular, with AGL’s plan to close the Liddell power station in 2022, it’s vital the facility continues to receive the maintenance needed to ensure its reliability.

“Our metals miners in particular are large energy users, and any interruption to their electricity supply would be very serious.’’
The Australian

Matt Howell: business shouldn’t depend on the weather.

That those who run energy hungry businesses are exasperated should come as no surprise. In a little over 15 years Australia has gone from having the cheapest and most reliable power supplies in the world, to the most expensive and faces mass load shedding to keep the entire grid from collapsing.

Back on the afternoon of 10 February this year, Tomago Aluminium was chopped from the grid to keep the lights and air conditioners on in NSW. Here’s what happened to wind power output across the entire Eastern Grid, that day:

The SMH reported that: “The market operator said in a separate statement that it had advised generators of “potential electricity supply shortfalls” in NSW and ACT during the afternoon peak from about 3.30pm until 5.30pm.”

Hmmm… No prizes for picking the cause of the “potential electricity supply shortfalls” on the afternoon of 10 February 2017.

Before wind power entered the equation, no one talked about blackouts and load shedding the way they do now. They weren’t inevitable and business leaders weren’t resigned to the fact that their operations will be forced to shut down when temperatures rise and the wind drops.

Energy debate: Put customers at the centre, and set price targets
The Australian
James Fazzino
11 December 2017

In my eight years as CEO of one of Australia’s largest manufacturing companies, and the country’s largest industrial gas user, I spent about 20 per cent of my time visiting customers. Most of my peers do the same.

As manufacturers, when we think about building new plants or refurbishing existing ones, one of the first things we do is talk to our customers. To be successful, we need to make products our customers want, at prices they can afford. If we can’t do that, everybody loses. That’s why manufacturers have been confused and fed up with Australia’s energy debate for most of the past decade.

In that same eight years, no major energy company CEO ever visited me at my office or at one of our plants. It was only smaller, emerging energy producers that showed that customer focus, which led to several successful partnerships.

Customers have had to fight their way into Australia’s energy debate, when they should always have been at the centre of it. Our needs haven’t changed much: industrial customers need reliable, 24/7 energy at internationally competitive prices in order to keep plants operating and continue creating manufacturing jobs.

Instead we are increasingly offered a grab bag of other products that don’t quite meet our needs. Some of these are exciting and promising but aren’t ready yet, like renewables generation and storage that can’t yet reliably and cost- effectively power a blast furnace, aluminium smelter or chemical plant. Others are well intended but misguided. Demand management solutions, for example, have their place, but paying businesses to do less business in order to reduce load on the electricity system isn’t a long-term solution.

After a decade of failed energy policy and energy markets, we are seeing the debate shift towards what customers need, instead of what energy companies, governments or bureaucrats want.

Manufacturing Australia supports the National Energy Guarantee. There are lots of detail to work through, but if done right it can provide a framework that allows customers as well as suppliers to invest. But we have a very long way to go to restore internationally competitive prices in Australia, and limiting price increases won’t be good enough.

My challenge to energy policymakers and regulators is this: if you are serious about affordability, set a target for energy prices, just like we do for security and emissions. There’s no point having a perfectly designed energy grid if customers can’t afford to use it.

My challenge to the energy sector is this: take a leaf out of your emerging competitors’ books and talk to your customers. If you are selling products that truly benefit your customers, then you shouldn’t need governments to underpin or subsidise investments.

Governments don’t provide investor certainty: customers do.

James Fazzino is the chairman of Manufacturing Australia and former chief executive of Incitec Pivot.
The Australian

James Fazzino: Business 101 – The Customer is King.

For those capable of spinning a buck, business is a pretty simple caper, as James Fazzino recognises.

Treat your customers with respect and you’ll laugh all the way to the bank.

Treat them with contempt and you’ll soon have a date with bankruptcy.

The wind industry is always and everywhere about mandates, targets and subsidies. And, as Australian business is fast realising, wind industry ‘champions’, like AGL, have nothing but contempt for their customers.

The reason that AGL’s business model ‘works’ is all down to Australia’s suicidal renewable energy policies.

Malcolm Turnbull and his embattled Federal Coalition government need to work out very soon whether they want viable businesses and meaningful employment or votes from the inner-city green-left, obsessed with windmills and solar panels. For thousands of energy hungry businesses, the clock is ticking.

Malcolm, Josh it’s time to stop treating real businesses with contempt.